This is a potentially useful article from my accountant, Tony Cammarata at Prudential Partners.
\nWould you pay top dollar for a car that doesn\u2019t have registration papers, a service history, keys, an ignition that works or a motor that runs smoothly? We doubt it.
\nOn the flip side, you\u2019d likely pay extra for a car if the owner went to the trouble of cleaning it out and polishing its paintwork on the day of sale.
\nIt\u2019s no different for businesses. Why would anyone pay top dollar for a business that has not been serviced or tidied up before being put on the market?
\nBefore putting your business on the market, you need to put your thinking cap on. If you were a potential purchaser, what would you criticise about your business?
\nNow you need to do as much as you can to resolve those issues. If you don\u2019t resolve them, don\u2019t be surprised if they come up in negotiations as the basis for a purchaser offering a lower price.
\nHere\u2019s where we can help! We have a \u2018shopping list\u2019 of common mistakes that business owners make when selling a business. This article shares our insights with you so that you don\u2019t fall into the usual traps.
\n1. Corporate records are incomplete
\nHaving poorly maintained or incomplete corporate\/entity records is a classic way to put off purchasers (or their advisors).
\nWe\u2019re talking about things like member\u2019s registers, director\/member resolutions and share transfers. Sometimes they are missing, maybe they were never signed. This can make purchasers uneasy, and it demonstrates bad business \u2018housekeeping\u2019. It leaves purchasers wondering what else hasn\u2019t been properly documented.
\nIf you operate your business through a trust structure, then pay attention. Incomplete records are a common problem for businesses that involve trusts (especially unit trusts). A trust may hold some of the business assets or be the main operating entity. There is no central register for trusts like the ASIC register for companies, so trusts are only as good as their internal records. If the records are out of date or incomplete, the details of the current trustee or the recorded unit holdings may be altogether wrong.
\nWe suggest that you undertake an audit of the corporate\/ entity records for your business early. Certainly before putting your business up for sale. This will give you time to locate and collate documents that already exist and to reconstruct missing documents as appropriate.
\n2. Missing (or badly drafted) employment contracts
\nFor most businesses, their team represents a great deal of the value. Often a purchaser wouldn\u2019t consider taking on a business without the staff that know how to run it. Yet we see so many vendors \u2013probably more than half \u2013 try to sell a business without having any employment contracts in place.
\nEven when there are contracts, they are often outdated, inadequate or just plain unlawful. There is no faster way to scare off a purchaser than having them think they are inheriting claims for unpaid employment entitlements or underpayment.
\nWe recommend having your employment contracts (or at least those for your key staff) reviewed before putting the business up for sale. Any issues can be fixed up before potential purchasers are on the scene. Post-employment restraint and non-compete provisions could be included where appropriate to give the purchaser more comfort \u2013 and get you more money.
\n3. The lease expired (or worse, no lease)
\nIf you value the location of your business, it is likely purchasers will, too. If your lease isn\u2019t in good shape with plenty of time left on the clock, you likely won\u2019t get top-dollar for your business.
\nThe first thing to do is to make sure you actually have a lease in place. If you have a good relationship with your landlord or have been in the same premises for a long time, you may find that your last lease expired years ago. It\u2019s a common oversight. Generally, the time to negotiate a new lease is before the landlord catches wind that you are thinking about selling, as they may not offer such favourable terms to someone else (i.e. your purchaser).
\nIf you don\u2019t have a lease, now is the time to insist on one. You might have been willing to rely on a handshake, but your purchaser won\u2019t be. Ideally, the lease should be for a relatively short initial term (i.e. 2-3 years), with a few rights to renew for a similar period. This will give your purchaser the most flexibility. And more flexibility for your purchaser means more money for you!
\n4. Intellectual property ownership
\nYou can\u2019t expect a purchaser to pay big bucks for your business\/product name or logo if you don\u2019t own the registered rights to it. You need to make sure all your intellectual property ducks are in a row. This is where registered trademarks come in.
\nRegistering your name or logo as a trademark with IP Australia ensures that you have undisputed ownership rights to that branding. The certainty of ownership equals value to a potential purchaser. And really all you are doing is making the most of what you have already got \u2013 you\u2019ve already put the hard work in by developing and promoting the branding.
\nWe\u2019ve seen some awkward situations where the purchaser uncovers that the seller hasn\u2019t actually owned the intellectual property rights it was trying to sell! Either the IP is owned by the individual personally or by a related entity that was not intended to form part of the sale. This can cause all sorts of headaches \u2013 and it is worse the closer to the settlement that the ownership issue is identified. We recommend that the entity structure (including relevant asset ownership) be mapped from the outset, preferably via an easy-to-read diagram. Bonus: you can provide the diagram to your purchaser and their advisors during the due diligence period as an easy way to explain your structure.
\nThink of this process as a \u2018tune-up\u2019 for your business. Yes, it will take some planning and effort, but it will pay off by attracting more purchasers that can see immediate value. And that feeds directly into your ultimate goals: Getting the highest purchase price possible and taking a well-earned break!<\/p>\n","protected":false},"excerpt":{"rendered":"
This is a potentially useful article from my accountant, Tony Cammarata at Prudential Partners. Would you pay top dollar for a car that doesn\u2019t have registration papers, a service history, keys, an ignition that works or a motor that runs smoothly? We doubt it. On the flip side, you\u2019d likely pay extra for a car … <\/p>\n