Preparing a Business for Sale: A Practical Checklist

Preparing a business for sale usually starts well before a buyer is ready to sign a contract.

Good preparation can help you present the business clearly, respond to buyer enquiries efficiently and identify legal, financial or operational issues before they delay the transaction.

A business sale involves more than agreeing on price. You may also need to organise financial records, identify which assets are included, protect confidential information, review leases and contracts, consider employees and plan how the business will operate after you step away.

Key Takeaways

• Prepare financial, operational and legal information before serious buyer enquiries begin.
• Protect confidential and personal information during the sale process.
• Identify exactly what is included in the sale, including assets, contracts, intellectual property and business names.
• Use the right advisers for legal, financial, tax, valuation and sale-process matters.
• Reduce unnecessary reliance on the owner by documenting systems, procedures and responsibilities before handover.

Start Preparing Before You Go to Market

One of the biggest advantages a seller can have is time.

Preparing early gives you an opportunity to organise records, address inconsistencies and understand which issues a buyer is likely to investigate during due diligence.

Depending on the business, preparation may include:

• financial statements and tax information;
• customer and supplier contracts;
• employee information;
• premises leases;
• licences and permits;
• equipment and stock records;
• intellectual property and trademarks;
• business names and domain names;
• operating procedures; and
• ownership and corporate records.

The aim is not to overwhelm a buyer with information from day one. It is to make sure the information exists, is organised and can be provided in a controlled way when appropriate.

Protect Confidential Information When Advertising the Business

Business-sale advertising should usually provide enough information to attract genuine interest without unnecessarily revealing commercially sensitive details.

A preliminary or blind profile may describe matters such as the industry, general location, size and nature of the business without immediately identifying the business by name.

More detailed information can then be provided once a prospective buyer has been assessed and appropriate confidentiality arrangements are in place.

Use Confidentiality Agreements

A confidentiality agreement can help regulate how a potential buyer uses information provided during sale discussions and due diligence.

It may address:

• what information is confidential;
• how information may be used;
• who may receive it;
• what happens if negotiations end; and
• how documents or information must be returned or destroyed.

Confidentiality agreements do not replace careful information management. Sellers should still consider what information needs to be disclosed at each stage.

Be Careful With Personal Information

Due diligence can involve records containing personal information about customers, employees or other individuals.

Where the Privacy Act applies, a seller should consider whether personal information needs to be disclosed at all and whether information can instead be de-identified or aggregated.

For example, a buyer may be able to assess customer concentration using aggregated data without receiving individual customer names and contact details.

Similarly, employee entitlement information may be provided in aggregated or de-identified form where appropriate.

Access to sensitive information can also be controlled through a secure data room or other restricted process.

Choose the Right Advisers

Different advisers perform different roles in a business sale.

Lawyer

A commercial lawyer can assist with matters such as:

• Heads of Agreement;
• Business Sale Agreements;
• due diligence;
• warranties and indemnities;
• leases;
• conditions of sale;
• intellectual property;
• completion arrangements; and
• other transaction documents.

Accountant or Tax Adviser

An accountant can assist with financial records, tax considerations and the financial consequences of the proposed transaction.

This may include considering capital gains tax, GST and any small-business concessions that may potentially apply.

Business Broker

A business broker may assist with marketing the business, identifying potential buyers and managing buyer enquiries.

If you use a broker, make sure the scope of the engagement, commission arrangements and responsibilities are clearly understood.

Business Valuer

An independent valuation may help establish a more informed view of the value of the business and the factors likely to influence a buyer’s assessment.

The appropriate combination of advisers depends on the business, the transaction structure and how the sale will be conducted.

For legal assistance with the transaction, Rise Legal provides business sale and purchase legal services.

 

Decide Exactly What Is Being Sold

Before marketing the business, identify what the proposed sale will include.

This may involve:

• plant and equipment;
• stock;
• goodwill;
• business names;
• customer and supplier contracts;
• intellectual property;
• websites and digital assets;
• licences or permits;
• vehicles; and
• other business assets.

Items that the seller intends to retain should also be identified clearly.

Prepare an Asset Register

An organised asset register can help avoid confusion about what is included in the sale.

Consider reconciling physical assets against accounting and depreciation records and checking:

• which assets are still owned by the business;
• their location and condition;
• whether any assets are leased or financed;
• whether particular assets will be excluded from the sale; and
• whether third-party consent is required to transfer them.

Any differences between accounting records and physical assets should ideally be investigated before due diligence begins.

Review Stock

If stock forms part of the transaction, consider how it will be dealt with.

The parties may agree that stock is:

• included in the purchase price;
• valued separately at completion; or
• dealt with using another agreed mechanism.

The sale agreement should explain how stock is counted and valued and how obsolete, damaged or slow-moving stock is treated.

Check Intellectual Property Ownership

Before promising that intellectual property will transfer to the buyer, confirm that the seller actually owns the relevant rights.

This may include:

• registered trademarks;
• logos;
• business names;
• domain names;
• websites;
• copyright material;
• software;
• confidential information; and
• other proprietary material.

A registered business name is not the same as owning a registered trademark.

Where brand assets are important to the transaction, our trademark and intellectual property lawyers can assist with identifying and documenting the relevant rights.

Transfer of a Business Name

If the buyer intends to use the seller’s registered business name, the business-name registration may need to be transferred through ASIC Connect.

The existing holder starts the transfer process and receives a transfer number, which is then provided to the proposed new holder so they can register the business name.

This should be coordinated with the transaction timetable rather than left until the last minute.

Review Leases

If the business operates from leased premises, review the lease before marketing the business.

Check matters such as:

• the remaining lease term;
• renewal options;
• rent and rent reviews;
• assignment provisions;
• landlord consent requirements; and
• guarantees or security arrangements.

A buyer may place considerable value on remaining at the existing premises, so uncertainty around the lease can affect the transaction.

If landlord consent is required, the sale documentation should address responsibility for obtaining it and what happens if consent is not provided.

Check Licences and Permits

Some businesses depend on government or industry licences, permits and approvals.

These may not automatically pass to the purchaser.

For each licence or approval, identify:

• the current holder;
• the issuing authority;
• whether it can be transferred;
• whether the buyer needs a new approval; and
• how long the process may take.

Some approvals can take significant time to deal with, so these matters should be investigated early in the sale process.

Review Important Contracts

Customer, supplier and other commercial contracts may contain restrictions on assignment or change of control.

Before promising that a particular contract will form part of the sale, review:

• assignment provisions;
• change-of-control clauses;
• termination rights;
• consent requirements; and
• other relevant transfer conditions.

Some contracts may require the other party’s consent before they can effectively move to the purchaser.

Prepare Financial Records

Serious buyers will usually want to understand the financial performance of the business.

The particular records requested will depend on the business and the transaction, but sellers may need to prepare:

• financial statements;
• profit and loss reports;
• balance sheets;
• tax records;
• management accounts;
• stock records; and
• other information supporting the financial position presented to buyers.

The important point is consistency and accuracy rather than following an arbitrary number of years in every transaction.

Any unusual expenses, one-off events or material changes in financial performance should be capable of being explained and supported by records.

Reduce Dependence on the Owner

A business that can operate without constant involvement from the outgoing owner may be easier for a buyer to understand and transition into.

Before the sale, consider documenting:

• key operating procedures;
• customer enquiry processes;
• supplier arrangements;
• staff responsibilities;
• system access;
• recurring tasks;
• training materials; and
• important business contacts.

Business.gov.au recommends documenting business policies, procedures and processes as part of succession planning so important operational knowledge is not lost when the owner leaves.

Prepare for Employee Issues

Employees can be an important part of a business sale, and the legal position can vary depending on the transaction structure and what the purchaser intends to do.

A transfer of business may affect employee entitlements and the industrial instruments that apply to transferring employees.

The seller and buyer should therefore consider:

• which employees may be offered employment by the buyer;
• employee entitlements;
• applicable awards or enterprise agreements;
• continuity of service;
• responsibility for accrued entitlements; and
• how and when employees will be informed.

These matters should be addressed carefully in the sale documentation and through appropriate employment advice where required.

Prepare a Succession Plan

Succession planning is not limited to family businesses.

A succession plan can help any owner think through how they will eventually leave the business and how responsibilities will transfer.

Your intended successor might be:

• an external buyer;
• a family member;
• an employee;
• a business partner; or
• another identified successor.

A succession plan can address timing, ownership, responsibilities, training and what needs to happen before the owner can step away.

Family Succession

A transfer to a family member can raise different issues from a sale to an unrelated purchaser.

In addition to ownership and value, consider matters such as:

• who will make business decisions;
• who will own shares or other interests;
• how family members will be compensated;
• what happens if family members disagree; and
• how ownership may change in the future.

Business structuring and shareholder arrangements may become important as part of that process.

Rise Legal can assist with business structuring advice where ownership or control arrangements need to be reviewed before succession.

Keep the Business Operating Normally

Preparing for sale does not mean neglecting day-to-day operations.

A decline in performance during the sale process can affect buyer confidence and may lead to renewed negotiations around price or other terms.

Continue to manage the business normally, maintain assets and systems and keep financial records current while the transaction progresses.

Prepare a Handover Plan

A handover plan can identify what needs to happen around completion and afterwards.

This may include:

• introductions to key customers and suppliers;
• training for the new owner;
• system access;
• password and account transfers;
• website and social-media access;
• operational procedures;
• employee communications; and
• ongoing assistance from the seller.

If the seller is expected to remain involved after completion, the scope and duration of that involvement should be agreed and documented clearly.

Legal Support When Preparing a Business for Sale

Rise Legal assists Australian business owners with the legal aspects of business sales and purchases.

Depending on the transaction, we can assist with preliminary sale documents, due diligence, Business Sale Agreements, lease matters, intellectual property, negotiations and completion arrangements.

For defined legal work, Rise Legal offers fixed-fee proposals and upfront pricing so you know the scope and professional fee before work begins.

Contact Rise Legal if you are planning to sell your business and would like help preparing for the transaction.

Frequently Asked Questions

How far in advance should I prepare my business for sale?

There is no universal timeframe. The earlier you start, the more opportunity you have to improve records, address legal or operational issues and reduce reliance on the owner before approaching buyers.

What records should I prepare before selling?

This depends on the business, but buyers commonly review financial information, tax records, contracts, leases, employee information, asset registers, licences, intellectual property records and other operational documents during due diligence.

Should I disclose customer names to potential buyers?

Not necessarily. Particularly during early due diligence, customer information may be capable of being aggregated or de-identified. Sellers should consider their privacy obligations before disclosing personal information.

Can a business name be transferred to the buyer?

Yes. Where the buyer intends to use the existing registered business name, the current holder can initiate a transfer process through ASIC Connect and provide the resulting transfer number to the buyer.

What happens to employees when a business is sold?

The position depends on the transaction and the arrangements between the buyer and seller. Transfer-of-business rules can affect employee entitlements and applicable industrial instruments, so these matters should be considered before completion.

Do I need a succession plan if I am selling to an external buyer?

A formal succession plan is not compulsory, but planning how ownership, knowledge and responsibilities will transfer can make the sale and handover easier even where the purchaser is unrelated to the seller.

Disclaimer

This article provides general information only and does not constitute legal advice. It does not take into account your specific circumstances. Laws and regulatory requirements may change, so you should obtain legal advice relevant to your situation before acting on the information contained in this article. Liability limited by a scheme approved under professional standards legislation.