Exit: Selling is where you make the money — Built to sell

Most owners take a wage from their business for twenty years and call that the reward.

It isn't. The wage is what you earned for doing the work. The sale is what you earned for building the thing.

If you are working out how to sell a business in Australia, start there. The price is not set the day you list. It is set years before.

I've sold a supermarket-anchored shopping centre on a sub-5.5% yield. I've sold a venue for about 200% above what I paid for it. I've been part of a hotel group bought out by a NASDAQ-listed operator. In each case the money was not made on the day we sold. It was made years earlier, in decisions that looked like nothing at the time.

A buyer is not buying what you think

You think you're selling revenue. You're not. You're selling future profit that arrives without you.

Everything a buyer does in due diligence is an attempt to answer one question: what happens to this business the day after the owner walks out?

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." — Warren Buffett, Berkshire Hathaway Chairman's Letter, 1989

The whole discipline of building to sell was set out by John Warrillow in Built to Sell (2011). His argument is blunt: the biggest mistake owners make is building a business that relies too heavily on them. A profitable business can still be unsellable, because the value walks out of the door wearing your coat.

That is why founder dependency is a valuation discount. The buyer pays for what keeps working after you leave.

The four things that set the price

Can it run without you? Not "could it cope for a week." Can it make decisions, win customers and fix problems without your name on any of it.

That means a manager who already runs the day, written processes, and key customers held by someone other than you. If every supplier still calls your mobile, the buyer hears risk.

Is the revenue repeatable? One large customer who could leave is a discount. Many customers who return is a premium.

Contracts, subscriptions and repeat customers tell a buyer the income will be there next year. One good season tells them very little.

Are the numbers clean? Separate accounts. Real books. Add-backs you can explain without embarrassment. Buyers pay less for anything they have to take on faith.

The government's own guidance tells buyers to examine three to five years of financials — tax returns, BAS, balance sheets, profit and loss, cash flow and sales records. If your BAS doesn't reconcile to your P&L, fix it now. Not during the sale.

Is the story true? Every claim you make gets tested. One number that doesn't hold up makes a buyer re-check all of them, and re-checking costs you price.

How to sell a business in Australia: the steps

The sale follows a standard path. Here is the selling a business checklist I use, built on the steps business.gov.au sets out.

1. Know why you're selling. Every buyer will ask. An honest answer keeps the talk on value, not suspicion.
2. Pick your team early. An accountant, a lawyer and, if you use one, a business broker. Check a broker's credentials first.
3. Decide what is for sale. The whole business or selected assets, the business name, intellectual property and any property it owns. A share sale and an asset sale carry different tax and liability outcomes.
4. Value it honestly. Compare similar sales, add up net assets including goodwill, and test the return on net profit.
5. Prepare the information pack. Financials, leases, contracts, staff details, licences and an asset register — ready before the first buyer asks.
6. Find buyers quietly. Brokers, your network, staff or customers. Use a confidentiality agreement and follow the Australian Privacy Principles.
7. Negotiate the whole deal, not just the price. Deposit, settlement period, handover training and staff arrangements. A deposit is usually 10% of the sale price.
8. Get the contract right. A lawyer should check price and payment, included assets, conditions, restraint clauses and who pays employee entitlements.
9. Look after your people. Employees must get written notice under the Fair Work Act 2009, including those moving to the buyer. Some entitlements carry over to the new owner; others don't.
10. Transfer and close. Transfer leases, licences and permits, lodge final BAS and returns, cancel the ABN. Licence transfers can take up to twelve months, so start early.

None of these steps is hard. The damage comes from doing them in a hurry, with the buyer setting the pace.

Know your tax number before you sign

The headline price is not what you keep. The after-tax number is.

If you sell as an individual or through a trust and have owned the asset for at least twelve months, the ATO allows a 50% CGT discount. Companies can't use it. The CGT event happens on the contract date, not settlement.

On top of that, many owners qualify for the small business CGT concessions. The basic test is an aggregated turnover under $2 million, or net assets of no more than $6 million under the maximum net asset value test. Then there are four concessions:

• 15-year exemption. Owned continuously for fifteen years, and you're 55 or older and retiring (or permanently incapacitated)? The gain can be disregarded entirely.
• 50% active asset reduction. A further 50% off the gain on an active asset, on top of the general discount.
• Retirement exemption. Gains disregarded up to a lifetime limit of $500,000. If you're under 55, the exempt amount must go into super.
• Rollover. Defer the gain if you buy a replacement active asset within a window that starts one year before the sale and generally ends two years after it.

That last one is where Exit meets Reinvest. Plan the next purchase before settlement and the tax can look very different.

Talk to your accountant on all of this. These are the questions to take to them, not a substitute for them.

Build it to sell even if you never sell it

Here's the part people miss. A business built to sell is simply a better business to own.

It runs without you. It has systems. Its numbers are clean. It doesn't collapse when you take a holiday. You can either sell that business at a premium, or keep it and enjoy owning something that isn't slowly eating your life.

Building to sell costs you nothing if you never sell. Not building to sell costs you everything if you ever want to.

The line that matters

Start with the exit in mind and every decision in between gets easier. And plan where the money goes next before the sale settles: exit is the reload.

Next: buying your next business at the right price →

Frequently asked questions

How long does it take to sell a business in Australia?

On average, six to nine months, according to SEEK Business. Broker Link Business says a correctly priced business should get an offer within six to eight months of going to market. Overpricing stretches that out, and licence transfers can take up to twelve months after the deal.

What is my business worth?

What a buyer will pay for its future profit, adjusted for risk. Common methods are comparison with similar businesses that have sold, the net value of assets including goodwill, and a return-on-investment view based on net profit, as business.gov.au outlines. The multiple rises when the business runs without you, revenue repeats and the books are clean. It falls when any of those are missing.

Do I pay CGT when I sell my business?

Often, but usually less than owners expect. Individuals and trusts holding the asset at least twelve months get a 50% CGT discount; companies don't. If your turnover is under $2 million or net assets are $6 million or less, the small business CGT concessions may reduce or remove the gain — including the 15-year exemption and the $500,000 retirement exemption. Confirm your position with your accountant before you sign.

How much does it cost to sell a business?

The biggest cost is usually the broker. BSALE reports that brokers typically charge a 5–10% commission and spend around $4,000 on marketing, while private sellers often spend under $1,000 on advertising. Add your lawyer and accountant, plus tax on the gain. The most expensive cost never appears on an invoice: price lost to poor preparation.

What do buyers check in due diligence?

Three to five years of financials — tax returns, BAS, profit and loss, balance sheets, cash flow and sales records. Then licences, leases and whether the landlord will transfer them, supplier agreements, equipment, intellectual property, stock, and debts on the Personal Property Securities Register. Buyers also test whether top customers and key staff will stay.

Is the sale of a business GST-free?

It can be. The ATO treats a sale as GST-free when it qualifies as a supply of a going concern and the conditions in GSTR 2002/5 are met. If it doesn't qualify, GST may apply to the price. A share sale is treated differently. Have your lawyer and accountant confirm the GST position in the contract.

Thinking about selling?

If you want to know what a buyer would pay today, and what to fix first, talk to me (JZ). Book your free consultation — a face-to-face meeting on your exit and where the money goes next.