It is critical to be aware and in control of the financial and legal aspects of your business if you want to sell or hand it over.
A succession plan helps identify the essential financial aspects of a business.
Managing cashflow is the first and most obvious stage. You need to monitor the basics such as stock, suppliers and debtors as well as forecast future cashflow.
You need to protect your assets. They can be physical such as equipment, inventory and property. They need to be maintained and regularly valued for insurance. Staff who are personally invested and motivated through strong management can increase the sale value of a business. Designs, product idea and other creative pursuits can be protected through copyright, which falls under intellectual property law.
It's important to have your business valued by an independent assessor every year. A bank will look for this if you're after a loan.
Consider getting insurance that can cover yourself, your assets and business and even lost income if you are temporarily or permanently disabled. If a business partner dies, a policy might offer a payout to a spouse to cover lost future income. Business partners might able be able to take out insurance policies on each other, to lessen financial risks. Consider speaking to an insurance broker for further information on the appropriate insurance to get for your business.
Messy financial and legal records that don't reconcile gives potential buyers the impression that the information might not be credible or there might be a lot of work in tidying things up, once they buy the business.
Transitions can occur when one of the business partners dies unexpectedly, is permanently or temporarily incapacitated or wants to sell early. A buy/sell agreement is a legal document that co-owners draw up to lay out how transitions can be made with little disruption to the business. One option can be for the remaining owner to pay a portion upfront for the departing owner's slice of the business and make scheduled repayments down the track.
Changes to a business will affect the financial future of the owners as well as others with a financial interest. Be sure to get advice from lawyers, accountants or financial planner before making decisions
Smart succession planning is about anticipating future issues and trying to solve a problem before it might happen. Spending a little time and money on legal and financial checks on your business might save on costly court cases or issues between family members later on.
Three steps to take before you sell or pass on a business:
A legal agreement outlines how a business or company should be run and can head off later disputes, particularly if a partner wants to get out early. Depending on the business structure you choose, a company costs more than a business to set up but offers more personal protection in the case of company liabilities. A partnership agreement (for businesses) and a shareholder agreement (for companies) can include the ways owners can exit. Remaining owners might agree to buy out the departing shareholder and pay off the debt over a period of time.
If you're passing on or selling a registered business you'll need to officially transfer the name through the Australian Securities & Investments Commission. This includes handing over a business to a relative.
When selling a small business, the seller might need to give the prospective buyer a vendor's statement (or Section 52 statement) before the contract of sale is signed. The statement includes important financial and tax information about the business.
These may include copies of: