If you’re a small or medium business owner in Western Australia weighing up a sale in the next year or two, you could benefit from doing some legal groundwork now. Buyers dig deep, and the tidier your business looks on paper, the smoother (and more valuable) your sale could be. Here’s some things you can start thinking about now.
1. Get your structure clear
Before you can sell, a buyer needs to know exactly what they’re buying. The most common options are buying shares in your company or the underlying business assets. From a legal perspective, these are very different transactions that could have different tax and liability consequences for you and the buyer.
If your business structure has undocumented shareholder arrangements, unclear intellectual property ownership, missing documents or family members with informal interests, it’s good to sort this out early. It can be cheaper to fix your business structure now than to negotiate around it during due diligence.
2. Understand the tax picture
Selling your business could trigger capital gains tax (CGT) and the Government has announced changes to CGT that will come into effect on 1 July 2027. While there are some significant concessions for small businesses, it’s worth looking into whether you’re eligible now. Some factors that can affect your eligibility for CGT concessions include your turnover, net asset value and how long you’ve owned the business. Have a discussion with an accountant and lawyer before you go to market as timing your sale could change your tax outcome.
Don’t forget state taxes either. In Western Australia, transfers of business assets (particularly land and in some cases other property) can attract duty under state revenue law, so check what applies to the assets you would be selling.
3. Sort out your key relationships
Potential buyers will want to see your leases, supplier agreements and any major customer contracts. Check now whether any of these contain clauses that could be triggered by a sale, like change of control or assignment clauses. Some clauses may even require landlord or counterparty consent, which can take time to negotiate so it’s a good idea to start those conversations early.
4. Get your employment house in order
If you employ staff, a sale may involve a “transfer of business” under the Fair Work Act 2009 (Cth). This means that employee entitlements (like accrued leave and length of service) could carry over to a new employer. You can expect that buyers will scrutinise your employment contracts, awards compliance and any outstanding entitlements or employee disputes. Making sure this is in order before a sale is good practice and removes a point of negotiation for the buyer.
5. Protect what makes your business valuable
If part of your value is in your brand, customer lists, trade secrets or proprietary processes, make sure your intellectual property is actually owned by your business. It’s not uncommon for businesses to find out late in negotiations that some of their intellectual property actually sits with an owner, employee or another company. Once you’ve identified your intellectual property, make sure it’s properly documented or registered where relevant.
Another point to discuss with your lawyer is restraint of trade. This is where a buyer wants you to agree not to compete or poach staff or clients for a period after sale. It’s worth understanding what’s reasonable and enforceable before you’re negotiating under time pressure.
6. Check for security interests and encumbrances
If you have assets that are used as security for a loan like equipment, stock or receivables, they may be registered on the Personal Property Securities Register (PPSR). Buyers will usually run a PPSR search to check and if they uncover any unexpected registrations, it can delay or derail your deal. Ask a lawyer to run a search for you now so you can make sure there are no surprises later.
7. Start due diligence on yourself
Due diligence is where a buyer essentially audits your business. They may ask to look at your financials, compliance documents, contracts, insurance and litigation history. Running your own due diligence before going to market lets you fix problems on your own terms, rather than having them used as leverage to chip away at your price.
The bottom line
While none of these issues can be sorted overnight, if you know you may want to sell in the next year or two, you have time to fix issues, improve your negotiating position and avoid nasty surprises. Having a conversation with a lawyer now may just be the best advice you’ll ever get.
If you’d like to get your business ready to sell, get in touch with Cullen Macleod, we’d be happy to help.
