You have decided to sell your business.
A Prospective purchasers will ask you for financial information and records of how the business has performed, usually for the last three years. You need to start documenting and preparing financial information and records of the business the moment you make a decision to sell.
It is important a business shows a balance sheet with low debt levels and an upward trend in profits and takings. Low debt is evidence the business has strong earnings, and this will be a key selling point. Reducing the debt may take years and so the sooner this process begins the better.
The paperwork most business operators seek to minimise, such as sales reports, organisational charts, operations manuals and forecasts, are the documents buyers are usually most keen to see. Financial records the prospective purchaser may request to see include:
- the Balance Sheet and the Profit and Loss Statement for the business for the last two accounting periods
- the most recent Tax Assessment by the Australian Taxation Office for the business
- any quarterly Business Activity Statements (BAS) prepared for the business since the end of the last financial year.
You are legally required to provide a prospective buyer with a Vendor’s Statement (also called a 'Section 52 Statement') if the goodwill, plant, equipment or fittings of the business are being sold for a total price of $350,000 or less. Failure to provide this statement or satisfactorily complete it will give the buyer the right to terminate the sale contract. You or your estate agent must give the purchaser or their representative a completed and signed copy of the statement before they either sign the contract or pay the deposit.
The sale of small businesses is regulated by provisions of the Estate Agents Act 1980and the Estate Agents (General, Accounts and Audit) Regulations 1997.
Contents of a Vendor's Statement
The information to be provided to prospective purchasers must cover the last two operating years (unless the seller hasn't owned the business for that long) and include the following:
- the name and address of the business and of the vendor(s)
- details of the lease (start date, term, rent, options, outgoings)
- details about the business, including trading hours, business documents such as licences, permits and registrations details affecting the premises and the business
- details of any encumbrances (mortgages, easements, leases and restrictive covenants)
- statements by the vendor relating to the trading record of the business
- a statement by a practising accountant to the effect the accounting and financial information is in accordance with the vendor’s books and is true and fair to the best of his/her knowledge.
The vendor must make sure a practising accountant (as defined by the Regulations) signs the statement.
Also, in preparing the Vendor’s Statement, vendors should not:
- overstate the takings; and gross and net profits of the business
- make verbal statements the business takes more money than is shown by the vendor's statement
- understate expenses in running the business to show higher profits
- leave out relevant information such as details of the lease, list of goods, any orders against the property, details of the proprietors of the business, make-up
- of goodwill, equipment, stock