For Sellers

Selling a Business?

You’re not alone. You only have to look in the “Business Opportunities” section of the daily paper on Wednesdays and Saturdays to see hundreds of business’s for sale. Buyers can pick and choose from many different types and prices. They all make a profit and are easy to run!!!! Well………some are, but how does a potential buyer recognise them?

Buyers Today

Buyers today are better educated and more generally more aware of the pitfalls. Buying a business is something they don’t do every day so the logical thing to do is to get professional help when they assess a business. This can involve the Business Broker, Accountant, Solicitor, Finance Broker, Financial Institution and Settlement Agent among others.

Give your business the best chance of selling.

Preparation and planning are the the key. Plan well in advance to put your business on the market. This will give you time to compile all the information you need to present to potential buyers. Try and see your business through the eyes of a purchaser and do what ever is necessary to present it in its best light. To give your business the edge over other business’s for sale the following is a list of must haves

  • Accountants Financial Statements (including)
  • Profit and Loss Statement
  • Balance Sheets
  • Depreciation Schedule
  • Staff details and wages
  • Current rent and outgoings
  • Managing Agent details
  • Hours owner works in business
  • Estimate of Stock
  • Plant & Equipment Schedule
  • Copy of current lease
  • Details of owners wages and expenses
  • Trading days and opening hours
  • Licenses required
  • Year to date sales figures
  • Ongoing advertising

Well documented businesses sell!!

At least 3 years full financial statements including Profit & Loss, Balance Sheets and Depreciation Schedules need to be available plus personal tax returns and bank statements. Also year- to-date financials to confirm gross sales to the end of the last month. If your last financial statements are dated 30 June of the previous year how old are they now?

Also, if the purchaser of your business needs finance the more information they can provide a lender the better chance they will have of getting the funds.

ABC Pty Ltd   2009 2008 2007
Gross Sales   500000 450000 400000
Cost of Sales   200000 175000 150000
Gross Profit   300000 275000 250000
Expenses   200000 200000 180000
Net Profit   100000 75000 70000
Ad Back        
Borrowing Costs   5000 3000 0
Depreciation   25000 28000 30000
Interest   21000 18000 16000
HP Charges   6000 6000 6000
Motor Vehicle Repairs (One Off)   7000 0 0
Owners Wages   60000 50000 50000
Owners Superannuation   20000 10000 4500
Total Ad Backs   144000 115000 106500
Total Surplus   244000 190000 176500

Once you have established your total surplus or “Adjusted net profit” you are in a position to calculate the goodwill your business.

Goodwill is a direct calculation of Adjusted Net Profit.

ROI and Goodwill

Goodwill is generally based on the expected “Return on Investment” (ROI) of a business then deducting the value of plant, equipment and stock. The balance would then be allocated as goodwill. ROI varies with different types of business’s. For example if the business above was a strong demand business such as a manufacturing or wholesale then the buyer could expect a ROI of say 30% This equates to a multiple of 3.33 (100 divided by 30). The asking price for this business then could be up to $812,000. The goodwill component would be calculated by deducting the value of the plant, equipment, fixtures, fittings etc.

ROI is a percentage and is normally expressed as range. ie 30%-60% The individual characteristics of a business would then determine the ROI used.

What Should I look for?

Well documented, well presented and organised business’s can make the decision to buy or not to buy reasonably straight forward. Look for complete financial statements for at least 2 or 3 years plus year-to-date financials for the current year. Why are they selling? Are the premises and lease suitable? Get professional advice from an Accountant or qualified person. A few dollars spent now could save you a substantial sum in the future. See our useful links for more information or if you have a particular question please email

The above business could range from $466,000 (60%ROI) to $812,000 (30%ROI)

Plant and Equipment?

Plant and equipment, fixtures and fittings are normally priced at either written down value (depreciated value) or “market value” depending on age and condition.


Stock is normally determined as stock at valuation (SAV) to be determined by an independent stock take on the day of settlement. An estimate of expected stock value is required.

G.S.T. S

Sale of a business as a going concern is generally GST free provided:-

The vendor supplies to the purchaser everything necessary for the continued operation of the business. The vendor carries on the business until the date of sale and: Both parties agree in writing that the supply is of an ongoing concern. Purchasers must be registered for GST at the time of settlement.

GST Update:- We have mentioned before that under current legislation business sales can be GST free where:- “The vendor supplies to the purchaser everything necessary for the continued operation of the business. The vendor carries on the business until the date of sale and: Both parties agree in writing that the supply is of an ongoing concern.” Purchasers must be registered for GST at the time of settlement. Note that the Vendor is responsible if, at a later date, the sale is determined to be taxable. However, now GST clauses have been incorporated in some “General Conditions for the Sale of a Business” (used by many Real Estate Agents and Business Brokers) the GST condition now includes a clause that basically says “…. should the sale subsequently be deemed to be taxable under the GST legislation the vendor has the right to demand the amount of GST from the purchaser who must pay the “said” amount within 30 days of receiving notice in writing. The clause has an effect for up to 10 years from the date of the settlement of the business.

Market Assessment – Benchmark your business

The next step is to get an appraisal from an experienced Business Broker to determine the demand for your type of business and the goodwill factor. Your Broker can outline a suitable marketing plan to give your business exposure to potential buyers as well as offering tips and suggestions to make the sale process as smooth as possible.