How to Sell A Business As a Going Concern?

Business selling is an ideal way to reap the benefits of hard work that goes into setting up an organisation. Entrepreneurs who intend to retire or look for new avenues after building a solid establishment can sell their entity at their discretion. They can sell the business along with all the plant and equipment, or they may choose to exclude certain assets.

For example, an outgoing owner may keep the property and sell the business with the equipment. The inclusions and exclusions depend on the seller. Most transactions involve selling the business as a going concern, including everything related to the entity.

The seller provides a complete handover to the buyer, including the assets, property and goodwill. Business as a going concern helps the buyer to receive a business in a box that can be operated without any new additions. They can start earning from the first day of the takeover because everything is in place. The sale of business online data reveals that these entities get sold quickly because of the convenience offered.  Let us help you understand how to sell a business as a going concern. It can help generate the best return on investment.

1. Understand A Going Concern

Selling a business as a going concern implies the sale includes everything that allows the buyer to continue to operate the business. The outgoing owner continues to operate the business until the day the business is formally transferred to the buyer through a legal contract. The transaction involves the transfer of all legal and material assets, including property, trademarks, equipment, stock, and employee and supplier contracts.

The entire business is sold as one unit without the assets being sold separately. The contract must clarify that it is the sale of a going concern. The business valuation must be conducted using the financial ratios by an expert accountant to ensure accuracy. The buyer and seller must hire a lawyer to ensure they comply with the legal regulations of selling a business.

2. GST Implications for Going Concerns

The sale of business online that is termed as a going concern can become GST free if the transaction is for payment and both parties are GST registered. Also, the buyer and the seller must confirm in writing that the sale is of a going concern. The sale does not incur GST if the property is part of the GST free sale of a going concern. Usually, the sale of a business incurs 10% GST that can be recovered through input tax credits.

However, selling business as a going concern does not incur this tax. It requires fulfilling all the criteria of selling a business as a going concern and informing the Australian Taxation Office about the sale. The office may require more documentation to ensure compliance and GST exemption. If the buyer and the seller fail to adhere to the regulations, they must pay GST on the sale.

3. CGT Concessions During Business Sale

Entrepreneurs who sell any asset and gain profit from it have to pay tax on the capital gain. This tax is known as Capital Gains Tax (CGT). Sellers can claim CGT concessions to save money during the transaction. The ATO offers four small business CGT concessions, including 15 year exemption, 50% active asset reduction, retirement exemption and roll over.

The concessions can be claimed if the asset sold by the seller was active, and the entity must have an aggregated turnover below $2 million. If the business is a partnership, the partnership will be considered the CGT small business entity. The seller must ensure the aggregated turnover of the venture was below $2 million in the past financial year and at the end of this financial year.

4. Going Concern Factors to Consider

Entrepreneurs who choose to complete the sale of business online as a going concern must make the potential buyers sign the nondisclosure agreements. These help maintain confidentiality. The seller and the buyer must hire professionals to seek advice and get support during the transaction to ensure compliance.

The buyer should conduct due diligence on the business to purchase a going concern ready for growth. The seller must pay attention to tax planning and the accuracy of legal agreements to prevent any problems. The obligations related to the transfer of agreements must be completed before the takeover by the new owner. The workforce, suppliers and clients must be informed about the leadership transition.

5. Advantages of a Going Concern Sale

The buyers can enjoy several benefits of a going concern because they do not have to try to start earning. They get an existing customer base, operational framework, trained employees and a marketing strategy to continue operating. They can easily take over and understand the standardised procedures for a smooth transition.

The sellers can enjoy a GST exempted sale and even claim applicable CGT concessions for small businesses. Selling a business as a going concern is easier because they do not have to sell assets separately, and there is only one buyer. It helps the business maintain its credibility and serve its target audience. Thus, most sellers prefer the sale business online and completing the transaction as a going concern to reduce errors and hassles.

Wrapping Up

Selling business as a going concern benefits buyers and sellers because of the myriad benefits. It can help complete the transaction smoothly and effectively transfer all the contents and assets. The buyer can gain exceptionally from this deal and offer a better price.