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Most New Zealand business owners sell their businesses, on average, after five to seven years, but you can sell it at any stage. When you decide it’s time for selling your business, you want to ensure that: 

  • you get the best return on your investment; and 
  • you sell to the right buyer – someone who is fully invested in your business and committed to its success. 

Given the complexity of this area, you should engage a strategy advisor – either an exit planning expert or a mergers and acquisitions specialist – to help you define what you want to achieve with the sale and how you will get there. Your lawyer can help you draft your legal agreements and anticipate any changes in the regulatory landscape. This article lists some key points and tips to help you get full value for your New Zealand business when you sell. 

Things to Consider Before Selling Your Business

To command the best price when you sell, you need to ensure that: 

  • your business is in good shape; and 
  • you communicate this effectively to potential buyers. 

To get your business ready, you need to sort out your finances and address any outstanding issues such as employment problems, legal disputes and assets ownership rights. You should also engage a professional to prepare an informational pack for your buyers that highlights essential business data relevant to their decision-making process, including your business’s growth potential.

1. Sort Out Your Finances

Your financial position is one of the most important factors that buyers will consider when deciding on how much to pay for your business. If you do not get your finances in order before selling, you may have to discount your selling price or reinvest to make your business more attractive to buyers. 

To improve your financial position, you can:

  • sell any underutilised assets; 
  • recover any outstanding payments from customers;
  • consolidate your debts; and
  • halt investments in long-term projects.

Tip: When preparing your financial forecasts, you should use realistic assumptions, as business advisors can easily identify over-optimistic figures. 

2. Update Your Business and Succession Plan

Your business plan is an essential document when selling part or all of your business. It allows your buyers to assess: 

  • the efficiency of your operations; 
  • the capabilities of your management team; and 
  • your plans to grow the business.

You may already use a business plan to ensure you are on track to achieve your marketing, operational and financial goals. If you have not used your business plan since you started your business, you should take a look at the five tips to prepare a New Zealand business plan that we share in this article.

You should also prepare a strategic succession plan that outlines the essential steps to manage your business after you leave, including information on retaining key employees and managing tax issues. An exit plan will help maintain the value of your business’s shares and assets during the ownership transition, and put processes in place to manage it. You can engage a professional to help you create an exit plan for your business. 

3. Address Outstanding Issues Before Selling Your Business

You should address any staffing problems in your business before you put it up for sale.

When your potential buyers conduct their due diligence, they will assess if there are any employment issues in your business. If they consider this a risk, it could, in turn, affect your selling price. The New Zealand Employment Website offers useful information to help you resolve employment issues.

Before showing your premises to your potential buyers, you need to ensure that they are clean and well maintained. If you own machinery or other equipment, check that their maintenance schedule is up to date. 

Other issues to address include: 

  • locking key suppliers and customers into a contract; 
  • reviewing and updating your health and safety standards and other obligations you have as owner or employer;
  • resolving any legal disputes; and
  • ensuring you own all the assets on your balance sheet.

4. Engage Specialists to Help with the Sale

You can list your business for sale on online platforms like realestate.co.nz, NZ BizBuySell or Trade Me, or engage a business broker to find and negotiate with potential buyers. A broker can simplify the process on your end because they have expertise in finding the right type of buyers and approaching them. 

When it comes to valuing your business, an independent advisor can provide you with an accurate value of your business. They take into account your business’s financial performance to date (profitability), your financial position (assets and debts), and how much it would cost the buyer to start the business from scratch. You can attempt to do the valuation yourself using standard models but make sure you consider crucial factors such as the interrelationship between growth and risks. 

Tax Considerations

Even though the proceeds from your sale are not subject to capital gains tax in New Zealand, some other taxes and obligations may apply, depending on your business structure and whether you are selling your business through assets or shares. A professional tax advisor can help you understand and meet your obligations to avoid penalties and other liabilities.

If you have registered for GST with Inland Revenue, the sale of your assets may attract GST. Your accountant can help you review your GST and income tax obligations before you sell your assets. They can also help you assess the tax implications of selling your shares. If you sell your shares in the company, you are responsible for updating your shareholder details with the Companies Office. 

5. Sort Out Your IP Before Selling Your Business

Your intellectual property (IP) can be a massive part of the value of your business to a buyer. IP may include:  

  • your brand, logos and trademarks;
  • patents and product designs; 
  • processes that are unique to your firm; and
  • trade secrets, such as customer and marketing information.

Therefore, if you have not done so already, you should protect and register your business’s IP before you sell. Your lawyer can help you understand your ownership rights and what you can transfer as part of the sale.

Key Takeaways 

Whether this is your first or last time, selling your business can be a life-time decision for you as an owner. No matter what stage your business is in when you decide to sell, you need to put in a lot of hard work into getting there, so you want to ensure that you get a fair price for it and that you find the right buyer. This requires forward planning and building a trusted team of specialist advisors. Before you sell, you need to get your business in the best shape possible, including sorting out your finances and IP, resolving any outstanding issues, and preparing a series of plans that provide crucial information to potential buyers. 

If you need further guidance into each of the stages of the sale process, you can read our free publication on How to Sell Your Business, written by LegalVision’s business lawyers. They have helped hundreds of business owners with buying and selling their business, so they can provide you with expert legal advice on specific issues such as drafting your sale and purchase agreement, shareholder agreements or understanding your IP rights and how to transfer them. To get a free quote, call 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

When is a good time to sell your business?

Even though it may seem counterintuitive, the best time to sell your business is when it is showing signs of peak performance. This means the demand for your products or services is high, your revenue and other key financial indicators are trending upwards and (or) you have a strong management team in place. For most businesses, this happens within five to seven years of starting their operations, but this, of course, depends on the type of business and industry. 

Where can I list my business for sale in NZ?

You can list your business for sale on online platforms like realestate.co.nz, NZ BizBuySell or Trade Me, or engage a business broker to find and negotiate with potential buyers.

How do you determine your business sale price?

The true market value of your business is what your potential buyers are willing to pay for it. This is often different from the potential you may see in your business as the current owner. Therefore, when determining your sale price, it is crucial to understand how your buyers may arrive at their offer.

There are various methods for valuing a business, but most take into account profitability, balanced by the risks involved. However, the complexity of this calculation usually comes down to factors that are hard to measure, such as business relationships and goodwill. Some industries use specific indicators that do not relate to profitability. When determining your sale price, it is a good idea to engage an independent advisor to help you arrive at the best sale price for your business and strengthen the credibility of your assumptions.

Do I have to pay tax on the sale of my business in New Zealand?

Your tax obligations when selling your business will depend on whether you are selling its assets or shares. Asset sales often include different types of assets, which are treated differently for tax purposes, so they can be quite complicated. Share sales are personal property and usually non-taxable in New Zealand unless you originally bought them for resale or you are a dealer. Your tax advisor can help you understand your obligations and decide what the best option for your business is.

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