Successfully Selling a Business as a Going Concern

Introduction

If you choose to purchase or sell a business, a key consideration is whether the business is being sold as a going concern.

The sale of a business as a going concern largely involves the business being sold with everything that is required to continue operating the business post-settlement.

Selling a business as a going concern can allow it to continue to operate seamlessly after the transaction by preserving its existing operations, assets and its workforce.

For business owners looking to buy or sell, selling or purchasing a business as a going concern offers several benefits, including higher value, smoother transitions, increased buyer interest and better financial outcomes.

This article will explore the key considerations and steps involved in selling a business as a going concern.

What is a Going Concern?

A going concern refers to a business that is operating and is expected to continue operating in the future.

As such the sale of a business as a going concern means that the business is being sold not just with its physical assets but also its operations, its employees, its customer base and its branding. Essentially, the business is being sold with everything that is required to allow the purchaser to continue operating the business after settlement without interruption.

For a business to be sold as a going concern, everything required to run the business must be included in the sale, and the vendor must continue running the business until settlement.

Items that Should be Included

When selling a business as a going concern, what is required to be sold in order for the sale to be classed as a going concern will vary depending on the type of business and what is necessary to ensure its continued operation.

At a high level, the following items should be included in a business sale for it to be classed as a sale of a going concern:

1. Tangible assets – equipment, machinery, inventory and furniture essential to day-to-day operations.
2. Intangible assets – trademarks, business name and patents.
3. Customer contracts – ongoing contracts with customers or clients that will continue post-settlement.
4. Supplier agreements – existing agreements with suppliers that are essential to the day-to-day running of the business and without which the purchaser’s ability to maintain supply chains would be impacted.
5. Lease or Property – whether leased or owned, this will include the premises the business operates from.
6. Employees – employment agreements with key staff members.
7. Business Licences and Permits – any relevant business licences, permits or certifications that are required to legally operate the business, such as a liquor licence.

The above list is not exhaustive, and the requirements will vary depending on the type of business being sold.

Continuing Business

When selling a business as a going concern, the vendor has a responsibility to ensure that the business continues to operate as normal and as a going concern before settlement.

Some of the actions the vendor must take to ensure this includes:

1. Maintaining the financial stability of the business by addressing any outstanding debts or liabilities, keeping the business profitable or at least demonstrating that the business is maintaining its usual income;
2. Preserving operations of the business including maintaining inventory levels and maintaining strong relationships with customers and suppliers;
3. Retaining key employees and minimising staff turnover;
4. Staying compliant with laws and regulations; and
5. Preparing the business for handover.

Similar to the above, the requirements for what a vendor will need to do to ensure that the business continues to operate in a normal manner will vary depending on the nature of the business and its standard operations.

Taxation

Before making any decisions, it is crucial for both vendors and purchasers to consult with legal and financial professionals to ensure compliance and optimise the transaction.

If a business is sold as a going concern, it may be exempt from paying Goods and Services Tax (GST). However, specific requirements must be met, including the following:

1. Payment or consideration is made for the sale of the business;
2. The purchaser is registered for GST;
3. The vendor and purchaser have agreed in writing that the sale is of a going concern; and
4. The vendor supplies all necessary items for the continued operation of the business and continues to operate the business normally until settlement.

This is not taxation advice. We recommend seeking accounting advice regarding these matters.

Conclusion

Selling your business as a going concern can effectively maximise its appeal to potential buyers. For buyers, this approach ensures they can hit the ground running once settlement occurs, giving them the greatest chance for success.

Understanding what is required to sell or purchase a business as a going concern and taking the necessary steps to facilitate this is incredibly important in setting up a positive outcome for both the vendor and purchaser.

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