Planning to close down your business can provide great short term cash flow, however you may also have to:

  • pay out staff entitlements, where applicable

  • clear leases or, if you own the property, find a new tenant.

One of the big things to consider is whether or not you believe your business will sell or how long it may take to do so. If you get in early, you can begin the process of “sprucing it up” with the intention to sell.

It may also be worth making the decision to try and sell for a trial period, and if this yields no interest you could then begin closing.

If you were to sell your business the following possible benefits may contribute to a greater net financial benefit:

  • You could be paid a multiple of your profit, and potentially sell your stock to the new owner which would provide a greater return than selling the stock as part of closing down

  • You would have the ability to transfer staff entitlements to the new owner

  • The new owner could immediately take over lease of the premises or become a rent paying tenant where you own the premises

  • Access to Small Business Capital Gains Tax (CGT) concessions could reduce or eliminate taxation liabilities on the sale as well as provide access to generous superannuation contribution strategies.

  • Access to GST concessions will avoid you having to remit GST on the transfer of stock, chattels and goodwill to the new owner.

There are also options available to assist in any transitions and the sale of your business that could improve your cash flow:

Earnouts
In order to entice buyers, you can also sell the business for less than you had first considered, with an understanding that you may get a further payment based on the future performance of the business. This would mean you may not be required to pay CGT on the earnout component until the final amount can be assessed.

Vendor finance
Offering your potential buyer a loan in order to assist with the financial burden of taking over your business can be beneficial. This allows time for the purchaser to pay off the business rather than securing a bank loan which can be difficult. This option may make purchasing your business a more achievable and enticing opportunity.

Retirement planning
Selling your business before you plan to get out can be a good way to transition to retirement. For example, you could continue working after selling or continue to be involved in the business in a reduced capacity. This can provide ongoing income with less stress and the knowledge the business is in safe hands. You may also be able to sell off parts of the business at separate times to spread your tax liability over a greater period which means you may pay less tax in the long run.

Business premises
Do you own your own premises? The benefit of owning the premises and selling the business makes the transition easier because the new business can take over as tenant by leasing the premises from you. If you were to simply close the business, you would need to find new tenants with a new business which can be a timely process.

Stock management
Planning for whichever path you choose, it’s worth considering what you do with your old stock or obsolete stock – financially speaking, you are going to be better off if you try and sell the stock before closing/selling.

Besides the financial side of things...
You may want to prepare yourself emotionally to consider the possibility of letting go of a business you’ve poured so much of your life into! After building up a loyal customer base, a recognised brand and many memories it can be more reassuring to know you are leaving a legacy of all your hard work so the business may carry on.

Family succession planning is also another option to consider. By passing the business on to the next generation, your business will stay in the family long after retirement.

While selling isn’t always the answer, the best option is to seek advice from a financial expert you can trust to help you assess your options before making a decision.

Liam Drady
Manager - West Carr & Harvey