Selling any business is a big step for a business owner. After lots of investment, it’s finally time for someone else to take the reins. But how would you go about finding the perfect buyer?
It can be a relatively tricky process, but it doesn’t have to be. As long as you’ve got the right guidance and documents, you should be confident that your business will be in good hands!
However, there are some differences between selling a physical store as opposed to an online store. The main thing to note is that a physical store is more likely to have physical assets to sell alongside lease assignments, whereas an online business doesn’t really have these things. So, these features will make the process a little different for selling an online business.
In this article, we’ll go over some of the key steps to help you successfully sell your online business.
Am I Running An Online Business?
First thing’s first – we need to make sure you’re actually running an online business, and not a physical one. If you have a physical store where you pay for a lease, and you have business equipment (for example, a business van) that you use on the premises, then you have yourself a physical store.
Online businesses don’t really have these tangible assets. Some ecommerce businesses might hold stock from suppliers, but the exchange with customers still takes place solely online. You might ask yourself, ‘Am I more likely to sell to customers overseas than in person?’
Let’s briefly go through some types of online businesses.
Some online businesses are in the form of introductory services. This means you are an online platform that connects sellers to potential buyers so they can manage their transactions. Think of websites like Gumtree or Ebay – these are marketplaces.
Dropshipping is similar to a regular online retail store (e.g a marketplace), but it’s a bit different. Rather than holding lots of stock before any orders are made, a dropshipping model only orders stock from the manufacturer or supplier when a customer makes an order. This way, the business doesn’t actually need to hold any stock and it goes straight from the supplier to the customer. The dropshipping model facilitates the transaction and payment.
It can get a little confusing, but it’s known to cut costs and increase efficiency – we’ve written about dropshipping in more detail here.
What Legals Do I Need?
So, you’ve been running an online business and decide it’s time to sell it. What kind of legal considerations do you need to make?
The selling process requires all sorts of contracts. For example, you might want to get any potential buyers to sign a Non-Disclosure Agreement with you as they’ll have access to certain financial records about your business.
If potential buyers go around telling your suppliers that you’re selling, this might also pose a risk to your relationship with these third parties.
You’ll also need a standard Sale Of Business contract, which will cover the details around the sale. This might include the sale price, IP and employee entitlements (we’ll cover this in more detail later).
Among other things, you also need to be prepared to provide financial records if potential buyers ask to see them. This may include tax returns and balance sheets (it’s a good idea to consult an accountant to help you with this).
Another important consideration is your tax obligations. For example, you’ll need to check with the ATO in case GST or CGT applies to your business sale. The ATO has written about what tax obligations you should be thinking about when selling a business here.
Like most businesses, it’s likely that you have arrangements in place with third parties when it comes to stock or supply. For example, you might have a Supply Agreement with certain manufacturers. This means that when the new owner takes over, you’ll need to transfer these agreements over to them.
However, you need the supplier’s consent to do so. If not, you may need to find a new supplier and terminate your existing agreements.
Like we mentioned, it is unlikely for an online business to have physical assets like equipment or leased property. However, it’s common to have intangible assets like Intellectual Property (IP).
IP might include your business name, social media accounts, trade marks (for example, your business logo), online content and even client data. It’s also likely that this kind of information was shared with third parties.
For example, businesses who hire software developers will need to check if those developers actually own the software they created. If they do, you need their consent before they assign that IP licence to the new business owner.
Since we’re dealing with online platforms, privacy is one of the most important things to think about.
First, you’d carefully need to go through the 13 Australian Privacy Principles, which tell you your privacy obligations as a business. For example, if the new owner will be using customer data for a purpose that is different to the original purpose (by the original owner), then you need to disclose this to customers.
If your business’ annual turnover is more than $3 million, the Privacy Act applies and you need to ensure you’re compliant. However, there are some exceptions where the Act applies even if your turnover is less than $3 million. For example, if you’re a health service provider, you still need to comply with the Act.
What Is The Selling Process?
Now that we’ve gone through your key legal considerations, let’s discuss the main steps you’ll be taking during the actual process.
- Value Your Business
Since you’re the business owner, you would have the best idea of how much your business is worth. This is because you have access to all the inside information that would influence how much it could be sold for. That said, it’s good business practice to consult a professional to value your business. You should also remember your due diligence and do your research into the market, and what competitors have done to price their businesses too.
Valuing your business might also involve looking at the difference between your assets and liabilities – this will help you come to a more accurate valuation.
This stage of the process can be complex, and it’s important to be careful about the kind of representations you make to potential buyers. This is mainly because of section 18 of the Australian Consumer Law, which will apply to your sale of business.
Under section 18, you can’t make any representations about your businesses that are likely to mislead or deceive a potential buyer (we’ve written more about this here).
During negotiation, you should discuss sale price, deposit, settlement period and training.
- Sign The Sale Of Business Contract
When you’re selling a business, you need to have a Sale of Business contract. It’s best to get a lawyer to draft one for you so they can check that you’re compliant with the laws that apply in your particular state or territory. Generally, the Agreement should cover things like:
- IP use
- Liabilities to creditors
- Employee entitlements (in other words, What Happens To My Employees When I Sell My Business?)
- What happens if there are unexpected issues (for example, what if the buyer changes their mind?)
- Restraint of trade clauses
- Transfer Business To New Owner
Once the sale of business is settled, the final step is to officially transfer the business to the new owner. This may involve transferring the relevant agreements, like the IP licence from software developers or Supply Agreements with existing manufacturers.
You also need to cancel your ABN and your business name (or transfer the existing business name). You can read more about your post-sale obligations here.
Tips For Selling
The selling process can be overwhelming with all the relevant requirements and laws you need to comply with. We’ve compiled some general tips to make it all a little easier.
Consult A Business Broker
You don’t necessarily have to do it all yourself – consulting a business broker is a great way to get helpful advice from a professional. They’ll assist with your compliance requirements and how to get the best selling price.
Make sure you’ve settled any existing legal disputes or outstanding debts your business might have. This will affect your final selling price.
Tell Your Employees
Your employees are important to your business’ success and culture, so you should be 100% transparent with them about the selling process and what will happen to them once the buyer takes over.
If you’re making them redundant, tell them what their options are in relation to redundancy packages. If they have the option to move to the new employer, make sure this is clear to them so they can make an informed decision.
Non-Disclosure Agreement (NDA)
It might also be worth having NDAs in place with potential buyers as they will have access to inside information and important financial records about your business while they’re still making inquiries about the sale.
This kind of information can be dangerous in the wrong hands, and the fact that you’re selling could negatively affect your commercial relationships with third parties.
Selling a business can be a lengthy process, but this is only because your business needs to be sold for the right price and to the right buyer. After all, you want someone who can be trusted with the business you’ve invested in.
Remain confident that the duration of the process will all be worth it!
It’s good business practice to consult a lawyer before you make any final decisions in the selling process. This is because selling any business comes with risks of misrepresentations, leaving out important financial information or omitting important restraint of trade clauses in the agreement.
Having a lawyer by your side can ensure a smooth selling process, so you can focus on getting the best deal.
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