How to Sell a Trade Business in Australia

When should you start preparing to sell a trade business?

Start 12 to 24 months before you want to list. Buyers study several years of results, so a full year of clean accounts counts for more than a tidy quarter, and changes to how the business runs take time to show in the numbers. This timeline is a suggestion, not a rule.

1. 24 to 18 months out: get an independent valuation, learn what a buyer would mark down and decide whether to go ahead.
2. 18 to 12 months out: separate private expenses, put key customers on written agreements and start building a second layer of people.
3. 12 to 6 months out: show a full year of results under the new arrangements, settle licence cover and check the fleet.
4. 6 to 3 months out: assemble the information pack, brief your accountant and lawyer and decide how to take the business to market.
5. Listing and negotiation: answer buyer questions from a prepared position.

Our guide to valuing a business before selling covers the valuation step, and preparing a trade business for valuation covers the records.

How do you reduce owner dependency before a sale?

A buyer is buying a business that has to keep working without you. If you quote every job, hold every customer relationship and are the only licence holder, the buyer is buying your time, and will either pay less or want you to stay on.

• Appoint or train a lead hand or manager who runs jobs and supervises crews.
• Move quoting to a documented process that someone else can follow, with a price book or costing template.
• Introduce key customers to the person who will look after them, and record who deals with whom.
• Write down the routines: scheduling, purchasing, safety records, invoicing and follow-up.
• Take a proper holiday and see what breaks. Whatever breaks is what a buyer will find.

Our guide to valuing a business with owner dependency explains how a valuer measures what dependence is left.

What happens to licences, staff and subcontractors in a sale?

Licences are the first question in most trades. Licensing is state-based, and whether a licence stays with the business, moves to the buyer or has to be applied for again depends on the licence, the regime and the way the business is structured. Check with the relevant licensing body and your lawyer early. A buyer who cannot operate lawfully from day one will pay less or walk away. If you hold the only licence, say so and plan how the cover will continue.

Staff are the second. A buyer will ask who the key people are, what they are paid and what leave and other entitlements have built up. How entitlements are treated in a sale is a question for your lawyer and accountant. When and how key staff are told matters as much as the paperwork.

Subcontractors are the third. A buyer will want to know which of them would stay, how their rates are set and whether the arrangements are written. Whether a worker is correctly treated as a contractor or an employee is a question for your lawyer and accountant, and a buyer’s advisers are likely to ask it. See valuing a business that uses subcontractors.

Which contracts and customers need attention?

Review the agreements that give the business its revenue and its ability to operate.

• Customer and maintenance agreements: the term, renewal dates, termination rights and whether a new owner needs the customer’s consent.
• Head contractor, council, strata and facilities agreements, which often restrict assignment.
• Supplier accounts and trade credit, which may be personal to you.
• Premises leases and the landlord’s consent to a transfer.
• Vehicle and equipment finance, and whether it can move to the buyer.
• Insurance, warranties and defect obligations on completed work.

Clauses about assignment or change of control can delay or stop a transfer, so read them before a buyer does. What they mean is a legal question for your lawyer. How widely the revenue is spread is a value question as well: see customer concentration and business value.

Who buys a trade business?

Buyers fall into a few groups, and each pays for different things.

• Staff or a manager. They know the business and its customers. Funding can be the limit, which is why staged payments and vendor finance come up.
• An owner-operator from the trade. They are buying a job as much as an asset, so the owner’s wage and the quality of the workload matter most.
• A competitor. They may pay for customers, crews and territory that fit what they already have, and they will look hard at overlap.
• A larger trade or service group. They look for transferable earnings, systems and a team that stays, and they ask detailed questions.
• A family member or business partner. The price is often agreed between the parties, and a valuation gives both sides a shared reference. See succession.

Every buyer is asking the same underlying question: how much of the profit would continue in their hands. How trade businesses are valued explains how that is measured.

How does a valuation compare with your asking price?

They are different numbers. The valuation reports what the business is worth on its earnings and risks at a date. The asking price is a commercial decision that reflects what you need, the market’s interest and room to negotiate. The sale price is what a buyer and seller finally agree. A broker appraisal, which is often offered to win a listing, estimates the likely sale price. See business valuation versus business appraisal.

Setting the asking price well above what the earnings support tends to cost time, because buyers test the earnings and the gap shows. Whatever you decide to ask, know what your earnings support before you say a number aloud.

How are sale deals structured?

The headline price is only part of what you receive. These structures are described in general terms. Their legal and tax results are for your lawyer and tax adviser.

In an asset sale the buyer takes the business assets and goodwill, and in a share sale the buyer takes the company that owns them, with its history. Liabilities, licences and contracts move differently in each. An earn-out ties part of the price to results after completion, such as revenue or gross profit holding at an agreed level. It can bridge a gap between your view and the buyer’s, but you will no longer control the business, so how profit is measured matters.

Vendor finance means you lend part of the price to the buyer and are paid over time, which makes you a creditor of the business you used to own. A transition period means you stay for an agreed time to introduce customers, staff and suppliers. The illustrative example shows how one headline price can pay out in three ways.

Smaller items need an answer in the contract too. Working capital, stock and work in progress may be included in the price or settled separately at completion. Retentions, and warranty and defect obligations on work already done, need the same treatment, and a buyer will ask who carries them.

Where does a Green Standard valuation fit in a sale?

Before you list, an independent valuation shows the normalised earnings a buyer will test, the issues worth fixing and a reasoned view of value. An Independent Business Valuation is $1,995 + GST, with a draft before the report is finalised and a typical turnaround of 3 to 7 business days once all required information has been received. The business sale valuation page explains how the engagement is set up.

A valuation does not set your asking price, market the business, find a buyer or give tax or legal advice. Those belong with your broker, tax adviser and lawyer. To begin, use our start page, or see pricing. If you are on the other side of the table, see buying a trade business.