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Don't Do These Three Things if You're Planning on Selling Your Business
If you’re considering selling your business, it’s important to start preparing early. There are many actions you can take to help your business attract the right buyer once it’s on the market. Perhaps more importantly, there are things you shouldn’t do if you’re planning to sell your business in the next couple of years. Here are three things you should stop doing if you’re planning to sell.
Pay Staff Cash
If you’re paying your staff cash, potential buyers will see a warning sign. Although it's possible to pay cash and be completely above board, there are employers who use cash payments to avoid meeting tax obligations and to pay staff below award wages. The Internal Revenue Department is cracking down on such companies, especially in the building and hospitality industries, which are said to cost the NZ government $7 billion each year in lost revenues through off-book payments.
It's certainly possible to pay your staff in cash while filing all the appropriate paperwork, paying the correct taxes and ACC levies and putting money into employees’ KiwiSaver accounts. However, a potential buyer might worry that something was missed, even if the intention was to do the right thing.
A bill for a tax shortfall will include both late penalties and interest that can run to 25 or 30% per annum. It will also likely include an investigation into tax evasion. That’s a big risk for a potential buyer to take.
Paying cash also opens employers up to claims from staff of underpaying or not following the rules, and without an electronic record of payments, it can be difficult to prove those claims false. Again, this opens buyers to investigations and lawsuits that have the potential to bankrupt a business.
Additionally, an electronic payment system makes it easier for you to compile your finances when the time comes to show them to a potential buyer. It is also easier for the buyer to take over once you’re gone.
Let Your Premises Get Shabby
Image sells, and keeping your business premises in good repair helps you present it in the best light. For customer-facing businesses, such as a shop or café, a shopfront that is updated is an essential part of running your business. Customers don’t want to shop in a shabby store, and continuing to attract customers is essential to attracting potential buyers.
Even in a business that doesn't rely on regular foot traffic, neat and well-repaired premises are essential. Your place of business reflects the company as a whole, and if it's well cared for, a potential buyer tends to get an early impression of responsible management and even profitability.
For industries such as manufacturing, keeping premises in good condition is essential. A factory in bad repair can indicate health and safety risks, and potential buyers are wary of companies that may need extensive investment to ensure employee safety.
Spend Too Much On the Business
Finally, be wary of spending too much in or on the business. There are places where you should spend if you’re planning to sell: an up-to-date payroll system and well-repaired premises, for example. But it's possible to overcapitalise on your business in the same way it's possible to overcapitalise in a house.
Make sure to spend money in the right places. Some investments will not equate to your business making more when sold. For example, buyers will most likely see through any attempts you make to conceal issues, which means you’ll be wasting the money.
Also, remember that many buyers are interested in buying your business no matter the problems. They will have the skills and resources to manage problems that may seem insurmountable to you.
There are many things you should do when you’re planning to sell, but don’t forget the things you need to stop doing. As with anything you do with your business, make sure that any time and money you spend in prepping for a sale is likely to bring a good return on the investment.