Selling a business is rarely a decision made overnight.
For some business owners, it comes after years of building something they’re ready to step away from. For others, the thought of selling starts to appear when cash flow becomes tighter, debt continues to build or the pressure of keeping everything moving becomes difficult to sustain.
If that sounds familiar, selling may feel like the clearest way forward. But before selling a business with debt, it’s worth understanding what is actually happening within the business, what a sale can realistically achieve and whether there are other pathways worth exploring.
Here are seven areas to consider if selling your business has started to cross your mind.
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When running a business becomes difficult, selling can start to feel like the obvious answer. But it’s worth first understanding what is driving that feeling.
Is demand falling? Has the business been consistently unprofitable? Or is there still a strong customer base and revenue coming in but debt repayments, tax obligations, rising costs or cash flow pressure are making it increasingly difficult to operate? There is an important difference between a business that may no longer be viable and one that is experiencing financial pressure. Business owners can also reach a point where they are simply exhausted. Years of managing staff, customers, suppliers, finances and unexpected challenges can take their toll. When financial pressure is added to that workload, walking away can understandably become appealing. Understanding whether you want to sell because of the business itself, its financial position or your own circumstances can provide a clearer starting point for deciding what happens next.
It is natural to attach value to a business you have spent years building. You may think about the time invested, the customers you have won, the reputation you have established and everything you have put into getting the business where it is today. A potential buyer, however, is likely to look at the business from a different perspective. Financial performance, profitability, assets, liabilities, customer concentration, contracts, systems and how dependent the business is on its current owner can all influence how a prospective buyer views it. This can create a gap between what an owner hopes to receive and what someone may actually be prepared to pay. If selling is considered a way of dealing with financial pressure, understanding this distinction becomes particularly important. The value of the business and the financial position surrounding it both need to be part of the bigger picture.
One of the biggest questions when selling a business under financial pressure is what happens to the debt. A business may have outstanding amounts owed to the ATO, suppliers, lenders or other creditors. There may also be leases, finance arrangements and other commitments already in place. Finding a buyer does not necessarily mean all of these obligations simply disappear.
Secured creditors, such as banks and financiers with security registered over business assets, are generally paid first from the sale proceeds. What’s left may not be enough to cover the ATO, suppliers and other unsecured creditors.
Personal guarantees given to landlords, lenders or suppliers don’t transfer to a buyer. They stay with you unless the creditor agrees to release them. The same goes for director penalty notices, which can make directors personally liable for certain unpaid ATO debts such as PAYG withholding, GST and superannuation.
Selling for less than market value while the company is insolvent can also be reversed. A liquidator may be able to recover assets or proceeds that were transferred for less than their value, and directors involved in that kind of sale can face serious consequences.
The way a potential transaction is structured and the circumstances of the business can influence what happens next. This is why understanding the full financial position can be important before relying on a sale as the solution to mounting debt.
For a business owner, the question is not only “Can I sell the business?” It is also “What would my position actually look like after the sale?”
It can be tempting to wait for conditions to improve before making a decision. Perhaps a large customer is expected to pay. Maybe the next few months are traditionally stronger. Or you may believe that finding the right buyer will solve the immediate pressure. The difficulty is that financial problems can continue developing while you wait.
Cash reserves may reduce, supplier relationships can become strained, debts may continue accumulating and important obligations can become increasingly difficult to meet. At the same time, deteriorating financial performance may affect how prospective buyers view the business. Directors also need to be careful about continuing to trade while they wait for a buyer. If a company takes on new debts while it is insolvent, directors can be held personally liable for insolvent trading. By the time selling becomes urgent rather than optional, there may be less flexibility than there was earlier. Recognising financial pressure and understanding your position sooner can provide more time to explore what pathways may be available rather than making decisions when the business is already at a critical point.
Thinking about selling does not necessarily mean selling immediately is the only path worth exploring. If the underlying business still has customers, revenue and a viable future, it may be worth understanding what is creating the financial pressure before deciding what comes next. Accumulated debt may be placing pressure on otherwise sustainable operations. Cash flow timing may be creating ongoing difficulty meeting obligations. The business may also have become more complex without its financial systems or structure keeping pace. Depending on the circumstances, there may be opportunities to address parts of the financial position before making a final decision about the future of the business. The important point is not to assume your only choices are selling or carrying on exactly as you are.
Sometimes a business owner decides they want to sell only to discover that the process may not be as straightforward as expected. There may not be a suitable buyer. The value offered may not be enough to address the financial position. The business may also be under too much immediate pressure to wait through a lengthy sale process. At that point, understanding the broader options available becomes particularly important.
Depending on the circumstances, this may involve exploring restructuring or formal insolvency pathways. Different options are designed for different situations, including:
Small Business Restructuring (SBR) allows eligible small businesses, generally those with total liabilities under $1 million, to propose a restructuring plan to creditors while the director stays in control and the business keeps trading.
Voluntary administration places an independent administrator in control of the company to assess its position. Creditors then decide whether the company enters a deed of company arrangement, is returned to the directors or is placed into liquidation.
Safe harbour can protect directors from personal liability for insolvent trading while they develop and pursue a course of action reasonably likely to lead to a better outcome than immediate administration or liquidation, provided certain requirements are met, such as keeping employee entitlements and tax lodgements up to date.
Which option is relevant will depend on the business, its debts and its overall financial position. Exploring these pathways does not automatically mean the business is at the end of the road. In some circumstances, restructuring may provide a way for an eligible business to address financial pressure while continuing to trade. In others, a different course may need to be considered. The important thing is understanding the options before assuming there is only one way forward.
Business owners are often used to solving problems themselves. When things become difficult, the instinct can be to keep pushing, work harder and hope the next strong month will provide some breathing room. Sometimes conditions do improve. But when debt and cash flow pressure continue building, waiting can also make the situation more difficult. If selling the business has started to feel like the only way out, that may be a good time to get a clearer understanding of where things actually stand. What does the business owe? What assets does it have? Is the underlying operation still viable? What could a sale realistically achieve? Are there other pathways available? You don’t need to have already decided what you want to do before starting that conversation. Getting clarity on the position can help you better understand the choices in front of you.
Final Thoughts
Thinking about selling your business can come from many places. You may be ready for a change, feeling exhausted by the pressure of running the business or wondering whether selling could provide a way through growing debt and cash flow challenges. But selling isn’t always as simple as finding a buyer and walking away. Understanding the financial position of the business, what a sale could realistically achieve and whether other options may be available can provide greater clarity before you decide what comes next.
The earlier you understand where the business stands, the more informed those conversations can be.
Generally, yes. But the tax debt doesn’t disappear with the sale. It usually needs to be paid from the proceeds or dealt with another way, and directors may be personally exposed through director penalty notices.
Personal guarantees usually stay with you after a sale unless the creditor agrees to release them. If the sale proceeds don’t clear the guaranteed debt, the creditor may pursue you personally.
It may be possible, but it needs to be handled carefully. Selling assets for less than market value while insolvent can be reversed by a liquidator, and continuing to trade while insolvent can expose directors to personal liability. Getting advice before agreeing to a sale is important.
In some cases, yes. If the underlying business is viable, options such as Small Business Restructuring or voluntary administration may help deal with the debt while the business continues to trade.
If financial pressure has you considering the future of your business, you don’t need to have the answer before starting the conversation. Our Restructuring & Insolvency team can help you understand the current position of the business, the challenges you’re facing and the pathways that may be available based on your circumstances. Whether you’re considering a sale, exploring restructuring or simply want a clearer picture of your options, getting support earlier can help you understand what comes next.
Book a confidential, no-obligation chat with our Restructuring & Insolvency team on (07) 3910 6200 to talk through your options.
This article provides general information only and does not constitute legal, financial or tax advice. It does not take into account your particular circumstances. You should seek professional advice before making any decision about your business.
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