Close It or Sell It? A Guide for Owners

If you have reached the point of looking up how to close a business, you have already done the hard part, which is admitting you want out. What follows is a comparison, not a push in either direction.

Our position is this. Closing and selling get treated as the same decision arriving at different answers, and they are not. They answer two different questions that have become tangled: whether the business has a future, and whether you can keep going. Closing settles both at once by giving up whatever the business is worth, and it usually gets chosen while the second question is the loud one.

On regulated ground we quote the source rather than paraphrase it, so you can take it to your accountant. Before its steps even begin, the government's own closing guide lists what to look at if you are not sure:

Selling is on that list, put there by the same page people arrive at when they have decided to close.

The second thing worth noticing is what the guide makes step one. It is not financial.

Wellbeing ahead of the tax registrations, in a government procedure document. It is there because this decision is rarely made in a calm week, and we would say the same thing in stronger terms: a decision this size taken while you are exhausted is a decision about your exhaustion. There is a page of mental health and wellbeing support for business owners on the same site, and it is worth opening before the spreadsheets.

Closing is not the quick option

The word people use is walking away. What the process involves is closer to a project.

business.gov.au sets out eleven steps, and even the ones that sound administrative carry work. You still have to deal with the assets:

That means stock, tools, equipment, machinery, vehicles, furniture, domain names and intellectual property, sold individually and usually at a discount, since a closing down sale is not a strong negotiating position.

Then the obligations. Employees must be given written notice, with final pay and entitlements worked out against their contract, award and eligibility for redundancy pay. All outstanding bills must be paid. Tax registrations have deadlines attached:

If you trade through a company, that is a separate process again, and the clock does not stop while you get to it:

Records outlast all of it. business.gov.au states that you generally need to keep business records for 5 years and employee records for 7 years.

Whether any of that applies to your structure, and in what order, is a question for your accountant. The point here is only that the closing path has a timeline and a cost of its own, and that people comparing it against a sale usually price the sale properly and treat closing as free.

What the two paths leave on the table

Closing converts a business into the resale value of its parts, minus what you owe and what the process costs. Whatever the business was worth as a going operation is gone the day it stops trading.

A sale converts the same business into a price based on what it earns, which for most owner-led businesses is a materially different number.

That gap is the honest case for looking at a sale first. It is also where the difficulty sits, because the reason many owners conclude nobody would buy it is usually correct as things stand today.

"Nobody would buy it" is usually a description, not a verdict

When an owner says the business is unsellable, they generally mean one of a few things. The numbers are not strong enough. There is nothing there without me. It is too messy for anyone to understand. All of those are honest readings of a business as it currently runs.

None of them describes something permanent. They describe the business you have been running while exhausted, which is not the same as the business it could be.

That is not a promise that a fix is available, and it is definitely not a promise that one is quick. Turning an owner-dependent business into something a buyer will pay a proper price for takes twelve to twenty-four months of structural work, and it is the same work whether you sell at the end of it or stay. Our guide to preparing a business for sale sets out the order it goes in, and Our guide to owner dependency covers what buyers are pricing when they discount.

The honest version of the choice is this. Closing ends it now and gives up the difference. Fixing then selling takes one to two more years of a thing you are already tired of, and pays for those years at the end. Neither answer is right for everyone, and the second is genuinely harder than it sounds when you are worn out.

One thing worth saying plainly, because it comes up again and again in conversations with owners at this point.

Owners who describe their business as worthless are almost never describing the business. They are describing what it costs them to run it. Those are two different assessments, and only one of them is about the asset you would be selling.

It is worth getting someone else to make the first one, because after a few years of carrying it you are not the right person to judge what it is worth to somebody who would not have to carry it the same way.

A middle path most owners do not consider

business.gov.au's own list includes downsizing alongside selling and closing. It is worth a thought before you decide.

A business that is too big to run and too dependent on you is not always a business that needs to end. Sometimes it needs to become smaller, more profitable and less demanding, run to a level you can sustain while you decide properly. That is a different exercise from either closing or racing to market, and it buys you the one thing this decision usually lacks, which is time to make it in a better week than this one.

Before anything else, get your accountant to look at the numbers with you. The ATO also publishes a business viability assessment tool, which business.gov.au points owners to when the reason for closing is financial.

Frequently asked questions

Sources

• business.gov.au, Close your business
• business.gov.au, Mental health and wellbeing support for business
• Australian Taxation Office, Pausing or permanently closing your business