Preparing an agency for sale: a 12 to 24 month checklist

Why start 12 to 24 months before a sale?

A buyer pays for income it can verify, and the strongest evidence is a record kept as you go. Relationship handovers, contract renewals and a clean financial year all take time to show up.

The Australian Government's guidance for sellers suggests agreeing exactly what is included in the sale, referring to your succession plan, and making sure the information you give buyers is accurate and true, without misleading or deceptive behaviour. Each of those is easier with a long runway.

What should you do, and when?

A guide, not a fixed timetable:

What records will a buyer expect to see?

business.gov.au tells buyers to collect and check financial information independently and to examine three to five years of financials. Expect requests for:

• ·Financial statements and tax returns for at least three years, plus year-to-date accounts
• ·Revenue by client, landlord or account, reconciled to the accounts
• ·Book reports from your systems: a rent roll schedule tied to the trust ledger, an insurance book by class and renewal month, a loan book with trail by lender, a retainer schedule, a placement and contractor margin report, or booking income by supplier
• ·Signed client, management, agency and supplier agreements
• ·A staff schedule showing roles, tenure, pay and who holds which relationships
• ·Licences, authorisations, insurance and any regulator correspondence

What should you avoid in the run-up to a sale?

Each of these can flatter a single year, and each is what a buyer's due diligence is designed to find:

• ·Winning clients or managements on deep discounts to lift the count
• ·Moving your own or family accounts onto the book just before a sale
• ·Cutting a role the agency needs so profit looks higher for one year
• ·Changing fee rates without a record of clients accepting them
• ·Letting clients or staff hear of the sale before you have planned how to tell them

How does a valuation help before you go to market?

A baseline valuation measures the agency on the evidence a buyer will use, and its findings become your to-do list: gaps between the book and the accounts, add-backs without records, client concentration or key person risk. A second valuation closer to the sale, on the same basis, shows what has changed. It also gives co-owners an agreed reference point and helps you read offers whose retention, earn-out and settlement terms differ.

Hypothetical illustration, with invented facts: an insurance brokerage gets a baseline valuation 20 months before a planned sale. It finds the principal's private vehicle in the accounts, three of the ten largest commercial accounts dealing with the principal alone, and a book report that does not reconcile to the income in the accounts. Over the next year the owner documents the add-backs, introduces account managers to those clients and fixes the reconciliation. The second valuation records each change, and a buyer sees evidence rather than promises.

We value agencies; we do not list, broker or sell them, so neither our fee nor our figure depends on whether a sale goes ahead.

How does timing affect tax, including 30 June 2027?

For a sale under a contract, CGT event A1 generally happens when the contract is entered into, not at settlement (section 104-10 of the Income Tax Assessment Act 1997). From 1 July 2027 the 50% CGT discount for individuals, trusts and partnerships is replaced by cost base indexation and a 30% minimum tax rate on capital gains; the ATO states these measures are now law and apply to gains that accrue after 1 July 2027.

Where an individual or a trust holds the agency, a rent roll or shares across that date, the Act generally treats the asset as sold just before 1 July 2027 and reacquired, at market value or at an amount worked out under an apportioning method, so the relevant valuation date is 30 June 2027. A valuation at that date may be useful, but it is not strictly required. Companies never had the 50% discount, so their position is generally unchanged (a company asset acquired before 20 September 1985 is the exception), and the four Division 152 small business CGT concessions remain. Whether to sign before or after the change is a question for your tax adviser; this is general information, not tax advice.

What do we need from you?

For a baseline valuation, we usually ask for:

• ·Three years of financial statements and year-to-date accounts
• ·Revenue by client, or a book report that ties to the accounts
• ·Details of owner pay, related-party rent and one-off items
• ·Your largest client or management agreements and a staff schedule
• ·What you expect to sell: business assets, a rent roll or book, or shares

What does an agency valuation cost?

Every valuation is a fixed fee, agreed in writing before work starts, and a later update on the same basis is priced the same way. The band is set by the annual revenue, excluding GST, of what is valued: a rent roll's annual management income, an insurance or mortgage book's annual recurring income, or the agency's total annual turnover where the whole agency or shares or units in it are valued. Delivery time starts once payment and all required information have been received.

• ·Small Business Valuation: $1,495 + GST where the revenue of what is valued is under $2 million, delivered in 2 business days
• ·Medium Business Valuation: $2,495 + GST from $2 million to $3 million, delivered in 3 business days
• ·Large Business Valuation: $3,495 + GST above $3 million up to $10 million, delivered in 3 business days
• ·Above $10 million: quoted in writing before work starts, with the delivery date agreed before commencement
• ·Expert report for a dispute or court: $4,495 + GST, with the delivery date agreed before commencement
• ·Add-ons: +$495 per retrospective (past) valuation date and +$795 per additional entity