But if selling your business is even remotely on your horizon, how you approach stocktake this year could have a much bigger impact than you realise.
At LINK Business, we’ve seen time and again how a few smart moves (or a few missteps) at EOFY can seriously affect the value of a business when it’s time to sell.
Let’s unpack why this matters and how you can set yourself up for the best possible result.
Stock Levels and Business Value: The Link You Can’t Ignore
When preparing a business for sale, many owners focus on the obvious: improving profits, cleaning up operations, and showcasing future growth opportunities.
What often flies under the radar is how stock management plays a crucial role in valuing the business.
Here’s the key:
- Your business sale price is typically based on a multiple of your net profit.
- A higher net profit leads to a higher valuation, it’s as simple as that.
- Your stock levels directly impact your net profit, and not in ways you can easily “correct” later.
Running stock down to minimise taxable profit might feel like a smart EOFY tactic, but if it lowers your net profit, it could cost you thousands more in lost business value than you’ll ever save in tax.
For example, every extra $1 of net profit you can demonstrate could potentially add $3 (or more) to your asking price, depending on your market multiple.
Meanwhile, saving 25 cents on the dollar in tax by lowering your closing stock is a short-term gain, but a serious long-term loss if you intend to sell.
What Happens When You Reduce Stock
Reducing your stock levels at EOFY might seem like an easy win when it comes to trimming down your tax bill, but when you’re selling, it can have serious consequences for your business valuation. By lowering your closing stock figure, you inadvertently reduce your gross profit and, in turn, your net profit. Because business valuations are typically based on a multiple of net profit, even a seemingly small reduction can have an outsized impact on the eventual sale price.
In real terms, what you save in tax by minimising your stock could cost you three times that amount, or more, when it comes to the value placed on your business by the market. It’s a classic case of short-term gain versus long-term loss, and one that can be easily avoided with the right advice and planning.
Smart EOFY Moves That Won’t Damage Your Sale Price
You might still be wondering: “How can I minimise tax without hurting my business valuation?”
There are smarter strategies that don’t impact your net profit or can be easily ‘added back’ during a sale appraisal:
- Prepay rent for the next financial year (this can be treated separately at settlement).
- Invest in capital improvements that enjoy 100% write-offs.
- Reimburse discretionary expenses like travel, gifts, and donations through the business.
- Tidy up the business: a new website, branding refresh, repainting, these one-off costs can often be highlighted (and added back) when marketing your business to buyers.
It’s important, though, to discuss these strategies with your accountant, alongside one of our experienced brokers. Every business is unique, and the right approach depends on your individual circumstances.
At LINK, we partner with specialist accountants regularly and can point you in the direction of trusted advisors who understand the ins and outs of preparing a business for sale.
Thinking of Selling in the Next 1–3 Years? Start the Conversation Now
EOFY is the perfect trigger to start getting your house in order. Whether you’re planning to sell in 12 months or in three years, the actions you take now could determine the eventual price you achieve.
If you’re even slightly curious about what your business could be worth today, talk to us. Our in-depth, no-obligation business appraisals use LINK’s exclusive industry-leading tools, comparative sales data, and the insight of Australia’s largest network of business brokers. It’s free. It’s confidential. And it could be the smartest business move you make this year.
Ready to find out what your business is really worth? Get in touch with us here to find out more.
