Selling a Business? What You Need to Know About Goodwill, Plant & Equipment, and Stock
We regularly help Perth-based business owners navigate the complex process of selling a business. Whether you're preparing for retirement, pursuing new ventures, or simply ready to move on, understanding how your business is valued is crucial — and a big part of that is knowing what buyers are really paying for.
While there are multiple methods used to value a business — from asset-based approaches to future earnings projections — three key components typically make up the final sale price: goodwill, plant and equipment, and stock.
Goodwill (AKA, the hidden value in your business).
Goodwill represents the intangible assets that make your business more valuable than just the sum of its parts — essentially the buyer’s expectation of continued profitability. It’s what makes your business unique and desirable, especially if you have a strong presence in your local market or niche industry. This could include:
- Your customer base.
- Brand reputation.
- Location advantage.
- Established supplier relationships.
- Staff expertise and retention.
Because goodwill is an intangible asset, it's often the most heavily scrutinised in negotiations. Having strong financials and consistent earnings can help justify a higher goodwill valuation.
Plant & equipment — your business’s backbone.
Plant and equipment include all the physical assets your business owns — from office furniture to manufacturing machinery or even company vehicles. The condition, age, and market value of these items directly affect your business valuation.
For capital-intensive industries (like construction, manufacturing, or logistics), this component can make up a large share of the sale price, while other sectors won’t be impacted too heavily by this area. Even so, it’s still important.
A well-maintained equipment list with clear records of depreciation will help strengthen this part of your valuation.
Stock at date of sale.
What’s on the shelves or in the warehouse matters to your buyer. Stock — or inventory — includes all the goods your business holds for resale or use in operations. The quantity, quality, and turnover rate of your stock at the time of sale can significantly affect the final price.
In some cases, businesses also hold shares in distributors or suppliers, which can increase stock value and influence negotiations. Just remember that stock is assessed at the date of sale, and must be itemised separately in the contract for tax clarity.
Why this separation matters.
When preparing your sale agreement, it’s essential to clearly separate goodwill, plant and equipment, and stock because each is treated differently for tax purposes. For example:
- Goodwill may be subject to capital gains tax (CGT).
- Plant & equipment may fall under depreciable assets.
- Stock is often treated as trading stock for income tax purposes.
Additionally, while the sale of a business as a going concern is typically GST-free, mistakes in structuring the agreement could lead to unexpected GST obligations. That’s why we strongly recommend working with both an Accountant and a Lawyer to ensure your contract is correctly structured and tax-compliant.
Ready to sell? Talk to Ascent first.
Selling a business is a major financial event — and getting the valuation right is key to a successful outcome. At Ascent Accountants, we help business owners in Perth understand the true value of their business and guide them through the sale process, from valuation to contract support and tax planning.
Reach out to learn more and schedule a confidential consultation.
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