How to sell an NDIS business

When it comes to selling your NDIS business, there’s one key issue that most business owners fail to consider in their early planning phase; can the buyer acquire the business based on the way your registrations are structured? If the answer is ‘no’ or ‘I’m not sure,’ then you may find yourself spending months preparing for a transaction that fails at the very end. The NDIS market currently sees some of the most robust acquisition activity in the Australian economy, supported by significant demand from industry buyers and private equity. However, the mechanics of these deals are more complex than traditional small businesses, and missteps can result in wasted effort and unnecessary delays.

In this guide, we’ll run through the step-by-step process for selling your NDIS business, including structuring the deal, valuing your business, managing confidentiality throughout the marketing phase, and making sure you avoid the pitfalls that plague many NDIS transactions. If you’re already certain about moving ahead and prefer to discuss your options, Benchmark’s experienced team can help you explore your options.

Share Sale vs Asset Sale: Why the Deal Structure Matters

Depending on how you sell, the buyer will have either your NDIS registration or need to get one of their own. This difference will affect the timeline, the valuation, and whether the transaction is completed at all.

If it’s a share sale, then the buyer purchases your company; the legal entity with your NDIS registration. Since the same legal entity remains, then the NDIS registration goes with it, and the buyer acquires all associated rights and obligations, including service agreements, provider numbers, audit history and even employees. In case of NDIS entities of worth $500K or more, this method of transfer is preferable as it preserves your NDIS registration and does not require any time-consuming applications.

In case of asset sales, your company remains intact, but assets such as equipment, list of clients, goodwill and intellectual property are transferred. The NDIS registration will still be tied to your entity, and the buyer will either have their own registration or will have to go through a lengthy application process before purchasing.

How to Check if Your NDIS Registration is in a Transferable Structure

Your registration can be transferred via a share sale transaction if your registration is embedded within the company structure, which is commonly referred to as Pty Ltd.

In cases where your registration is under a sole trader, partnership, or even a trust (where the trustee structure creates an issue for selling your business), a simple share sale transaction may not be applicable. You can verify this from your NDIS registration certificate, which shows the name of the entity with its ABN number. From there, cross-check this information from your ASIC records. Your registration under a sole trader ABN number would be attached to you individually and cannot be sold as a share sale.

The ideal period when you should do this would be about 12 to 18 months prior to your planned business sale. Since this is an exercise that requires restructuring and transferring your registration to another entity, you must consider the time needed to establish yourself under your new identity. So, start your exit planning for the business well ahead of your target sale date.

When an Asset Sale Might Still Be the Right Option

Share sales tend to dominate in dealings within NDIS, and it is not difficult to see why. However, there are instances when selling off the property and allowing the buyer to establish a separate entity would serve the interests of all parties involved.

In the event that your organisation has had previous problems concerning compliance within the NDIS Quality and Safeguards Commission, it is unlikely that you would find an investor who would be willing to take over your business with baggage. The audits that were previously conducted, as well as the conditions imposed by the commission, would have been filed against the entity.

The same can be said when the business entity has tax obligations, pending lawsuits, or other debts that the new owner will not want to inherit. If shares are sold, all assets within the business entity will be transferred to the new owner, even those issues you think are already settled but are recorded in your accounting books. Understanding the implications of selling a business with debt is important before deciding which structure to use.

Asset sales will be possible even where the buyer is a registered NDIS provider. They do not require your registration because what they seek is access to your clients, referral sources, and staff. In such a situation, an asset sale will actually be more effective since the buyer does not have to go through the notice of change of ownership procedure for the registration.

The drawback is stamp duty concessions, which are different for each state, and the point that new service agreements must be made with the new party. For further information on stamp duty for commercial purposes, we have included our stamp duty guide. These issues are not critical, but they do need to be considered.

What Your NDIS Business is Actually Worth

The value of an NDIS business is calculated based on profitability rather than sales. A company that generates $3 million in sales with a total EBITDA of $200,000 is not more valuable than a company that makes $1.5 million in sales and has EBITDA of $400,000. The purchaser is buying a revenue stream, and it is this that determines the price multiple.

How EBITDA Multiples Work for NDIS Businesses

EBITDA, (which stands for earnings before interest, tax, depreciation, and amortisation) is the universal metric that potential buyers will employ to value your NDIS company. The multiplier on your EBITDA will be the value of your firm. Read more about this valuation method in our EBITDA valuation guide.

NDIS businesses valued at less than $300,000 in terms of EBITDA would be sold at 2x to 3x earnings. This type of provider business is run by the owner, who plays an important role in delivering the services and managing the firm. The purchaser buys a job, and the multiple represents a risk that revenue may drop once the owner leaves.

NDIS providers generating EBITDA ranging from $300,000 to $1 million would receive multiples of 3x to 4.5x. By this stage, there will be some management system within the company as well as a wider base of clients, without much reliance on one individual.

Larger NDIS firms (those generating more than $1 million in EBITDA) may fetch a multiple of up to 4.5x to 6x or even more. Private equity investors are quite active in this market, and they pay a higher multiple to firms that suit their acquisition criteria.

These numbers provide just rough guidelines, and the true multiple would depend on the factors mentioned in the following section.

The Metrics Buyers Use to Assess Value

EBITDA is only one of many different criteria that are analysed when making a decision about buying or selling a business.

A key criterion here is client concentration. If your top five participants account for 40% of your income, it’s already too much. If any plan manager or support coordinator can have access to the majority of your referrals, it can be dangerous.

Staff retention is important because NDIS businesses are essentially people businesses. Turnover means that something is not working properly within the operations and hiring replacement for support workers will be costly in today’s labour environment. A company with a strong, experienced staff with intentions to stay during the transition phase is more valuable than a company where staff is retained based on the personal relationship between the owner and employees.

Having recurring income from active NDIS participants helps secure future revenue for potential buyers. Having a high percentage of active participants that have plans for at least 12 months ensures better value for the company.

Previous compliance history with the NDIS Quality and Safeguards Commission is closely examined. Having a clean history without any conditions set to be met before the company becomes registered and having appropriate procedures in place creates value. Past complaints and compliance issues devalue the company. If you’re unsure where your business stands, our business valuations service can give you a clear picture of your position before you go to market.

Four Things That Increase Your Sale Price Before You Go to Market

So, when should you start preparing your NDIS business for sale? Ideally, 12 to 24 months prior to putting it on the market. Why so long? Because many of the factors that contribute to premium valuations require preparation, and they cannot be created overnight.

Install a Management Layer so the Business Runs Without You

If you are the individual responsible for all the decisions related to rostering, handling complaints from participants, interacting with support coordinators, and making all operational decisions, there exists a dependency on you as an owner. This issue is visible to potential buyers and is reflected in the pricing.

To solve this issue, it would be best to introduce an intermediate management level between yourself and the operation of the business. For instance, this could involve recruiting an operations manager or promoting one of the senior support coordinators to a team leader position. You can also consider formalising the decision-making powers that you currently exercise informally.

This does not imply that you become invisible. Instead, the buyers get to see proof in writing that someone else besides you supervises employees and deals with emergencies without your input. Proof of this kind is worth its weight in gold during negotiations. Addressing owner dependence early is one of the key elements required for a successful business sale.

Diversify Your Client Base Below the 20% Revenue Threshold

When taking an NDIS business to market, a good principle to follow is that not more than 10% of the revenue comes from any one participant, and not more than 20% comes from any one referral source. Once any of these thresholds is exceeded, you will face a situation called “concentration risk”, which will affect your multiple.

To overcome concentration risk, you will need to diversify your revenue sources. This requires active marketing to reach other participants and establishing contacts with more support coordinators and plan managers. In some cases, expansion into services adjacent to yours, which attract different participants, may be required. However, this process requires about 18 months to be completed.

Clean Up Your Compliance History with the NDIS Quality and Safeguards Commission

The buyer and their lawyer will ask for a complete record of all your compliance efforts during due diligence. If there are still pending complaints against you, restrictions on your registration, outstanding issues regarding audits, or incomplete reports of incidents, it can cause you minor troubles, such as lowering the selling price or major troubles like killing the deal altogether.

If there are any pending cases at the Commission, try to resolve them before putting up the business for sale. If you haven’t had your policies and procedures checked since your previous audit, do it now. If you have any missing reports in your incident register, update it.

If there have been compliance problems that are old enough and have already been sorted out, write up a summary of what took place, how it was addressed, and the results, as well as changes implemented to stop it from happening again. People are less upset by previous problems, provided these have been sorted out properly, than being surprised by something coming to light as part of their research. Running a health check on your business before listing helps you identify and resolve these issues early.

Get Your Financial Records Audit-Ready

Buyers and their accountants are going to go through your financial records with a fine-tooth comb. They need clear, steady numbers they can trust to figure out what your business is actually worth and how much they’re willing to pay.

At a minimum, that means having three years of solid Profit & Loss statements, Balance Sheets, BAS lodgements, and tax returns, all prepared by a qualified accountant. If you’re an NDIS provider, make sure your financials break down your income clearly by service, like SIL, community participation, therapy, plan management, etc. This lets a potential buyer immediately see which parts of your business are soaring and which ones are just ticking along.

If you’ve been running personal stuff through the business, or if your records mix NDIS income with other random business activities, you absolutely need to clean that up before you even think about going to market. ‘Addbacks’ (adjustments for personal expenses) are totally normal in a business sale, but if there are too many or they’re confusing, it makes buyers nervous. Simply put, the tidier your books are, the quicker your due diligence will be, and the fewer excuses a buyer will have to try and chip away at the price after they’ve made an offer.

Who is Buying NDIS Businesses Right Now?

The NDIS market has been drawing in heaps of interested buyers since the scheme really got going, and that interest has only grown as the sector finds its feet. Knowing who’s actually out there looking is key. It helps you figure out the best way to present your business and have realistic ideas about the sale price and how the deal will be put together.

Industry Buyers Looking to Grow Through Acquisition

The most frequent types of purchasers within this market are established NDIS providers. This includes existing operators that have their NDIS registration in place and are looking to broaden their geographic scope or include additional service lines, as well as grow the number of participants in their care without resorting to traditional growth paths.

When it comes to a purchaser from the same industry, purchasing your company means taking over its employees, participants, referral channels, and reputation all at once. If it is already an operator with an NDIS license, they could consider both share sales and asset purchases based on what works better for them organisationally. Being familiar with your industry, they will do due diligence more efficiently and quickly than outsiders would.

Industry players tend to be quite budget-conscious and would compare your EBITDA multiple against their experience in other NDIS purchases. The only situation when a premium EBITDA multiple might be considered would be if your company provides them with some unique opportunities not covered by other options.

Private Equity Firms Targeting Larger Operations

The level of interest in the NDIS by the private equity community has seen marked increases over the last four years. The opportunity lies in a funded market based on recurring income streams from the government, as well as substantial fragmentation amongst several thousand small providers.

In most cases, private equity buyers will target NDIS providers with EBITDA exceeding $750,000, with many not being interested below the $1 million mark. These buyers are interested in acquiring NDIS businesses, which they can use as a platform for further acquisitions to scale up their operation.

Private equity buyers would offer premium valuation multiples, with valuations reaching 5x to 6x EBITDA in some cases. However, due diligence and transactional complexity for such buyers is substantially greater. Furthermore, the time frame involved with a sale process with such buyers is longer compared to a typical industry sale process. Should your NDIS business qualify for private equity investors’ attention, the results could be highly beneficial. Understanding how much someone will pay for your business depends on knowing which buyer type you’re likely to attract.

The NDIS Change of Ownership Process

Selling a business in the NDIS requires adherence to regulations which do not apply in any other sector. Errors in these may stall the deal, and, in extreme cases, jeopardise the buyer’s registration.

Notifying the NDIS Quality and Safeguards Commission

Where there is a change in ownership of an NDIS registered provider via a share transaction, this change needs to be reported to the Commission. Notification is mandatory by law, per the NDIS Act.

This notification needs to provide information about the new corporate structure and new directors/personnel, as well as proof of suitability of the new owners. More information might be sought by the Commission in addition to interviews with the incoming owners. It may also put certain conditions on the NDIS registration in the meantime.

Timing here is crucial, with notification to be provided early on after signing the sales contract, ideally before settlement is effected. Failure to do so increases regulatory risks that are unacceptable to any reasonable buyer.

Participant Choice: Why Clients Cannot Be Automatically Transferred

NDIS participants have the option of choosing their service provider, which is one of the fundamentals of the scheme, meaning that it would not be appropriate for you to sell your clients without considering whether they will continue to use your services.

Most of the time, the participants will continue using the services from the company after an ownership transfer, especially when the same support workers continue working in the organisation. However, each participant, whether it is the participant themselves, the nominee, or the plan manager, needs to be notified about the change in ownership.

The manner and timing of your communication will play a pivotal role here. If done right, you will likely see participant retention rates of more than 90%. However, if done incorrectly, you might lose your participants even before reaching the point of settlement. Not only would that reduce the value of the sale, but it could also cause your agreement to be subject to adjustment clauses in the contract.

This is where your broker’s experience in NDIS sales will give you an edge.

How to Market Your NDIS Business Without Disrupting Operations

The NDIS sector runs on relationships. The participant trusts the support worker, the coordinator trusts the provider that he refers the participant to, and staff trusts their employers’ stability. An incompetent sales process may harm these relationships before making any sales at all.

Confidential Marketing and Why it Protects Your Sale Price

All NDIS businesses for sale must be sold confidentially. This means that the name of the business is never advertised, promoted, or mentioned until such time as a buyer has signed a confidentiality agreement and been determined to be a genuine buyer of the business. The buyer receives what is known as a ‘teaser’, which includes a description of the business in sufficient detail to pique interest, but without divulging the identity of the business.

This provides you with a number of safeguards. Your employees will not become aware of the sale of your business and start looking for other employment. Your participants will not become distressed through uncertainty, and your referral partners will not redirect to other providers. If the sale does not go ahead for whatever reason, your market position remains unaffected.

There is no denying that such an option can be quite risky. One particular NDIS provider in Queensland experienced a loss of three support coordinators, who were the referral source, when news got out that their company was up for sale. They switched the participants to another company, and consequently, the sale process started at 15% less turnover compared to what had been predicted. This is a pattern Benchmark has seen across many industries, including when selling cafes confidentially and in other relationship-driven sectors.

What to Include in Your Information Memorandum

The information memorandum (IM) is the document used by serious buyers in evaluating your company. In the case of an NDIS provider, it should contain more than what the usual financial and operational information would provide.

An effective information memorandum for an NDIS provider would be one that discusses the following topics: service provision and corresponding NDIS line items billed; registration group(s) registered along with limitations; financial performance for the past three years categorised per service line; employee count with educational attainments and experience level; number of participants with concentration analysis; details of the property/leasehold improvement; compliance and audit history; and market profile such as competition presence and referral arrangements.

The preparation of the IM should provide the buyer with accurate representations of the business. It is not advisable to exaggerate financial figures and number of participants since this can backfire on due diligence. The most effective information memorandums contain enough information for the purchaser to make an educated decision whether to advance further into the next phase of the process.

Common Mistakes That Kill NDIS Business Sales

Having worked on thousands of business transactions in various industries, we can say that the same pitfalls occur in the NDIS industry. This is not something abstract; it’s the very reason why deals break down, and offers are reduced to the point where sellers are left to start all over again from scratch despite spending many months of effort on preparations.

Starting too soon is by far the most frequent of these pitfalls. Business owners who have owner dependence or customer dependency issues or poor finances expect that such matters can be resolved while going through the transaction process. That is a misconception; buyers recognise such issues in weeks and will either leave the deal alone or drop the price they’re willing to pay. Our quick-start guide to selling a business covers the preparation steps that apply across all industries.

Pricing the business according to turnover rather than EBITDA is another common mistake made. A business with $2 million in turnover sounds like a big business until you realise that the owner is taking $80,000, costing $1.8 million in wages and operational costs, and earning only $120,000 in profit. Turnover is vanity. EBITDA is what buyers multiply to pay a certain amount, and confusion about this makes selling the business difficult.

Another common mistake is not ensuring that key staff members stay employed prior to listing. The problem becomes exacerbated when the buyer does their due diligence and realises that the senior support workers or supervisors are planning on leaving or that the business lacks employment contracts. A seller who ensures retention measures and employment agreements before putting the business on the market eliminates one of the largest risks involved in the purchase. Being upfront and discussing things with key staff members is important here.

Making the wrong decision on when to tell the staff members is a decision that is always wrong either way. Telling them too early results in anxiety and gossip that might result in staff leaving. However, telling them too late leaves the feeling of being blindsided. There are cases where telling them the right time is subjective, although generally, managers need to be told about the decision prior to any settlement, while other employees are told immediately after or during the process, with a strategy put in place for informing the new owner.

Not having a participant communication strategy is comparable to making a financial mistake because in the sale of an NDIS business, the buyer is buying the participant connections. If the participants do not get adequate information and are given real options during the changeover period, the buyer ends up with customers who are already seeking other avenues. Such a situation will force the buyer to lower the offer price or incorporate earn-outs based on retention.

Why Most NDIS Sellers Need a Broker Who Understands the Sector

Selling a business is already difficult. When selling an NDIS business, there are added elements of regulation, participant rights, and workforce concerns, in addition to the history of compliance checks not present in other industry sectors. While the broker may be great at what they do and sell many cafés and retail stores successfully, their lack of knowledge about the peculiarities of an NDIS sale could leave them unable to advise you correctly.

The NDIS notice of change of ownership process, the effect that the type of transfer between registration groups has, how NDIS plan cycles impact your financial predictions, and other matters concerning participants are all matters that only someone in the know will be able to advise you on properly.

Benchmark has specialist business brokers who have experience working within the NDIS industry and know all about the regulatory environment, the buyers’ profile, and the deal structures. These experts know all about the buyers that are currently looking for acquisitions and the multiple levels at which these deals are being made. They also know how to go about notifying the Commission without causing any delays in the deal’s closing process.

Talk to Benchmark About Selling Your NDIS Business

When looking at options to sell your NDIS business, one of the things you need to do first is assess its value and determine how well it is positioned to be sold. Benchmark provides confidential and obligation-free appointments with brokers that deal exclusively in the NDIS industry. We’ll help you evaluate your standing and advise on what should be done before listing your business.

Contact us today for an obligation-free chat either by phone or through our online enquiry form. It’s free and it’s totally confidential.

FAQs

How long does it take to sell an NDIS business?

It takes about four to eight months to sell an NDIS business, starting from listing until closing. The selling period will depend on how complicated the deal is and the level of due diligence that buyers have to undergo, not forgetting the change in ownership notice from NDIS Commission. The sales will also be longer when you are dealing with private equity buyers because the due diligence will be more extensive. For a broader look at sale timelines across different business types, see our guide on how long it takes to sell a business.

Can I sell my NDIS business if my registration is held in a discretionary trust?

It would depend on whether the trust is set up by a corporate trustee. In cases where the discretionary trust is managed by a corporate trustee, it may be feasible for a potential purchaser to purchase the shares of the corporation. In cases where the trustee is an individual, there won’t be a share sale and restructuring may be required prior to the sale of the business.

Do I need to tell my staff I am selling?

Not right away, and certainly not all at once. In fact, most people choose to keep their sale under wraps with respect to their employees until very close to completion. The management team will certainly need to be made aware prior to closing, but the rest of your team will only need to know when you have closed or very soon thereafter.

What happens to participant service agreements during the sale?

During the sale of shares, there will still be active service agreements since the contracting parties do not alter in any way. This is because the buyers take over the business and the agreements stay in effect. In case of an asset sale, new agreements have to be made by the participants and the entity representing the buyer. The participants have to know about this change in ownership and be allowed to decide if they want to go with the buyer or switch to someone else.

What EBITDA multiple should I expect for my NDIS business?

The EBITDA multiple of an NDIS business will depend on the size and nature of the business, and currently ranges from 2x to 6x. Owner-operated businesses that have EBITDA below $300,000 will generally have multiples between 2x to 3x, while midsize companies with EBITDA above $300,000 and up to $1 million will be offered multiples of 3x to 4.5x. Larger companies that have more than $1 million in EBITDA will command multiples of 4.5x to 6x and even more, depending on the buyer’s profile.