Business Buyers Guide
A guide to issues a buyer should be aware of and the tasks they should perform prior to settling a business purchase.
It is very important that the proper procedures are followed when buying a business, in order to protect both you and the seller.
The following are some useful information in this area:
- Settlement is the process of arranging the exchange and stamping of contracts, payment of all monies, all adjustments of rates and taxes etc.
- Your solicitor or settlement agent will help you in finalising the purchase, ensuring that the title to the business and the property passes to you.
- The contract should be made subject to arranging suitable finance (if required), inspection of records, receiving the required licenses and any other transfers.
- The business will have assets (eg. stock, fixtures, vehicles, equipment, trade marks, patents, copyrights, business names, leases, etc.), the titles to which must be properly transferred to you. These assets should be itemised in the agreement.
- You should be fully aware of the current and future liabilities (what the business owes) that you will be taking on. These liabilities should be itemised in the contract. The contract should state that liabilities not detailed will be met by the seller. It is far more preferable that the business is transferred free of liabilities.
- The contract should specify the date which you will take over the business (settlement date) and who will be paying the various fees.
- If appropriate, your solicitor can negotiate a covenant for you which will prohibit the seller from starting up a similar business to compete with yours. This covenant cannot be unreasonable and must meet the requirements of the Trade Practices Act.
- You can negotiate to work in the business for a trial period before settlement, to ensure that the accounting records and performance reflect the actual situation. You can also ask the vendor to train and assist you after the purchase.
- All business records should be handed over, eg. sales records, customer mailing lists, client histories, etc.
Prepared by Goodwin Mitchell O’Hehir & Associates with acknowledgement to Westpac and Business Enterprise Centres
Once your offer has been accepted and you are now awaiting the date when you can officially take over, there are numerous issues which you must attend to.
THE GMO 21 POINT CHECKLIST
- Check contract with your solicitor or settlement agent.
- Has the settlement date been confirmed in writing?
- Check that the business structure (eg. partnership, company) will be in place by this date.
- Will all licences, permits, etc. to operate the business be transferred by the settlement date?
- Do you have a bank account in place and cheque books, deposit slips, etc, printed?
- Have you arranged insurance cover?
- Have you contacted the suppliers and advised them of the change of ownership? Will they be prepared to extend to you the same terms of credit as the former owner?
- Will you need to contact your business’s customers to advise of a change of ownership eg. through a letter drop, personalised letters, personal visit or sign?
- Have you advised the appropriate service companies that there will be a change of ownership eg. power, phone, freight, equipment maintenance, printing, cleaning etc?
- Has your accountant set up or approved the accounting systems? Do you understand how they work?
- Have you contacted the Taxation Office to ensure that you comply with all their requirements?
- Do you require any training which will assist you in your business?
- Have staff arrangements been met?If the business is changing name:
- Have you registered the new business name and/or trademarks?
- Have you arranged new signage?
- Have you arranged stationery such as letterheads, business cards, compliments slips, invoices, statements, order forms, etc.?
- Do you need to prepare promotional material (eg. press releases, brochures, radio commercials etc.)?
- Have you and the Vendor jointly appointed a professional stocktaker?
- Are you aware of how much stamp duty you must pay on the purchase contract? Check with your settlement agent.
- Remember to check that on settlement day, all the plant and equipment is accounted for and is in sound working order.
- Confer with your solicitor as to whether you should lodge a caveat on the lease of the premises to protect your interests.
By ensuring all 21 tasks have been considered you will be in a far more secure position on settlement day!
The directors of Goodwin Mitchell O’Hehir & Associates have been actively involved in business sales and consultation since 1983. During that time Owen Mitchell, Jim Goodwin and Graham O’Hehir have negotiated the sale of businesses to a total value exceeding $420 million dollars.
The mix of businesses sold ranges from companies sold into public float on the Australian Stock Exchange, to quality retail outlets, smaller wholesale and manufacturing ventures, plus many service and franchise based businesses.
Contact: Graham O’Hehir on 9481 4422 or firstname.lastname@example.org
Some thoughts from Tan and Tan Lawyers on Business purchases
I believe one of the first issues to consider before buying a business is the question of whether you are suitable for the running of the business. For example, if you are not the type of personality that like to socialise with customers on a daily basis, then a restaurant business may not be a suitable type of business to get involved in.
Or imagine buying a mechanic workshop when you have no idea about vehicle maintenance. Everything can be learnt, but at the end of the day, the question is whether you will be happy in running such a business.
It is advisable that before you place an offer to purchase a business, an appointment be made with your lawyers. Tan and Tan Lawyers will be more than pleased to accept instructions from you if you have purchased a business. We charge our services on the same rate as settlement agents when it comes to business settlements.
However, in most business settlements, considerations also have to be made for perusing and advising on leases and possibly franchise documents. We charge for those services as per our standard legal charges.
The lawyer should assist you in drafting special conditions that may be necessary to ensure that you purchase the business properly. I include some of the special conditions that I may include in a contract. Each case is different and each business may have certain peculiarities that require consideration when drafting the special conditions.
An example of some special conditions that may be included:
The contract is conditional upon the following:
- The Purchaser’s solicitors approving the terms of the current lease of the premises within 10 days from the receipt of the said lease by the Purchaser.
- The Purchaser’s accountant approving the business records which are to be handed over to the Purchaser within 8 days of the acceptance of the offer. The accountant is to provide his approval in writing within 15 days of the receipt of the business accounts at the purchasers’ expense.
- Transfers or assignments of all supply contracts pertaining to the business.
- A due diligence trial by the Purchaser 2 weeks before settlement to evidence the turnover of the business is not less than $__0,000.00 per week +/- a variation of 10%.
- This offer is also subject to and conditional upon approval by the Director of Liquor Licensing of the application for transfer of the liquor licence No. _____________from the licensee, ___________ to the Purchaser.
- Settlement shall take place :
- Settlement shall take place on _______ 2003 after the Liquor Licensing approval for the transfer to the Purchaser of the liquor licence No. ________.
- The settlement shall only be arranged after the Lessor has signed the lease to be granted to the Purchaser.
- The lease and the liquor licence application is to be approved within 45 days from the acceptance of this offer failing which the Parties shall be entitled not to proceed with the Purchase and all rights pursuant to the usual conditions of settlement are to apply.
- The Vendor is to warrant that all liabilities for the business are paid up at the date of settlement and that there are no encumbrances on the business.
- The Vendor will at the settlement transfer all up to date and valid licences applicable for the business and the premises.
- The Vendor warrants that all title to the chattels and equipment (except the following items listed in paragraph _____ of the contract) included in purchase price belong solely to the Vendor prior to settlement and that the same is unencumbered. all equipment included in purchase price are to be in good working order at the date of settlement.
- The sale includes all plant and equipment as detailed in the schedule. The make & model of chattels and equipment are to be detailed. All chattels and equipment to be same at date of settlement as inspected after the receipt of the deposit by the Vendor. An inventory of all fixtures and plant and equipment is to be provided by the Vendor within 5 working days of the acceptance of THIS offer.
- The Vendor agrees to answer the Purchaser’s requisition on title prior to settlement.
- Upon settlement taking place, the Vendor and all directors and shareholders of the Vendor company undertake not to set up a competing business for a period of 2 years within a radius of 5 kms from the business premises. The restriction applies to any spouses and family members of the said Vendors if any.
- The sale price does not include stock estimated at $_____________, which will be valued by an independent stock take firm appointed by the vendor and the purchaser on the day of settlement. The Purchaser will within 3 working days from settlement pay the vendor a fair price decided by the stock take firm for the stock. Provided that the Purchaser is not obliged to accept any stock which in the purchaser’s opinion is not sellable.
- All employees’ service contracts are to be terminated by the vendor prior to settlement.
- The Vendor will provide the Purchaser and his nominee training in the operation of the business from the date of the liquor licence approval until settlement such training to be free of charge to the purchaser.
- Following settlement, the Vendors will be responsible for collection of their own debtors and payment of their own creditors. The sale price is inclusive of GST. The Vendor confirms that the business is being sold as a going concern and any GST liability is a liability of the Vendor.
- Upon payment of the deposit which is to be held by Tan and Tan as the stakeholders, the Purchaser is to be given access to the premises for the purposes of measurements for renovations.
- The Purchaser will be a nominee company set up by the Purchaser and the name of the nominee company is to be _____________.
- If any part of this agreement is or becomes void or unenforceable then that part will be severed without affecting the remainder of this agreement.
On the lighter side
Terminating lawyers with extreme prejudice.
Q. If a lawyer and an Tax Department agent were both drowning, and you only had time to save one of them, would you go to lunch or read the newspaper?
A: Any of the above.
Q: How do you keep a lawyer from drowning?
A: Take your foot off his head.
Q: How many lawyers does it take to stop a cement truck traveling at 57.9 mph?
A: Never enough.
Q: You have a gun with only two bullets in it and you are in a room with Adolf Hitler, Ted Bundy and a lawyer, what do you do?
A: Shoot the lawyer twice.
Q: How do you get a lawyer down out of a tree?
A: You cut the rope.
Q: Why is it so hard to drown a lawyer?
A: Scum floats.