You have decided to buy a business in Melbourne (perhaps in Brunswick or Coburg). To begin with, you should have a sense that this business will suit you as a person, as well as your industry experience.
Your preliminary considerations should include researching the industry, the area (such as Brunswick, Melbourne), and the business’s direct competitors. You should also be confident of the reason that the vendor is selling it, and that you have identified the major risks for the future success of this business. Preliminary financial approval for any loan should be obtained.
Before investing time or money into the purchase, you should obtain the full name of the vendor, as well as their address, bank details, references, and perform a company / business / business name search on the vendor’s entity. If it is a small business, you will hopefully also have the Section 52 Vendor Disclosure Statement to review.
Then, we suggest that you invest money and time into ensuring that the business you’re buying is not overvalued. You should obtain the assistance of an accountant to perform the financial ‘due diligence’ on the business. We cannot understate the importance of this financial due diligence process. The valuation that you obtain should include a valuation of the goodwill, as well as the fixtures fittings and equipment, stock and work in progress.
At this stage, you may want to consider seeking some legal advice or assistance.
You need to ensure that the premises from which the business trades holds the necessary licences and permits (including health, building and planning) and that the purpose for which you intend to use the premises is approved by the local council.
If there is a lease which will be transferred to you, you will want that the business purchase to be conditional upon a successful transfer of the lease. Review the lease and be sure that you are happy with its terms. You may seek legal advice in relation to the lease review.
The Contract for Sale of Business
The next consideration is the terms of the sale.
To assist you to negotiate terms suitable to you, we suggest that you think about your answers to the following questions:
- Who will hold the deposit?
- What will the period of time be from the date of signing the contract until the date of settlement? Will this be enough time for you to arrange finance? Will it give the vendor enough time to arrange its staff, assign business contracts, and arrange lease transfers?
- How should the sale price be apportioned between goodwill, and plant fittings and fixtures? What will the implications for depreciation and capital gains tax be?
- How will work in progress be valued, and how will it be apportioned between buyer and seller?
- How will the outgoings be apportioned?
- Do you want the vendor to be restrained from approaching former customers, or otherwise competing with your business? For what period of time and what distance should the restraint operate?
- Will the vendor provide any assistance or support in the lead up to settlement, or for a certain period after settlement?
- Which employees will remain and which will leave? What terms will the continuing employees be offered?
- Who will be liable for the containing employee’s accrued annual leave, long service leave and other entitlements? How exactly will this be apportioned between buyer and seller?
If you would like to discuss a prospective business purchase or sale, we will be pleased to offer you an initial free 30-minute consultation to answer any questions and give you advice.