Buying a business, like buying a house, is a major decision to make. It is not one to be taken lightly and is one which requires careful consideration. When buying a business, there are a number of things to consider. The following is a list of some factors to consider before you enter into a contract:
- Have you already consulted with your Accountant and are your financials in order? It is important to know your own financial position, budget and cashflow before you consider buying a business.
- Will the business contract have a cooling off period? It is important to know whether there will be a cooling off period before you enter into a contract to buy a business.
- What business entity will be purchasing the business? You as a sole trader, joint names as a partnership, in a company name, in your name or a company name as trustee of a discretionary or unit trust? This decision needs to be made before you sign a contract and it is recommended you consult with a lawyer to discuss the best business structure for you, the advantages and disadvantages of each and possible risks of each business structure.
- Are there going to be tax implications when buying the business? Will GST apply to the sale of the business? Are you (or the entity you are purchasing the business in) registered for GST?
- Is the business premises leased? If so, are you going to be negotiating a new lease or seeking to have the existing lease assigned to you? If the existing lease is being assigned to you, are there option terms which expire soon? Do you need to include special conditions in the business sale contract to make the contract subject to the landlord negotiating a new lease with option terms etc.
- Is there a retail shop lease involved? If so, you should consult with your lawyer as to the implications of the Retail Shop Leases Act 1994 (Qld) on the business you are buying.
- Are there any statutory requirements such as licenses, permits or other instruments required to operate the business?
- Are there any environmental issues such as asbestos, contaminated land etc?
- When negotiating the purchase price, have you thought about how stock will be dealt with? Is the purchase of the business on a ‘walk in, walk out’ basis?
- Are you going to retain all the existing staff, not employ some staff, or are you going to employ new staff? This will have implications on whether there will be adjustments to the balance payable at settlement, and is something which you should consider fairly soon after signing the contract.
- Are the existing staff permanent, casual or part-time? Are there any employees with more than 5 years employment with the seller? The answers to these questions should be found out before you sign the contract, as employee entitlements for holiday, sick leave and long service leave may continue after you have purchased the business.
- Is there any plant and equipment included in the purchase price? Is this plant and equipment leased, unencumbered or under a hire purchase arrangement?
- Will you be purchasing any motor vehicles as part of the business purchase? Will road worthy certificates be required?
- Do you need to negotiate a suitable length of time for training or tuition by the outgoing seller?
- What restraint of trade to you want to impose on the seller post settlement?
- Have you consulted with an insurance broker regarding the necessary insurance required once you have purchased the business?
- Usually the buyer is responsible to pay any transfer duties. As such, have you calculated the transfer duty payable on the purchase of the business? Have you budgeted for this and any other tax liability you will be responsible for upon buying the business?
This is not a comprehensive list but is merely a tool for you to use when considering issues you may need to address before you sign a contract to buy a business. It is important to fully consider any decision you make when buying a business.
We recommend you consult a lawyer to discuss the purchase of a business, before you sign a contract. Our Principal, Leigh Avuri can assist you in the purchase of a business. Please contact our office on 1300 699 129 to make an appointment today.