This article was first published in the website of Tan and Tan Lawyers.
It was prepared by Goodwin Mitchell O'Hehir & Associates (“GMO”) with
acknowledgement to Westpac and Business Enterprise Centres.
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:
is the process of arranging the exchange and stamping of contracts,
payment of all monies, all adjustments of rates and taxes etc.
solicitor or settlement agent will help you in finalising the purchase, ensuring that the title to the business and the property passes to you.
contract should be made subject to arranging suitable finance (if
required), inspection of records, receiving the required licenses and
any other transfers.
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.
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.
contract should specify the date which you will take over the business
(settlement date) and who will be paying the various fees.
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.
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.
business records should be handed over, eg. sales records, customer
mailing lists, client histories, etc.
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
THE GMO 21 POINT CHECKLIST
contract with your solicitor or settlement agent.
the settlement date been confirmed in writing?
that the business structure (eg. partnership, company) will be in place
by this date.
all licences, permits, etc. to operate the business be transferred by
the settlement date?
you have a bank account in place and cheque books, deposit slips, etc,
you arranged insurance cover?
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
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?
you advised the appropriate service companies that there will be a
change of ownership eg. power, phone, freight, equipment maintenance,
printing, cleaning etc?
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
Do you require any
training which will assist you in your business?
arrangements been met?
If the business
is changing name:
registered the new business name and/or trademarks?
Have you arranged
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
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.
Some thoughts from Tan and Tan Lawyers on Business purchases
We 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 settlement agent or lawyers.
Portfolio Settlements are more than pleased to accept instructions from
you if you have purchased a business.
However, in most business settlements, considerations also have to be
made for perusing and advising on leases and possibly franchise
documents. We will refer such matters in-house to Tan and Tan Lawyers.
agent should assist you in drafting special conditions that may be
necessary to ensure that you purchase the business properly.
We include some of
the special conditions that we 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: