So you’ve been in business for a while and are looking to sell or are an aspiring business person looking to buy a business, but are not too sure where to start. When buying or selling a business, there’s a lot to consider and it’s important to engage with a commercial lawyer and other qualified professionals.
Let’s look at two scenarios below.
Scenario 1: The Retiring Business Owner
For the retiring business owner, the first step is to determine what your business is worth and ascertain the sale price you will be seeking. You will generally see your accountant to assist you with the first step. Most businesses are sold based upon profit or turnover so it is important to make sure that your figures are up-to-date and accurate. As well as ensuring the accuracy of your financial information, your accountant may also be able to provide some advice about the value of your business. This is also something that you would generally discuss with your preferred selling agent or business broker.
In addition to making sure that your financial information is correct, you should also prepare an accurate list of plant and equipment and other assets and consider the value of those assets. Most businesses will also include stock or work in progress, so you need to think about the value of those assets as well.
Further, it is common that the right to occupy the business premises is included as part of the sale. For premises that are leased this will involve the assignment of the existing lease or the granting of a new lease to the buyer. The lease will need to be examined to ascertain the requirements for assignment. Be aware that in many cases the assignment of lease does not automatically release the tenant, or anyone who has guaranteed the lease, from their obligations under that lease.
For a premises that you own you will obviously need to consider whether that premises is being sold as part of the business sale or whether you intend to retain the premises and grant a lease to the buyer.
You will also need to consider what form the sale will take place. You can sell the business itself or if you operate through a company or unit trust it may be possible to sell the shares or units to the buyer. This is something that would need to be discussed with your accountant to understand the taxation advantages or disadvantages of such a sale. The sale of shares in a trading company will generally not incur stamp duty and this can be an attraction for a potential buyer.
Once the structure of the sale has been decided and the business is ready to be put to market the next step is to discuss the proposed transaction with a commercial lawyer. Often a selling agent or broker will ask for a draft contract to be prepared for negotiation with prospective buyers. In complicated matters it is also common for your commercial lawyer or selling agent/broker to prepare a heads of agreement outlining the key terms agreed upon by the buyer and seller. This will then form the basis for the contract to be prepared by your commercial lawyer. Once the contract has been drafted and the terms have been agreed by both parties, the contract is executed and exchanged. The contract will contain agreed terms and conditions, which commonly include the buyer’s due diligence, finance and approval for the assignment of the lease of the premises, or the granting of a new lease. Your commercial lawyer will oversee and assist in relation to the satisfaction of these conditions and will also prepare the necessary documentation to transfer the assets and release any encumbrances, deal with the transfer of employees and their entitlements, determine the adjustments and payments required for settlement, and conduct the settlement.
Scenario 2: The Aspiring Business Buyer
So you’re looking to buy an existing business but not sure where to start or where to look? You might spot a business owner selling their business on a social media or online platform however the usual avenues also still apply as commercial real estate agents commonly list businesses for sale. Many businesses are also sold through direct negotiation with employees, associates or competitors.
It is common practice that the seller’s solicitor prepares the contract. Therefore it is important that you engage a commercial lawyer to review the proposed contract and its terms before you sign. You need to make sure that the contract is subject to the conditions you require, or that are legally necessary to ensure that you obtain what you bargained for. Just like buying a house, buying a business typically follows a similar process. Once a contract is signed, you and your advisors will conduct enquiries and searches to ensure that you are informed and satisfied with the business you are purchasing. As discussed above, it is common for business contracts to be subject to a due diligence period during which you have the opportunity to examine the financial affairs of the business and its assets and customer base. Your commercial lawyer and your accountant/financial adviser will assist you in reviewing and evaluating the results of these enquiries and searches. Once all the contract conditions are satisfied, your commercial lawyer will ensure that all steps are taken to transfer the business assets, free of any encumbrances and deal with all necessary settlement adjustments, including the adjustment of employee entitlements.
You will then be the proud owner of your new business.
If you’re looking to sell or buy a business, get in contact with our Commercial Lawyer Chloe Moes on (07) 4046 1178 to discuss your needs.