What do I need to do to buy a small business?
When purchasing a small business it is critical that you first undergo your own research on the business that you are buying, understand the market and the risks associated with the business. Once you have conducted your own research and a detailed due-diligence, you will be in a position to start negotiating with the vendor in relation to the terms of the sale.
How do I conduct detailed due-diligence?
-Conduct searches and gather information:
Prior to signing a contract, relevant searches should be carried out either by yourself or by your Lawyer. These searches include company searches, business name searches, ABN searches, Certificate of Title Searches and PPSR searches. You should also gather documents in relation to the business structure and operations, licences, leases, deeds, financial statements, reports, insurance policies, contracts with suppliers and subcontractors as well as any documents relating to the employees. This information will provide you with a detailed overview of the business;
-Analyse the financials:
It is essential that you conduct a thorough analysis on the financials of the business, which may be conducted through a forensic accountant;
-Ownership of assets:
You must determine the legal ownership of the business assets; and
You should examine any past or present legal disputes or litigation that the business may be involved in.
What documents do I need to have in place when selling a business?
Once the terms of the sale have been negotiated with the purchaser, a business sale agreement should immediately be drafted. If the business premises involves a lease then a transfer of lease document or new lease document will be required. Alternatively, if the business premises is also being sold to the purchaser then a contract for the sale of land will need to be drawn up and the conveyance of land will need to occur once the contract is signed. If the shares within a company are being sold along with the business assets then a share sale agreement will be required.
What information is included in a Business Sale Agreement?
The Business Sale Agreement will outline the assets that are being transferred to you, the purchase price payable, all relevant liabilities of the business, any restraint of trade conditions, the transfer of employees and their entitlements, any special conditions and information to outline the procedure that is to occur in the event that problems arise.
Why is it important to have legal documents in place?
Having that plan or idea drawn up in the form of a legal document can help maximise the value of your business, save you money, stress and time in the future. The main reasons why it is important to have legal documents in place are:
To prevent misunderstandings;
To ensure that your agreement is binding;
To ensure that all parties are on the same page;
To protect the parties if something goes wrong;
To help prevent problems occurring; and
To clarify what is expected of the parties.