Buying a business can be one of the most significant decisions you’ll make. Whether you’re relocating and exploring options, looking to fulfil that business ownership passion, or simply ready for a change, this 10 step checklist will help you get prepared for a smooth, successful purchase.
● Do you want a clean exit from the current owner, or would you prefer they stay involved in some way? If this is a new industry to you, you may want their involvement, at least for a short period of training.
● Is this a complex business transaction? Note: most are. You should obtain legal advice, as you will need a specifically prepared purchase agreement for every business.
● What is the correct buying entity you will eventually purchase the business under, i.e., Trust, Company, Partnership, etc?
● Has the seller outlined all the key contracts for easy transfer (e.g. suppliers, major customers, service providers)?
● Does the sale agreement outline the key staff agreeing to transfer their employment to you?
● Do you have the necessary licences or permits required to run the business?
● Confirm all intellectual property is registered in the business owner’s name (business name, website, domain, logo, trademarks and branding) and ready to transfer.
● Check the lease: is there enough of the term left to offer you stability or an option to extend?
● Is the business a franchise? If so, check the Franchise Agreement: is there enough of the term left to provide you stability, or will you need to negotiate a new Franchise Agreement? You will
also need to check that the seller has approval from the franchisor to sell the business.
● Do you have all the necessary finance in place or a plan to acquire it, not only for the purchase but for the ongoing trade requirements, such as working capital for stock?
● Have you done your due diligence to understand the key terms of what is included in the proposed sale price?
● Now is the time to thoroughly review all financial information relating to the business’s turnover, expenses and profitability (or goodwill)
● If the business you are buying is a franchise, review the terms of the Franchise Agreement carefully, as there may be additional costs that are not readily apparent in the financial statements.
● The seller should provide a list of assets (or plant and equipment) included in the sale of the business. Check this thoroughly to ensure you know what is included in the sale; don’t just assume.
● You need to be aware of which assets are actually owned by the seller, or subject to a lease or other secured financial arrangements (such as hire-purchase or business loan).
● Check that any form of valuable intellectual property, such as trademarks, patents, designs, graphics marks, taglines, etc, is registered to the business being sold, not the individual. These are generally registered through the government authority, IP Australia.
● Also, check for any copyright that has been asserted on any marketing materials and assets, such as websites, business drawings, publications, and manuals.
● The buyer must carefully review the employees’ formal employment agreements or arrangements to determine whether they comply with current government awards.
● During this phase of the purchase, both parties must decide which employees will transfer with the business sale and which will not.
● The two parties need to determine who is responsible for the accrued entitlements/liabilities, such as annual leave, long service leave, and sick leave. If it is you (the buyer), there may be room
for a reduction to the purchase price.
● The buyer should ensure that any key person(s) key performance indicators (KPIs) are agreed upon; this may include the seller if they are staying on to work in the business after settlement.
● You need to check that the seller has written approval from the lessor/franchisor/licensor/supplier that the contractual agreements will continue under a new owner.
● Check the exchange of Business Name transfers.
● Make sure you have keys for access to the business premises and any plant and machinery that may come with the business sale.
● Security codes and cheques for final payment.
● Relevant third-party approval documents, such as a lease, franchise agreement or approval by relevant government departments e.g., Racing, Gaming and Liquor.
● Businesses that operate an inventory usually require a ‘stock take’ to occur, usually on the day before or the morning of settlement.
● If there is any dispute as to the Value of Stock, this should not stop settlement. Instead, an agreed sum should be retained in trust pending an independent qualified stock taker arbitrating on the Value of Stock if the parties cannot agree.
● The seller will need to provide at settlement any release of security interests on secured bank loans, equipment on finance, etc. These secure parties generally require a payout figure adjusted on the settlement date.
● All business sale agreements will be subject to transfer duty assessed by the Office of State Revenue (OSR). Transfer duty is payable on plant, equipment, and goodwill but not stock. Agreements
must be lodged within three months of the date of the agreement or upon settlement, whichever occurs earlier, so make sure you mark this in your diary. Heavy fines apply for failure to lodge on time.
Front cover of Business Buying Checklist
This document is designed to help you start thinking strategically about your business purchase. Every business is different, so once you’ve ticked off what you can, we recommend a tailored conversation with a lawyer.
*Checklist is for informational purposes only and does not constitute legal advice.
