Buying an existing business is sometimes preferable to establishing one from scratch. This article gives some pointers (but not an exhaustive list) to prospective purchasers to help you with this process.
There are many positive aspects in purchasing a small business. The most important aspect of the Agreement is the price which you are paying, and it’s important to ensure that this price is backed up by the proven profitability of the business. We strongly recommend that you have an accountant review the financial information before you sign on the dotted line. Be sure that the business which you are taking over on the settlement date is the business which you have purchased. Talk with your local NAI Harcourts Business Broker and seek independent advice at this initial stage – they may be able to help you spot trouble before you commit. Taking the time to visit the business premises can also give you a feel for the real atmosphere and dynamics within an organisation that the balance sheet doesn’t necessarily provide. Most small businesses often rely heavily on key personnel and you need to know who those key people are, and if necessary incorporate a provision in the Agreement to cover their continued employment situation. Enthusiastic and experienced employees can make or break a business. Getting employment clauses right in a business sale and purchase agreement can also help you avoid difficult and unnecessary problems. Your local NAI Harcourts agent can help with this process but you also need to obtain independent legal advice. Buying the company v buying the business You should consider establishing a new entity to run the business to minimise the risk of inheriting company debts, contracts and liabilities that may not have been disclosed to you. This also separates out your business venture from any existing companies that you own. The cost of incorporating a company is relatively small and enables you to tailor the constitution and ownership to your own needs. If the company name is the business name you want to retain, you should negotiate for the vendor to change their company name and free up that name for your use. Restraint of trade clauses will bind the vendor company but not the vendor’s directors, shareholders or employees unless they enter a separate deed. As with key personnel, make sure that you are tying in the commitment of those who can help you set up the business for success. Premises Buying a successful business is only part of the equation – in most cases you need a place to do business. If you lease premises, this is often the biggest cost and the longest commitment involved in the business. Make sure that you are comfortable with the terms and length of the lease, the outgoings and all the fine print. Be aware that it may be possible to negotiate a variation of lease or further rights of renewal as a condition of the purchase. Depending on the nature of your business, this can be the best investment that you make. If location is important, check that you have sufficient rights of renewal. The Sale and Purchase Agreement The wording of the Agreement is important for your protection. Minor errors in an Agreement can lead to huge financial cost – this is not the place to cut corners! Working with your local NAI Harcourts Business Broker and seeking independent legal advice in the negotiation stage (before you sign!) can help avoid unnecessary conflict or unrealistic timeframes. After the Agreement is signed, map out a timeline of all the matters to attend to before settlement and allow yourself some extra time to double check at each step rather than lock yourself into a timeline that is inflexible or creates unnecessary pressure. If you’re thinking about buying an existing business, invest some time and talk with your local NAI Harcourts Business Broker and seek independent legal advice early on – it will add value to your purchase. Leave a Reply. |
James Twiss
Licensed Business Owner of Harcourts Four Seasons Realty 2017 Ltd Greg Roberts
Licensed Business Owner of Harcourts Four Seasons Realty 2017 Ltd Archives
September 2020
|