This is the process of investigating a business before you buy it. It involves checking the business’ financial records, legal obligations, assets, and any risks.. This helps you confirm whether the business is a sound investment and identify any issues before committing to the purchase. Some contracts can also be made subject to due diligence being completed.
For businesses valued at $450,000 or less without a liquor licence, the seller must also provide a section 52 statement setting out the financial performance of the business over the last two years, and the current year up until the last quarter.
When buying a business, your first step should be to carefully assess the business’ financials, ideally with the assistance of your accountant. It's also important to inspect the business’ physical assets, review any existing lease agreements, and confirm that all necessary licenses and permits are up to date and transferable.
The best structure depends on your individual circumstances and the type of business you are buying. Common options include operating as a sole trader, partnership, company or trust. Each option has pros and cons, so it’s important to get advice from a lawyer before deciding.
The sale contract is usually prepared by the seller’s lawyers and reviewed by the buyer’s lawyers.
A restraint of trade is a clause in a business sale agreement that prevents the seller from starting or working in a competing business for a certain time and within a specific area. It’s designed to protect the buyer by ensuring the seller doesn’t take customers and staff after the sale.
No, the lease doesn’t automatically transfer when you buy a business! You will need the landlord’s consent to take over the lease or enter into a new lease. It’s important to review the lease terms carefully as part of your due diligence, and ensure the transfer is legally documented as part of the sale process, otherwise you may not be able to operate the business from that property!
Any employee who is re-employed by the purchaser will have their entitlements to holiday leave and long service leave carried over. This means the purchaser will be liable to pay any untaken holiday leave and long service leave before they owned the business. It is important that these obligations are carefully negotiated and set out in the sale contract as it could amount to a significant sum!