Sale of Business

Preparation of the business for sale can include a number of different things depending on the type of business, however examples include:-

1. making sure that all accounts are up to date;
2. making sure that tax returns have been filed and returned;
3. the lease of the premises should be formalised and registered with the Department of Lands;
4. have the original copy of the lease ready for inspection;
5. all outstanding moneys should be paid to the landlord so that there is no problem with getting the landlord's consent for the assignment of the lease to the purchaser of the business;
6. all employee entitlements should be properly recorded and any moneys owing to employees paid;
7. the employees' records should be up to date and kept in accordance with industrial laws;
8. workplace agreements and contracts of employment should all be properly filed on the employees' files;
9. any written contracts of contractors should be available for inspection;
10. the computers used in the business should all be in proper order and there should be no pirated software anywhere in the business;
11. instruction books, compact discs, peripherals and cables should all be properly arranged;
12. jobs that were meant to be done around the premises such as painting, repairs, tidying up and the like should all be done;
13. if the premises include any gardens then they should be spruced up;
14. if the business assets include a web site then any overdue updates should be carried out;
15. you should be clear in your mind as to the reason why you are selling the business as it is likely that you will be asked;
16. you must have the most recent profit and loss statements for the business and it would be of assistance if those statements were available for the past few years if they show a positive trend;
17. if you are required to have occupational health & safety audits or certification of fire safety then those records should be up to date and readily available;
18. you should have properly arranged documentation relating to any intellectual property of the business including patents, trademarks, franchise agreements, advertising contracts and the like;
19. if your business requires any industry particular permits or licences such as a liquor licence then you must be sure that it is current and there will be no difficulty transferring it to the purchaser;
20. if you operate under a business name you should check that the registration is up to date;

If it is likely that a prospective purchaser would like a longer lease then it may be appropriate to negotiate with your landlord for a variation of your lease to include an additional option to renew;

You may wish to sell your business through a business broker or you might try selling it yourself by advertising in the usual places. Always consider a selling agency agreement carefully before signing.

The sale of the business may proceed by selling all of the shares in the company that owns the business assets or alternatively, and more commonly, it will be a sale of business assets. In either case it is important to be sure of who owns each of the business assets being sold. For example, it is not unusual for certain business assets to be in the name of a person or company and other business assets such as the lease might be in the name of a related business entity. These types of problems can be taken care of in the contract for sale of business.

Once a purchaser has been found and the sale price agreed on, a contract for sale of the business must be prepared. For this purpose it is most likely that you will need to annex an inventory of all of the plant, fittings and equipment of the business. Exchanging identical counterparts signed by the vendor and purchaser respectively makes the contract. The contract must specify a "completion period" which is the time between exchange of contracts and completion. It is most important that sufficient time be allowed for all of the work that just be done which might cause delays, such as obtaining the franchisor's consent, obtaining landlord's consent and transferring licences such as a liquor licence.

Contracts for sale of business typically have a "vendor restraint clause". This clause normally specifies the time and distance in which the vendor must not participate in any business that would compete with the business being sold. Before deciding on the terms of a restraint clause, you should consider very carefully whether you will need to work in the same industry again. A harsh restraint clause can have the effect of preventing you from earning a living.

It is common for contracts for sale of business to include provisions relating to training of the purchaser. Typically training occurs either before completion or after completion (and sometimes both). The training period can be a very difficult time because there is a risk of the vendor and purchaser having very different views on what should be done in the business. Typically a vendor would prefer to provide training after settlement.

The sale price of a business is of course open to negotiation. There are a number of different ways of valuing businesses. Prior to putting the business on the market you may wish to engage an expert to give advice on the proper price of the business. Valuation of the goodwill of a business takes considerable skill and experience. In any case a business is only worth whatever someone is prepared to pay however during any negotiations you must be very clear on whether the price being discussed is including or excluding GST.

You must be very clear on whether the business is a sale of a "going concern" for the purpose of GST. You must also be very clear on whether the price includes stock. Typically a contract for sale of business will include a separate figure for trading stock, such amount to be finalised subject to a stock valuation immediately prior to completion of the sale. It may be crucial to your tax situation to have an appropriate apportionment of the purchase price as between goodwill and equipment. Your accountant's advice is essential in that regard.

Normally a purchaser of a business will carry out certain investigations or due diligence procedures prior to exchange of contracts. After exchange of contract the purchaser's lawyers must test the warranties in the contract by conducting various searches, enquiries and raising requisitions. They must prepare documents transferring the business assets and arrange for the discharge of any finance secured by the business assets.

Normally the contract will require that you continue to operate the business in an orderly manner during this period. You must be aware of your obligation to maintain levels of stock. It is crucial that you understand your obligation to your employees and the proper process for the termination of their employment and their re-employment by the purchaser. Leave entitlements, superannuation, long service leave, sick leave benefits as well as regular salary payments must all be dealt with properly or else there is a risk of a very expensive dispute.

After completion of the sale it is important that you retain certain business records for the minimum periods prescribed in the taxation legislation. Your accountant must be informed of the details so that appropriate tax returns may be lodged. There are numerous aspects of the matter that must be finalised properly so that you can move on to the next phase of your life.