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One of the most satisfying tasks we perform at Lynn and Brown Lawyers is to work with our clients to either purchase or sell a business. We all know how stressful it is buying or selling a property and hoping to achieve a successful outcome.

These stresses are no different to those that exist around buying or selling a business, particularly if that business is one you have built from scratch or the business that you are looking to buy is as a result of a significant lifestyle change or ambition for the next stage of your career.

Whilst there are any number of factors to consider in buying or selling a business, here are our top five tips in considering whether to buy a business and preparing to sell a business.

  1. Make sure you know what you are selling:

Ensure that you understand exactly what it is that you intend to sell whether it is the assets, plant and equipment and stock or the shares in that particular business.

A purchaser has no interest in taking on any liabilities and will pay for the certainty of purchasing assets (including intellectual property), plant and equipment, goodwill and stock.

  1. What is goodwill and what is it worth?

One of the major considerations in selling a business is the value of goodwill. Goodwill is the value in your business in addition to plant and equipment, assets and other tangible stock and the real upside in the sale is associated with the sale of goodwill.

Broadly, goodwill is the intangible asset that is the look, feel, culture and personality of the business that the purchaser wants to buy into and lever to maximise returns. Some valuers will tell you that certain industries carry no goodwill as the benefit of the business is either dependent entirely on the personality of the boss or the assets.

  1. Make sure that your financial records are in order:

Any purchaser is going to be interested in the bottom line and the consistency of that bottom line over a period of time.

If a proposed sale is under $350,000.00 then a seller must provide to a purchaser a s.52 Disclosure Statement setting out all of the financials of the business over the last couple of years. Failure to provide this Statement is sufficient reason for a purchaser to avoid the sale if the figures do not later marry the expectations.

  1. Intellectual Property (“IP”):

In addition to the assets and goodwill of a business, its sale value can be further enhanced by selling its IP rights. This may be by way of trade mark, business name registration, domain name registration, patents and copyright to name but a few. The better the legal protection around your IP the more value your IP has.

  1. And here is the final step:

Make sure that you have competent financial and legal advisors assembling all of the information and preparing the proper documentation for the sale. It sounds obvious but many businesses wish to avoid the expense of financial and legal advisors on the basis that “she’ll be right”; well, she won’t always be right.

  1. Do your due diligence:

For example, are you buying simply assets, plant and equipment, goodwill and IP or are you buying the shares in the business? Are there any outstanding “blisters” on that business such as unpaid debt, court proceedings, bad credit rating, PPSR (Personal Property Security Registrations) encumbrances etc.?

  1. Do your numbers:

You and your accountant should ensure that you are not paying too much for the “golden opportunity” such that the operation becomes uncommercial should you purchase it at an unreasonable price (particularly if you are borrowing funds to purchase).

  1. Are you keeping the staff?

The Fair Work Legislation requires that any staff that will be picked up in a business purchase effectively transfer to the new employer on no less favorable terms, and with accruals such as long service leave, annual leave and personal leave entitlements. You will need to factor this into any proper consideration of the purchase price and adjust accordingly.

  1. The lease:

Are you taking over the premises? If so, what obligations do you take on? Are you personally guaranteeing the lease? What make good provisions do you take on? What consents are required from the landlord before you can take on the lease?

Generally speaking you should be aware that at the end of a lease you may be required to effectively restore any premises almost back to bare walls, at your cost. Accordingly you will need to factor into any consideration of the purchase price the costs associated with making good any defects.

  1. Get good financial and legal advice before signing on the dotted line:

We are seeing that business to business transactions are on the rise and you should ensure that you get the best advice and take advantage of opportunities as they arise.

If you would like further advice please don’t hesitate to contact us to make an appointment.

If you would like further advice please don’t hesitate to contact us on 9375 3411 to make an appointment.

 

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