BUSINESS SALES & PURCHASES

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Making the decision to sell or purchase a business can be a life changing and stressful event. We offer a range of services available to assist you in making this process less stressful.

We recommend that you use the services of qualified and experienced professionals who can provide you with advice in this specialised area. We work with reputable Business Brokers, Financial Advisors, Accountants, Financiers and Insurance Brokers who can assist you to navigate through this complicated process.

You can advertise the sale of your business to potential buyers through a number of methods, including:

• Business Brokers or Real Estate Agents

• Advertising online

• Your existing networks (e.g. family, friends, or employees)

• Advertising in the newspaper

• Advertising in trade publications or using your industry contacts

• Word of mouth

 

THE VALUE OF THE BUSINESS

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There are different methods of calculating the value of the business depending on the industry.  This may include assessing the value of the asset, estimating future profits and working out how much the goodwill is worth or benchmarking against a similar business.

Your Business Broker, Business Advisor and Accountant can also assist you with an assessment of the value of the business.  We recommend that you start planning your business sale several years ahead to ensure you maximise the value of your business by having strong financials.

To get a better understanding of the value of the business, you can undertake your own research before you decide to sell or purchase the business, including identifying the customers, competitors and industry.  A good starting point is Australian Bureau of Statistics and the ATO’s Small Business Benchmarks which could assist with an understanding of the overall performance of the business.

 

GOODWILL OF BUSINESS

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Goodwill is reputation, viability and potential of a business.  It is an asset that is hard to value as it is not tangible and does not have a determined market price and can include:

• customer loyalty and relations

• brand recognition

• staff performance

• customer lists

• reputation of business

• business operation procedures

• return customers

 

THINGS TO CONSIDER

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There is a range of things to consider when negotiating the sale/purchase of the business, including:

• Purchase price

• Deposit

• Transfer of Intellectual Property

• Assignment (transfer) of the existing Lease or new Lease

• Training (if any) prior to and post settlement

• Arrangements for existing staff and employee entitlements

• Assets that are being transferred, including property, equipment, fixtures, fittings, stock and any rights to use names

• Liabilities, including creditors and the lease of the business premises

• Restrictions on trading after the sale

 

BUYERS FINANCES

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The Buyer will need to take into account the costs of taking over the business, including purchase price, transfer duty, working capital and professional fees and discuss with their financier the loan and investment .

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EMPLOYEES

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With the sale of the business, employees of the business may either:

• be transferred with the business to the new owner; or

• be made redundant.

It is important for the Seller to communicate with their employees and advise them whether they will be transferring to the new owner or their employment would end, due to the sale of the business.  Care needs to be taken when discussing a sale with employees.  If key personnel leave, the sale of the business may fail or worse, if the sale does not proceed you may be left without experienced staff.

 

BUSINESS CONTRACT OF SALE

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A Business Contact of Sale is a legally binding document outlining agreed terms and conditions of the sale/purchase of the business prepared by Business Brokers or us.

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STRUCTURING AND ESTABLISHMENT

 

There are a number of ways that you can legally structure your business each with different taxation and asset protection consequences. It is therefore vital that you seek professional advice as to what structure suits your needs prior to entering into a contract to purchase a business. We are happy to discuss the options with you and to establish your preferred legal entity to ensure the business purchase is not delayed.

 

There are four most common forms of legal ownership:

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Sole Trader

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A sole trader is an individual who operates a business in their personal name. A sole trader does not have business partners nor a company structure behind them. This structure is simple to operate but has some negatives in regards to taxation and asset protection.

 

Partnership

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A partnership is a relatively simple and common structure whereby two or more co-owners work together in a business with a view of making profit. This structure provides for joint and several liability meaning that creditors can attack one or more of the partners and accordingly having a strong written partnership agreement is vital. This structure may have some negatives in regards to taxation and asset protection depending on your particular situation.

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Company

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A company is regulated by the Corporations Act. It requires appointment of directors and shareholders and is advantageous in that it can be difficult (but not impossible) for a creditor to pierce the corporate veil to recover debt from a shareholder over and above the amount of their share capital. For example, if a shareholder owns one share at $1 per share their liability to creditors is $1.

 

There are 2 main types of companies being:

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“Limited” companies (public listed) and “Proprietary Limited” (not public listed). Most small to medium businesses are established as proprietary limited companies. This structure can be advantageous in relation to asset protection and taxation depending on your circumstances.

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Trusts

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There are many types of trusts with the most common being a discretionary trust with a company as Trustee.  The trustee will run the company for the benefit of the beneficiaries named within the Trust Deed. Technically, the trust is not a separate legal entity and the company has control as the legal entity operating the business. This structure has advantages in both asset protection and taxation depending on your particular circumstances.

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FRANCHISING

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Franchising is a business model, where usually the Franchisor (or owner) controls the name, brand and system of the business and grants the Franchisee the right to operate a franchise business for a set period of time.

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Franchisors and Franchisees must comply with the Franchising Code of Conduct, which sets out requirements for a franchise or specific information to be provided to a Franchisee.

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A Franchise Agreement is a legally binding contract, which sets out the terms of the franchise.

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A franchise can offer some significant benefits to the Franchisee, such as an established product or service, existing reputation and intellectual property.  It may also provide the Franchisee with the Franchisor’s support, experience and knowledge in the industry, business planning, marketing and business reputation.

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A potential Franchisee should make its own enquiries and carefully consider whether the franchise system will suit their needs.  The Franchisor may have an established business and operation systems in place which the Franchisee will be required to comply with to maintain consistency.  As a result, the Franchisee may be restricted from making any changes to the franchise business without the agreement of the Franchisor.  The Franchisor may also make changes to the franchise system, update computer systems and make other changes to the franchise business at their discretion at the Franchisee’s cost.

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Before entering into a Franchise you need to do:

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• Due Diligence – research and investigate the franchise system, talk to current and former Franchisees

• Legal, accounting and/or business advice from professionals with expertise in franchising

• The Disclosure document, Franchise Agreement and any other documents provided by the Franchisor

• You may be required to complete a specialist franchising or business course

• Investigate demand for products or services in the geographical area you wish to operate

• Consider exclusive territory – what area does it cover

• Review terms and conditions of the Franchise Agreement, particularly termination provisions, your rights and responsibilities around renewing your Franchise Agreement, future sale of your business, restrictions on starting of a similar business and fit out costs.

 

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