A guide to issues a buyer should be aware of and the tasks they should perform prior to settling a business purchase.

It is very important that the proper procedures are followed when buying a business, in order to protect both you and the seller.

The following are some useful information in this area:

• Settlement is the process of arranging the exchange and stamping of contracts, payment of all monies, all adjustments of rates and taxes etc.

• Your solicitor or settlement agent will help you in finalising the purchase, ensuring that the title to the business and the property passes to you.

• The contract should be made subject to arranging suitable finance (if required), inspection of records, receiving the required licenses and any other transfers.

• The business will have assets (eg. stock, fixtures, vehicles, equipment, trade marks, patents, copyrights, business names, leases, etc.), the titles to which must be properly transferred to you. These assets should be itemised in the agreement.

• You should be fully aware of the current and future liabilities (what the business owes) that you will be taking on. These liabilities should be itemised in the contract. The contract should state that liabilities not detailed will be met by the seller. It is far more preferable that the business is transferred free of liabilities.

• The contract should specify the date which you will take over the business (settlement date) and who will be paying the various fees.

•  If appropriate, your solicitor can negotiate a covenant for you which will prohibit the seller from starting up a similar business to compete with yours. This covenant cannot be unreasonable and must meet the requirements of the Trade Practices Act.

• You can negotiate to work in the business for a trial period before settlement, to ensure that the accounting records and performance reflect the actual situation. You can also ask the vendor to train and assist you after the purchase.

• All business records should be handed over, eg. sales records, customer mailing lists, client histories, etc.

Once your offer has been accepted and you are now awaiting the date when you can officially take over, there are numerous issues which you must attend to.

THE GMO 21 POINT CHECKLIST

1.     Check contract with your solicitor or settlement agent.

2.     Has the settlement date been confirmed in writing?

3.     Check that the business structure (eg. partnership, company) will be in place by this date.

4.     Will all licences, permits, etc. to operate the business be transferred by the settlement date?

5.     Do you have a bank account in place and cheque books, deposit slips, etc, printed?

6.     Have you arranged insurance cover?

7.     Have you contacted the suppliers and advised them of the change of ownership? Will they be prepared to extend to you the same terms of credit as the former owner?

8.     Will you need to contact your business’s customers to advise of a change of ownership eg. through a letter drop, personalised letters, personal visit or sign?

9.     Have you advised the appropriate service companies that there will be a change of ownership eg. power, phone, freight, equipment maintenance, printing, cleaning etc?

10.  Has your accountant set up or approved the accounting systems? Do you understand how they work?

11.  Have you contacted the Taxation Office to ensure that you comply with all their requirements?

12.  Do you require any training which will assist you in your business?

13.  Have staff arrangements been met?

If the business is changing name:

14.  Have you registered the new business name and/or trademarks?

15.   Have you arranged new signage?

16.  Have you arranged stationery such as letterheads, business cards, compliments slips, invoices, statements, order forms, etc.?

17.  Do you need to prepare promotional material (eg. press releases, brochures, radio commercials etc.)?

18.  Have you and the Vendor jointly appointed a professional stocktaker?

19.  Are you aware of how much stamp duty you must pay on the purchase contract? Check with your settlement agent.

20.  Remember to check that on settlement day, all the plant and equipment is accounted for and is in sound working order.

21.  Confer with your solicitor as to whether you should lodge a caveat on the lease of the premises to protect your interests.

By ensuring all 21 tasks have been considered you will be in a far more secure position on settlement day!

ABOUT GMO
The directors of Goodwin Mitchell O'Hehir & Associates have been actively involved in business sales and consultation since 1983. During that time Owen Mitchell, Jim Goodwin and Graham O'Hehir have negotiated the sale of businesses to a total value exceeding $420 million dollars.

Some thoughts from Tan and Tan Lawyers on Business purchases

We believe one of the first issues to consider before buying a business is the question of whether you are suitable for the running of the business. For example, if you are not the type of personality that like to socialise with customers on a daily basis, then a restaurant business may not be a suitable type of business to get involved in.

Or imagine buying a mechanic workshop when you have no idea about vehicle maintenance. Everything can be learnt, but at the end of the day, the question is whether you will be happy in running such a business.

It is advisable that before you place an offer to purchase a business, an appointment be made with your settlement agent or lawyers.

Portfolio Settlements are more than pleased to accept instructions from you if you have purchased a business.

However, in most business settlements, considerations also have to be made for perusing and advising on leases and possibly franchise documents. We will refer such matters in-house to Tan and Tan Lawyers.

The settlement agent should assist you in drafting special conditions that may be necessary to ensure that you purchase the business properly.

We include some of the special conditions that we may include in a contract. Each case is different and each business may have certain peculiarities that require consideration when drafting the special conditions.