- Before you sign the contract, make sure you know who the buyer should be – obtain the advice of your solicitor and accountant as to the best structure to adopt.
- The buyer will be dictated by the type of business structure you adopt and is a decision based on a mix of tax effectiveness and asset protection.
- Obtain legal advice on the terms of the contract before it is signed. For example, if a business is purchased on a “walk-in-walk-out” basis, no stocktake is required and the seller can simply run down stock as handover approaches; the employer may have a number of long term employees that you do not wish to re-employ upon completion of the contract. Contracts commonly provide that the buyer must compensate the seller for any redundancy payments made to the seller’s employees named in the contract; is GST payable on the price? Getting these questions wrong can cost an uninformed buyer valuable working capital.
- After a contract is signed by the right purchasing entity on terms vetted by your solicitor, “due diligence” begins and is comprised of:-
- Conducting a close examination of the business, whether its assets are complete and in working order, owned by the business, or subject to a mortgage or other defect in title;
- Is the business being conducted at a place in accordance with the town planning regulations?;
- Is the business profitable?
- Is the lease of premises on reasonable terms for a remaining term that will give you security of tenure for your valuable instrument?
- Before the price is paid and the business is handed over to you, decisions have to be made about which employees are to be re-employed, how the purchase price will be funded and taking those steps necessary to ensure you get the benefit of the business.
- Buying a business is a complex task for which you must obtain expert advice. The cost of good advice will pay for itself many times over.
