Buying a business can be a complicated and time-consuming process.
RMB Matthews Williams Lawyers share answers to common questions clients ask when looking into buying a business.
- Is it worth what they are asking?
There is no set formula for valuing a business, and the method of valuation differs between industries.
You can ask the current owner or their representative (lawyer or broker) how they arrived at the value.
They may also be willing to provide you with a copy of a valuation that was prepared to arrive at the asking price.
Understanding how the business has been valued can help you negotiate a purchase price that you are comfortable with.
It is also a good idea to ask the current owner why they are selling.
If they are selling due to financial stress it might be the case that you are taking on something that won't turn a profit.
You can also request a copy of the books and records of the company to undertake due diligence and to help you work out whether the business is worth buying for the price the current owner is asking.
- What am I actually buying?
Business purchases are separated into two categories: A purchase of business assets or a purchase of shares in the company that operates the business.
Either way you go, we recommend agreeing on an asset list that details what items are included in the purchase.
You should also discuss if stock will be included in the price and if a stocktake is required to arrive at a fair stock value.
- When do I need to pay?
It is usual for a deposit to be on exchange (being the time the parties sign the contract) and this deposit is held with the current owner's lawyer or the business broker.
The remainder of the purchase price is normally paid at settlement, which is the date you take over ownership of the business.
- What happens to employees?
Employees are a key part of any business. Provisions in the contract for the business purchase should set out exactly what is going to happen with employees, including how any accrued employee entitlements are adjusted.
It is also important to ensure you are provided with sufficient time to interview employees and make decisions on who you wish to re-employ.
- Do I need to tell the landlord?
If the business is operated on leased land, the lease often holds significant value.
It is important for you to check how long is left on the lease - the last thing you want to do is go to the cost of buying a business, then incur further costs to move that business.
The parties will need to contact the landlord to have the lease transferred to you, or you might be able to negotiate a new lease and make sure any rent paid in advance is adjusted between the parties on settlement.
Purchasing a business can be an equally exciting and stressful time.
When the parties have agreed on terms, a contract for the purchase is usually issued, and you need to ensure the contract is drafted in a way that reflects the deal and protects your interest.
RMB Matthews Williams Lawyers are here to assist you through this process with a team of lawyers who specialise in commercial law.
If you would like advice, Freecall 1800 681 211 (Monday - Friday 8.30am - 5pm) or email rmb@rmblawyers.com.au