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What to consider when buying or selling a business ?

Buying or selling a business is a very different process to buying and purchasing property. It is essential to always take into account all the necessary factors and steps that will be required for the transaction so as to get the minimal risks.

The following are essential items that you will need to consider during the process of buying or selling a business:

–       Due Diligence – It is important to seek advice at the earliest opportunity in regards to the most appropriate ownership structure (sole trader, company, trust or partnership) so that tax effective strategies can be put in place. To conduct a due diligence assessment of a business you will need to carefully review and consider the following:

  • income statements, balance sheets, profit & loss records for the last 3 years
  • tax returns including business activity statements
  • records of accounts receivable and payable
  • minutes of director’s or management meetings
  • business paper files (if available)
  • the seller’s claims about their business (why are they selling and what is their reputation)
  • level of stock required and how this will affect cash flow
  • details about plant, equipment, fixtures, vehicles
  • existing contracts with clients/staff/suppliers and privacy details
  • partnership agreements
  • guarantees and indemnities and warranties
  • lease requirements
  • franchise setup and ongoing costs (if applicable)

–       Legal documents:

  • Form 2 Vendor’s Statement – The Land and Business (Sale and Conveyancing) Act 1994 provides that a Vendor’s Statement (or Form 2) must be provided to a purchaser if the purchase price of the business is under $300,000.00 (not including GST, the price of land or stock included in the sale).
  • Business Sale Contract – A standard contract should detail the following items:

=> Timeframe for due diligence;

=> Warranties; Director’s guarantees;

=> GST and legal costs;

=> New lease or Assignment of lease;

=> Transfer of employees and how any entitlements are to be they dealt with;

=> Assets to transfer including website, email addresses, phone and fax numbers;

=> Valuation of stock in trade and what stock is included;

=> Licence or franchise rights associated with the business;

=> Restraint of trade; Business names;

=> Training or Vendor assistance; How the debts and receivables of the business are dealt with,….

We always recommend that the Contract be checked BEFORE you sign. We can also prepare all necessary contract documentation if required.

What to consider when selling or buying business?
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