Issues to Consider when Buying or Selling your Business
Buying or selling your business is a complex process. There are numerous issues relating to property matters (leasehold or freehold issues), assets (plant & equipment), liabilities, stock, goodwill, debtors, creditors, GST, employees, insurance, handover to name just a few.
When selling a business, all assets, liabilities, profit & loss statements, tax returns, ownership and other relevant information relating to the business will be reviewed by the purchaser. Accordingly, the seller should have all this information ready and organised to avoid any delay in the sale process.
In negotiating the terms of the sale the following basic points should be considered:
- the purchase price;
- what assets or portions of the business are being sold;
- what are the goals of each party in entering the contract of sale;
- what are the parties preferred timing for the completion of the contract;
- the extent of the seller’s involvement in the business after completion of the contract;
- the non-compete period (often called ‘restrictive covenant’).
The due diligence period is mainly for the purchaser to verify the accuracy of the documents relating to the seller’s business. During this period, the purchaser should, at a minimum:
- check the financial viability of the company;
- examine all leases, commercial agreements, service contracts, employment contracts and company policies and procedures manuals; and
- make investigations as to any impediments relating to the company.
The seller should also be satisfied about the financial status of the buyer to ensure that the buyer will be able to satisfy the financial aspects of the sale contract. A sale that falls over will normally be costly to the seller in downtime and disruption.
The drafting of the contract of sale is an essential step in the transaction in order to legally formalise the terms of the sale. All necessary terms and conditions need to be included in the contract of sale, for example:
- the purchase price – including details of when and how it is to be paid;
- the procedure for completion of the contract – what is to be provided and when and where it is to occur;
- non-compete and non-solicitation periods that the seller must comply with after completion of the sale;
- dispute resolution clause to resolve any disputes that may arise between the parties;
- the transfer of employees to the new owners; and
- the purchase of the stock, the procedure for a stocktake and how the price to be paid for the stock is to be calculated.
We can assist in providing advice in all legal aspects of the transaction whether you are buying or selling your business. We have extensive experience in drafting and negotiating contracts of sale on behalf of sellers and purchasers.
If you have any queries or require any assistance, please contact us on 03 6226 1200 (Hobart) or 03 6338 2390 (Launceston) or use our Contact form https://www.simwolf.com.au/contact/