The main features of a business being sold will comprise the assignment or transfer of the lease, the sale of fixtures & fittings, plant & equipment (the physical assets), stock, any business name, trademark & any other intellectual property, licences and the “X” factor called goodwill.
Selling a business is not always easy. How do you value a business? You value the assets and the goodwill and that equals the price. A business may be worth a lot more to a vendor than a buyer who strictly values the business on turnover and earnings. How do you value a business where earnings are close to zero? Sometimes a business may be wildly successful under the management of the vendor. Put the purchaser in control and the success factor vaporizes. A common experience is a purchaser buys a business with little retail or business experience and then finds it extremely difficult to operate, sell and recover the purchase price they paid. Enough pessimistic advice, a good solid business with a track record of earnings, a solid balance sheet will have a significant value.
When selling a business you do need to take into account taxation aspects, such as, income, capital gains tax and GST. In most cases you as the vendor or as its director will be placed under a restraint on trade for a certain period of time.
Typically a Contract will always be conditional upon transfer of the lease and permits; sometimes on finance approval; and occasionally upon confirmation of turnover.
When dealing with a small business, where the price is less than $200,000 you need to provide a prospective purchaser with a Vendor’s Statement (also called a Section 52 Statement). The Vendor’s Statement must be in writing and provide particulars about the business for sale, notably, the trading record of the business and a statement by a practising accountant to the effect that the accounting and financial information is in accordance with the vendor’s books and is true and fair to the best of his/her knowledge. For some vendors this is problematic in that the Vendor has to pay his accountant to prepare the figures without the guarantee of the sale ever being consummated.
The failure by a vendor or agent to provide a Vendor’s Statement with all the required particulars provides the purchaser with the right to terminate the contract and recover any money already paid. This right can only be exercised before taking possession of the business or three months from the date of the contract, whichever occurs first.
We act to ensure your interests are protected. We often will conduct the negotiations and draw up the Contract and have the conduct of the transferring the business, its assets through to settlement.
When purchasing an existing small business, you should exercise extreme caution and conduct careful due diligence. Just beware it is a very large responsibility in owning and running your own business. It doesn’t take long to realize there are no holidays or leave loadings or superannuation contributions when you are the owner. You can’t even take a sick day even when you are sick. It’s not just the tax man that looking over your shoulder it’s the landlord who wants to give you a rent hike. There does not ever seem to be an end to the outgoings that make up the profit and loss statement. Again, I do and I don’t apologise for being pessimistic.
You do need to make careful examination of the books of account. Any contract you sign needs to be conditional on finance approval. You should request the contract is subject to confirming turnover measured over a two week trial period. Remember if you are borrowing money you need a business plan to ensure the borrowings can be repaid.
Thoroughly investigate the turnover and the outgoings as well as key documents like the Lease. Will you be retaining key employees? Each business is different and you need good legal and financial accounting representation. That’s how big business operates when they are buying and taking over other businesses. They are ruthless in carrying out their investigations and due diligence. Don’t get caught out like Telstra, BHP and NAB as examples in bad business decisions in buying certain overseas assets that were extremely over valued. These companies are large enough to absorb the write offs. Most buyers of small businesses cannot afford to make the same mistakes.
You also need good advice on ownership structures. Expect to pay for good advice. Its advantageous in the long run.