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Thu, 31st Oct 2019

A Complicated Affair - Buying a Business

Buying a business can be a complicated affair.  It usually involves several parties, such as accountants, landlords, lenders and lawyers. 

In order to avoid disappointment, a purchaser needs to spend sufficient time to research the business and its particular circumstances.  There are any number of scenarios to consider, but some of the common topics are listed here:

  • It is best practice to involve an accountant early on, to review business records and ensure that turnover warranties coincide with the accounting details provided by the vendor. An accountant can also provide advice regarding taxation and allocation of values to land, chattels and intangible assets, such as goodwill.  Many lenders require accountants’ input before they agree to provide finance. 
  • It is also important to consider whether a business is required to be registered for GST. Unless the business turns over more than $60,000.00 per year, registration is optional.  If the purchase involves a portion of land, GST registration may still be required (and potentially be advantageous) even if the turnover is less than the minimum threshold. 
  • Many business owners lease premises from a landlord. In that case, the landlord will have to consent to an assignment of the lease to the purchaser.  A landlord is entitled to request financial information and proof of business experience from the purchaser to ensure that the new tenant can meet the obligations under the existing lease. 
  • The vendor and the buyer have to agree on what is included in the sale and what (if anything) is excluded. In the case of a company, will the sale be simply for chattels, or will the entire company be sold via a share transfer?  Is there a chattels list with values attributed to individual items?  Will there be transfers of websites and phone number, eftpost systems and stock in trade? 
  • Part of a successful business are the contracts with suppliers and customers. The parties will need to review the current agreements and the purchaser will need to ensure that he or she can obtain the benefit of the vendor’s network. 
  • The vendor usually agrees to provide the purchaser with some guidance during a fixed time after settlement so the purchaser can familiarise himself or herself with the daily running of the business. It is also prudent for the purchaser to prevent the vendor from setting up a similar business within a certain area to avoid direct competition. 

All of the above matters will need to be discussed and recorded correctly to avoid arguments later on.  A thoughtful sale and purchase agreement for a business will address the particular circumstances of each venture to ensure that both parties achieve their intentions. 

  • Posted By: Alex Martin on Thu, 31st Oct 2019 @ 16:01:08

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