What issues do you need to consider when buying a business?
Buying a business is a major decision, regardless of the business’s size or your experience.
There are a variety of issues that need to be considered, preferably before you sign a contract. By speaking to an expert business lawyer, you can save significant stress and financial hardship, by ensuring that you get what you pay for, and in the most effective way.
Business planning and accounting
We strongly recommend our clients prepare proper business plans and budgets, preferably with the assistance of an accountant. We are able to work with our clients’ existing accounting advisers or provide referrals to appropriately qualified and located accountants to assist with this critical area. A good business plan can serve as a ‘roadmap’ for a new business – setting out critical goals and the way you propose reaching them.
Before you sign a contract, and even before you find the right business, you should consider how you will structure the purchase. Sole Trader? Company? Discretionary Trust? The structure will have a significant impact on asset protection, taxation and cost. By addressing this critical issue early, you may save significant duty and tax down the line.
Business succession planning
Having an idea of your exit strategy is a critical part of business planning, particularly when there is more than one owner. Proper business succession planning ensures the smooth transition of a business (from a management, revenue and financing perspective) on the departure of one (or more of its principals).
Due diligence investigations
Once you have identified a business to buy, you should undertake a due diligence investigation with your lawyer and accountant. A due diligence investigation is a series of inquiries into all aspects of the business, including financial performance, legal compliance, taxation compliance, employment compliance, intellectual property and inventory/assets. Often, information provided during a due diligence investigation is highly sensitive and may be provided subject to strict conditions of confidentiality. Generally, due diligence investigations are conducted either before a contract is signed, or after a conditional contract is entered into.
For ‘bricks and mortar’ businesses, a business purchase will generally involve a lease. You will need to consider whether you will take an assignment of the existing lease, or seek a new lease on different terms. If the business is a retail shop, or located in a retail shopping centre, you will need to consider the formal disclosure and advice obligations set out in the Retail Shop Leases Act 1994 (Qld).
Restraint of trade obligations
When buying a business, you should ensure that the person selling you the business (and key people associated with that person) are prevented from immediately setting up business in competition with you. Restrain of trade clauses can be complex and difficult to enforce, so you should obtain proper advice before you sign a contract.
Business management issues
If there is more than one party buying the business, you must give consideration to documenting your relationship, through a shareholders agreement, partnership agreement or other form of management agreement. It is important that all parties understand and have documented their respective contributions, rights, obligations and relationship, both to reduce the risk of disputes and to allow any disputes that do arise to be effectively dealt with.
If you are purchasing a franchise, there is an additional layer of regulatory requirements, and you must obtain appropriate legal advice in respect of the franchising documents.
The above are only some of the issues that may confront you when buying a business. There are many other matters that arise both prior to and after signing a contract.
The Ballantyne Law Group is well placed to assist you in buying (or selling) a business. We would be happy to discuss this or any other matter with you on an obligation free basis.
Contact us on (07) 5606 7332 to discuss this matter with one of our team today.
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