Each business sale will vary however below is a Typical Sales Process Guide.
A potential buyer enquires about the listing seen on either the Core Business brokers web site or the other paid web sites included in the marketing of the business.
Once a confidentiality agreement is signed and completed a business profile is provided.
If the buyer shows interest we will try and qualify the buyer first for experience and financial backing.
The buyer then possibly will have questions and may wish for a meeting with the owner of the business and the Agent to discuss further and verify verbally what has been provided.
If all proves to be satisfactory the buyer makes an offer subject to various conditions not Finance. The buyer should therefore make sure that their finance is in place before an offer is made.
When buying a business a buyer needs to be aware of the other costs involved such as legal fees, stamp duty and where a landlord is involved a bank guarantee will be required for the rent. This could be on average three months rent in advance however the lease will provide this information.
An offer is then made in writing to the agent. This offer may be subject to certain conditions the buyer proposes such as on going owner assistance, training, property leases, equipment, stock, landlord approval ** etc.
This offer is provided to the owner from the agent. Possibly there could be some back and forth negotiations before an agreement is made between both parties.
The buyer at this point is to provide a holding deposit. A holding deposit is taken by the Agent and held in trust, as a sign of good faith from the buyer. This deposit however is fully refundable up until contracts are exchanged. A trust account receipt is provided to the buyer and also, for assurance, to the owner.
At the receipt of this deposit the agent withdraws the business from sale for the duration of the Due Diligence* process normally 10 working days.
Heads of Agreement
At this point a heads of agreement (HOA) is sometimes requested by both parties. This is optional depending on the complexity of the deal.
The HOA outlines the agreed terms and conditions. This document is signed by both parties but is not a legal document rather a document that the agent will provide to the vendors solicitor. It is the vendors solicitor who is responsible for putting the sale contract together and the HOA acts as an assistance for the contract of sale to be drafted more efficiently and hopefully at less cost for the vendor and in turn the buyer as it prevents the back and forth from solicitor to solicitor that commonly racks up the costs of the process.
* Due Diligence
It is common for the verification of the figures or a due diligence process, to take place prior to a contract of sale. The reason for this is the potential saving of legal costs.
If perhaps the due diligence was not satisfactory to a buyer and if that buyer decides to withdraw and walk away from the business opportunity then no legal expenses has been out-laid to this point of the sales process. If the reverse was to occur the contract would need to be put together, signed and would then be subject to the due diligence. Then if the buyer withdraws the owner is left with the legal bills for a contract with no buyer.
For the due diligence the buyer requests certain financial statements and pertinent information so that they are satisfied with what the vendor has provided is correct. A Financial due diligence is carried out and once complete we go to contract.
If after the agreed time allowed for the Due Diligence has ended, unless otherwise advised by the vendor, the agent is required to put the business back on the market
Upon a satisfactory due diligence both solicitors get involved and the Vendors solicitor prepares a contract for sale of business. This draft document is sent to the buyer`s solicitor. The buyer then needs to liaise with their solicitor so that the contract includes those facts that have been agreed and on acceptance the contract is signed and returned to the owners solicitor where then the owner signs after their approval of the content. If all in agreement both parties sign the contract
Exchange of contracts
At exchange of contracts a 10% deposit (less holding deposit held) is to be put down when contracts are signed. This figure is 10% of the agreed purchase price less the holding deposit held in trust by the agent.
Normally the vendor would not discuss anything with his / her staff until contracts are exchanged.
After exchange of contracts any pertinent conditions of the contract are carried out and both parties work towards a settlement date.
These conditions may be training and assignment of the lease.
After the contracts are exchanged the vendor may allow the buyer to commence training, for a term to be agreed leading up to the settlement date. There would be no payment to the vendor for this service rather it would be included in the sale price. There also would be no wage paid to the buyer at this time.
The landlord also needs to be briefed with the buyer`s references statement of assets and liabilities to gain an assignment of the lease.
If, when a buyer makes an offer, there is concern as to the buyers experience or financial backing it is sometimes recommended that the buyer gathers all the relevant information and is introduced to the landlord by the business owner prior to contracts being drafted, again for the reasoning of attempting to save the owner the possible legal costs if the buyer was not approved by the Landlord and was forced to withdraw from the sale.
Landlords can possibly be demanding. They have a lease normally in place with the current tenant, the business owner, whom they know and have received the rent from for years and so when a new buyer is introduced as much back ground and experience of the new buyer plus the buyers own personal assets worth should be used as ammunition to get the landlord approval.
Usually on the day before settlement a stock take takes place where a separate cheque is handed to the vendor. Normally the buyer and seller are able to handle this stock taking process but in certain circumstances an independent stock taking company can be used. These fees are normally split between buyer and seller on agreement.
There may be certain stock items that a buyer may feel are unsaleable or aged, out of date etc. There may be some stock that could be provided at a higher discount and possibly some items of stock that if there is no agreement as to their worth that the owner could withdraw and either sell them selves or keep for their own purposes.
Once settlement date occurs and settlement does in fact take place full payment is handed over to vendor from the buyer normally at the solicitors offices.
The lease, if applicable, is transferred over to the buyers name and if the contract required after settlement a further period of training, this is commenced. The vendor may be required as per the negotiations to stay in the business for an agreed period of time for an agreed remuneration package. The contract may allow a period of say four weeks training provided by the owner to be included in the sale price. Any further training or on going consultation is to be at a pre agreed consultancy rate.
Please keep in mind this is a Typical Sales Process Guide only.