How to buy a Business for Sale:
Making an Offer on a Business for Sale
Offers have no legal standing and are not binding until accepted by the vendor and the contract has exchanged.
The business can be purchased by either purchasing the assets, stock and goodwill in the business and taking over the business as a going concern, or by buying the company through a share transaction.
Small privately owned businesses are mostly bought through the purchase of the assets of the business. This method ensures that the liabilities of the vendors company do not accrue to the purchaser. This method also simplifies the due diligence required.
A Deposit is then paid to Core Business Brokers Trust Account on the exchange of contracts. Deposits may be made when an offer is made to show commitment. Such a deposit is not legally binding on either party and will be refunded to the buyer in the event that the sale is not executed.
The Property Stock and Business Agents Act 2002 stipulates that an offer to purchase a business must be made in writing. The offer should contain the following items:
- The price the buyer is prepared to pay for the business as defined as the fixed assets and goodwill.
- The maximum value that the Buyer will pay for the stock.
- The terms on which the Buyer will accept a new lease or assignment of the lease for the business premises.
- The payment terms for the business and stock.
- The conditions that the Buyer will employ the staff on and the staff that will be employed.
- The date on which settlement will take place.
- Any transition and training period that the buyer will require.
- The payment that the Buyer will make to the vendor for time spent training or transitioning the business.
The Buying Process
The steps that make up the purchase transaction are clearly defined but require intervention on the part of the buyer to ensure that the process proceeds swiftly.
- The Buyer must ensure their finance is approved and available before the offer is made.
- The buyer should appoint a solicitor to review the sales and rental contracts and to conduct the exchange process.
- The legal entity that the buyer will be trading as must be established and this information provided to Core Business Brokers.
- A non refundable deposit must be made on the exchange of the sales contracts. The cheque must be made out to “CORE BUSINESS BROKERS TRUST ACCOUNT”. The deposit will be placed in the Core Business Brokers trust account within twenty four hours of receipt. This money can only be released on notification by both solicitors that the transaction has been settled by both parties.
- The Buyer must ensure that the Landlord will approve their application for premises and the assignment of the existing lease or the establishment of a new lease. The consent of the landlord must be obtained and provided to the vendors solicitors.
- After exchange of contracts the Buyer is responsible for the following before settlement is completed (some of these points are not applicable to all types of businesses or transactions):
- Completion and signing of the assignment or establishment of the lease for premises
- Installing payment facilities such as EFTPOS, Credit card etc
- Setting dates for the counting of stock and the handover
- Organising utilities such as Electricity, Gas, Telephones, Data connections, water and sewerage
- Organising trading licenses and registration with any applicable government departments or authorities
- Ensuring registration with ATO for GST, FBT etc
- Ensuring that all employee legislation such as occupational health and safety and workers compensation is taken care of
- Arranging any inspections that may be required for compliance with health, safety or building legislation
- Payment on settlement
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