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If you are considering buying a business there are many things you need to do from a legal, financial and general business perspective. Getting the right advice from the start is important. The structure of and issues involved in the sale are quite different if you are buying the business assets only, compared with the shares in the company that owns the business.

In this article we will highlight some of the key issues to be considered.

Making sure you follow the right process before signing any documents is a key component of a successful business purchase.

The main things to do before signing a contract are:

  • Research
  • Get professional advice
  • Review & understand all documentation

Research

Proper research involves checking the records of the business and other information to ensure:

  • Sales are as good as the owner says they are
  • The business systems are sound and documented
  • The business does not have any problematic legal obligations or liabilities
  • All necessary information, rights and assets will be included in the sale
  • Cash flow is sustainable
  • Employees will be happy with a new owner
  • Customers will remain loyal once you take over
  • You understand the operation of and opportunities in the market/industry

Research should, where possible, be carried out before you sign any contracts.

Professional advice

You should always consider briefing and engaging legal and accounting advisers to assist you in conducting due diligence and documenting the transaction, to avoid legal and financial (including tax-related) “surprises” and arguments down the track.

You might also consider whether there are any industry specific experts that may be useful.

Review and understand the documentation

When purchasing a business there is a lot of documentation to be gathered, read and understood.

The seller may require you to sign a confidentiality agreement to stop you from using confidential information for any purpose other than buying the business. You should make sure you fully understand the agreement before you sign it.

Some of the information you should gather and review is outlined below.

Financial statements

It is sensible to obtain current and historical financial records for the business, including:

  • Profit & loss statements
  • Balance sheets to identify assets and liabilities
  • Lists of debtors and creditors
  • Copies of any BAS’s lodged by the business. You should obtain a list of all plant, equipment, assets (including fixtures and fittings) being sold along with current valuations, proof of ownership and information on applicable warranties and guarantees. You should also undertake thorough searches of the Personal Property Securities Register to, for example, ensure that security interests necessary for the business have been registered (such as over sale equipment leased to third parties) and to check whether any relevant security interests are held by third parties.
  • Lists of customers and suppliers
  • Details of any stock sold with the business and how it will be counted and valued at settlement should be discussed and agreed with the seller.
  • List of plant, equipment, assets and stock

Customer and supplier relationships form part of the goodwill of the business and a list of all available contact details should be supplied so that you can make contact and ensure an ongoing relationship.