On this page
- What to do before you sign the contract
- Things to watch out for
- What to do after you sign the contract
- Set your goals with the One Page Action Plan
Be clear about the sales process to minimise your risk and protect your investment. A lawyer or accountant will be able to guide you through the sales process.
Before you sign the contract
Read and check the documentation
Following your assessment, manage the risk of buying the business by:
- ensuring the seller provides you with the contract of sale, copy of lease, and Section 52 statement (also known as the Vendor's Statement)
- checking if a performance clause can be inserted within the contract that specifies the minimum takings of the business over an appropriate period leading up to settlement
- insisting on the right to work on the business before entering into a binding contract, or at least prior to settlement – this helps you to assess the veracity of the seller's claims
- check financial records carefully
- making the transfer of important existing contracts to be a condition of sale
- structuring the payment of the sale in stages – some part of the purchase price could be retained for a certain period and if necessary placed in trust with a solicitor or estate agent
- ensuring any representations made by the seller – whether written or otherwise – are guaranteed by the seller as correct and that this guarantee is incorporated as a condition in the contract
- inserting a restraint of trade clause in the contract – this will restrict the previous owner from operating a similar business within a certain distance for a number of years
- checking if there are long service leave liabilities for existing employees.
Preparation of transfer
Prior to the transfer, you should:
- prepare the proposed assignment of lease
- use ASIC's business name register, and company and other registers to search the name of the existing business to ensure the seller has free and clear ownership of the business and has full rights to transfer the business to you
Business name register
Company and other registers
- know if the seller owns the business premises and is transferring the title to you – if so, use LandData's online search service to ensure the seller has free and clear ownership of the premise
Titles, properties and certificates register
- ensure that existing contracts are transferred to you as part of the contract terms.
When you sign the contract
Once the preliminary steps have been taken, upon signing you should:
- ensure the seller provides the signed contract
- return a signed copy of contract to seller
- pay the preliminary or full deposit and seller to supply receipt for deposit.
Immediately after settlement
Once the contract has been signed, you should:
- lodge applications for transfer of registration of business name
- transfer all necessary permits, licences, registrations and certificates – this will help you understand which licences you need to transfer.
Things to watch out for
Failure to disclose information
You should be wary of a seller who is failing to disclose important information, such as why they're selling, the lease, licences, permits and staff.
Poor business performance
Be wary of sellers who are subject to:
- pending litigation
- have a record of customer complaints
- talk up the cash trading
- drop the sale price of their products or services to bump up gross sales before selling the business.
Make sure the business you buy is not overvalued by completing financial due diligence. Have an accountant analyse the financial information provided by sellers to see if a business is profitable.
Sellers behaving badly
Watch out for sellers who won't allow a trial period, won't introduce you to suppliers, the landlord or estate agent, make the deal seem too good to be true (it probably is), are keen to close the deal quickly and give in too easily to an offer.
Look out for a business that own rights over copyright or other intellectual property, landlords who only give short leases and leaseholders who offer the business for sale at reduced price, but then offer you the same lease at a premium.
Set your goals
Even though you're planning to buy an existing business, it's essential to review the current operating processes, cash flow, and marketing strategies to see if they need refreshing. It's also good to set goals on how you want your business to look over time.
Our One Page Action Plan helps you to take quick action on the goals you have set.