Making sure your business purchase is worth your hard earned?

It’s interesting to observe as we come out of the Covid-19 hibernation, that there is starting to be movement in the buying & selling of businesses. Perhaps the time out has given people time to reflect that they want to be their own boss.

If you find a business to purchase, there’s no doubt there is a lot of excitement and enthusiasm. However, it is wise to make sure you don’t rush in and that you have enough time before settlement to complete a proper due-diligence on the purchase.

So what can you do with our assistance as due diligence to protect yourself:

1. Search the personal property securities register. This search will show whether the someone else has a security interest or claim to the business assets you are buying. It goes without saying, this should be removed before you handover your hard earned. Otherwise, if you settle, that person may claim possession of your business assets.

   In one case, the vendor didn't disclose that the company was had its assets encumbered to a finance provider.

   The purchaser searches the PPSR and declined to settle until a deal was reached to remove the encumbrances. Had they not done the deal with the financier, they risked owning the business assets that could be repossessed at any time by the financier. Sure, they could sue the vendor, but getting it right before settlement avoids the cost and inconvenience and the chance the vendor has skipped town with their money.

2. Carry out a land title search for the lease. Often the lease and business location are the biggest asset of the business. In one case, I saw that the leased premises was mortgaged, the vendor hadn't mentioned this. Luckily we alerted them to the need to get the mortgagees consent to the lease transfer to avoid the purchaser being evicted by a mortgagee after settlement. You can also contact the landlord to confirm there are no breaches of the lease that would stop the lease being transferred..
3. Complete a Business name check. Business names must be registered on the business names register. They are different to company names, trading names or trademarks. I have seen contracts that allow the purchaser to register a business name that the vendor doesn't own, but someone completely different does!
4. Getting accounting advice. A vendor statement must be provided for the sale of a small business. The vendor statement provides details of the businesses financial performance. You should seek accounting advice about the financial viability of the business, and whether the purchase price is a fair one.
5. Get advice on your business structure. Running as a family partnership or as a sole trader is not very cumbersome, but it won't provide you the legal protection that a company or trust structure might.
6. Search for the vendor permits and licenses to operate the business. This could include liquor licenses, food registration and so on. If you are buying a hospitality business, you should arrange a council inspection so that any hygiene or safety issues can be dealt with at the vendors cost before settlement. For maybe a hundred dollars and some elbow grease, you can determine whether the business is worth the price and identify any issues before handing over your hard earned.

If you are pondering purchasing a business, make sure you include our legal advice from the early stage of your contemplations. Discuss this further by calling Lachlan Edwards on 0427 916 442 or Siobhan Liston on 03 5445 1067.