When is the right time to purchase a business?
When considering entering into a contract for the purchase of an existing business, it is important to consider whether the purchase is suited to your situation.
In addition to the purchase price payable pursuant to the contract of purchase there are often additional financial obligations that you will incur when taking over the business. These additional obligations can include the following and should be taking into consideration in determining whether the purchase is a sound decision:
1. Whether GST is payable on the purchase price (if the business is not sold as a going concern);
2. If a new company should be incorporated to be used as the purchasing entity;
3. Transfer duty that is payable on the transaction;
4. The value of any stock (if the business is not sold on a walk-in, walk-out basis);
5. Transfer duty payable on any vehicles owned by the seller;
6. Amounts payable to the landlord under a lease applicable to the business (which can include security bonds, rent in advance and even legal fees incurred by the landlord in some situations);
7. Amounts payable to a franchisor in the event that the business is conducted through a franchising arrangement;
8. Whether the business name is registered, and if not fees payable to register the business name; and
9. Entitlements of employees that you might assume under the contract.
All of the above obligations should be considered during the negotiation of the contract through consultation with both your legal advisor and accountant. This ensures that all areas are adequately addressed and you are in the right position to take over the business.
At Streten Masons Lawyers we strongly advise for the inclusion of a due diligence clause in all commercial contracts, so as allow you to investigate each of the above obligations further even after a formal contract has been entered into. This can allow you to terminate the contract should you find that the purchase is not suited to your needs.
How we can help
If you are thinking of purchasing a new business, phone our office on (07) 5428 1111 to speak to an experienced solicitor.