Private Real Estate


Buying a Business in Victoria
Selling Residential \| Selling Business \| Buying Residential \| Buying Business \| Leasing Residential \| Leasing Commercial
Purchasing a business more than any other type of purchase can be complicated and confusing. This is because a business is a combination of many different things, each of which needs to be isolated and purchased simultaneously.
This guide can subsequently, at best only be a basic checklist for those seeking to purchase a business, and the potential vendor (seller of the business) must seek professional advice if they wish to properly conclude the purchase.
It is estimated that the average life cycle for owning a business is between 7 to 14 years, and many people have thoughts of moving on by then. Remember purchasing a business is a major and can be a risky decision so should only be done after careful consideration.
The following steps are written for a person who is seeking to purchase a business. In reading this guide keep in mind that there are two basic stages in purchasing a business. The first is checking and researching a business to see if it is a quality purchase. The second is negotiating the purchase with a prospective vendor:
1.	The first and perhaps most important question is to ask yourself what type of business you are seeking to purchase.
	Set a budget and outline your long term goals and interests. This should dictate what types of businesses you are willing to buy.
2.	Do your own research.
	Read the local and trade newspapers and search appropriate websites. Listen out for rumours and approach owners of businesses you may be interested in.
3.	If you find a vendor who is offering a quality business for sale, approach them and ask them for a meeting in which you can sit down and discuss the business and be taken on a tour of the business.
	An organised vendor may even provide you with an information booklet outlining the strengths of the business, its history and its various components.
4.	On investigating the business it is vital that you research the following and ensure that the vendor can pass you good title regarding:
	(a)	the business' name;
	(b)	if the vendor leases the premises your ability to assume or assign a new commercial lease with the landlord;
	(c)	If the vendor owns the premises as a freehold, your ability to buy the property with a title that is unencumbered by any mortgages, caveats or leases;
	(d)	plant and equipment;
	(e)	fittings and fixtures;
	(f)	stock;
	(g)	goodwill;
	(h)	telephone number(s);
	(i)	employees;
	(j)	supply agreements - the vendor may have an exclusive right to sell certain goods, and this may be extremely valuable;
	(k)	current orders;
	(l)	registered designs, patents, trade marks and any other intellectual property you may own in the paper;
	(m)	statutory licenses used in the business - be aware that in some instances eg crayfish trapping and some taxi licenses, because they are limited, such licenses can be very valuable and in high demand. These are all valuable components of a business and must be dealt with in any subsequent negotiations or contracts. If you believe something else should be included, mention it to the vendor.
5.	The vendor should then present you with a signed s52 Statement and must be accompanied by the following financial records:
	(a)	your tax returns for the past 5 years;
	(b)	Profit and Loss Statements and balance sheets for the last 5 years;
	(c)	the business' cashflow statements for the last 5 years;
	(d)	Bank Statements for the past 5 years.
6.	You should then provide these documents to your accountant who can verify whether the figures reached by the vendor are accurate and whether the purchase is worthwhile.
7.	If you choose to proceed the vendor may then require you to pay a holding deposit, which can be up to 10% of the purchase price.
	Think carefully because if you later renege you may not be able to get your deposit back.
8.	You should then enter into negotiations to purchase the business.
9.	Before signing anything it is vital to ensure the following:
	(a)	if the business premises are leased, contact the vendor's landlord to ensure that they will allow you to assume the lease. You may want to enter into an entirely new lease;
	(b)	if the vendor owns the land and it is encumbered by a mortgage or caveat ensure that they are ready to be discharged at the time of settlement to give you a clean title;
	(c)	ensure that the vendor has contacted their suppliers and that they are aware that the business is changing hands and that they are willing to offer you the same contracts as they did the vendor;
	(d)	get the vendor to speak to all the employees of the business and inform them that they are selling the business to you. It may be valuable to have a meeting with the staff and reaffirm that you will do your upmost to protect their jobs. It is a good idea to get the vendor to start training some senior employees to take on extra responsibilities, so they can give you guidance and advice when you actually takeover;
	(e)	if you need any licenses to continue the business you will want to contact the relevant statutory authority to see if it can be transferred from the vendor's into your name.
10.	To reinforce your position you may seek the following guarantees from the vendor before you sign any contract:
	(a)	you may want you to insert a clause in the contract - known as a restrictive covenant - preventing the vendor from opening a similar business in close proximity to the business you are purchasing for a certain amount of time;
	(b)	you may also want the vendor to sign a seller's warranty which requires them to guarantee within reason that the business should succeed. The breach of which may allow you to reverse the sale. However, remember that the vendor is not obligated to sign this and it does not protect from all types of failure;
	(c)	you may also require the vendor to stay for a short period after the business is sold to teach you about managing the business and to introduce you to important clients and suppliers. During this period you can treat them like an employee and give them a wage.
11.	After the negotiations are completed, both sides should then sign the contract conveying the business to the purchaser.
12.	This is usually a good time to value the stock currently held by the business, so the purchase price paid at settlement can be adjusted.
13.	Most businesses will then most usually require settlement within 30 days, at which all necessary documents will be handed over and you will be required to pay the purchaser the final outstanding amount. A solicitor can help with organizing the settlement.
14.	You can then begin running your own business.



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