Buying an established business can be an exciting time. However the process can be very time consuming and complicated so it’s important to understand exactly what you are buying and ensure to minimise the risks to ensure the long term success of your new business and investment.
A guide to buying a business in Perth
So you’ve made the tough decision to buy a business. The next step is to transfer ownership of the business from the Seller to you. To assist you in navigating this complex process, we have created a step-by-step guide to buying a business in Perth and throughout WA.
Step 1 – Deciding if the business is right for you
For whatever reason you decide to purchase a business, you should consider these key points before handing over your hard earned money.
- How will I structure my business? The most common structures are:
- sole trader;
- company; and
An accountant or financial advisor can provide further advice on business structures and the financial implications.
- Do I have the sufficient qualifications and experience in the particular business industry? If not, is there any training I could complete first?
- Will there be adequate staff to assist me in running the business?
- Who are the business competitors?
- What is my business plan?
- What is my marketing strategy?
- How will I finance the business operation? Do I need a loan or vendor finance?
Step 2 – Evaluating the business
Start by examining the business’s operations, financial performance, legal and tax compliance, consumer contracts and intellectual property and assets. This process of pre-purchase evaluation of a business is commonly known as “due diligence”. Due diligence is usually done before signing a contract to purchase the business.
Ask the Seller or their real estate agent for the following information/documentation:
- Financial information from the past 2-3 years including sales and income, profit and loss statements, balance sheets and tax returns, loans and lines of credit and a history of debtors and creditors
- Assets owned by the business including all plant and equipment, vehicles and fixtures
- Contracts with customers and suppliers and any other legal documents
- Lease agreements
- Insurance policies
- Employee information including employment contracts
Remember, real estate agents act in the best interest of their client, the Seller. Due diligence is crucial for flushing out any promises or statements made by the Seller or the real estate agent as to the performance of the business.
Step 3 – Signing the Contract
Once you are satisfied with your due diligence you can put an offer to the Seller or their real estate agent. If the seller accepts your offer, a binding contract is formed, subject to any conditions in the offer. There is usually no cooling off period.
If there is a real estate agent involved in the sale, he or she is likely to prepare the contract using the “Agreement for Sale of a Business as a Going Concern” developed by the Real Estate Institute of Western Australia (REIWA) (‘REIWA Agreement”). The parties can insert special conditions into the REIWA Agreement that are not covered by the General Conditions to the REIWA Agreement.
Step 4 – Pre Settlement
Typically, a lawyer or business settlement agent will assist you during the settlement process by:
- Keeping track of crucial compliance and payment dates under the contract.
- Conducting searches on the business assets to determine if the assets encumbrance free.
- Making enquiries with the local government on the business licences and registrations required to operate the business.
- Adjusting all income and expenditure of the business.
- Submitting the contract for stamp duty assessment.
- Obtaining employee transfer details.
- Conducting searches to confirm the Seller owns the business.
- Liaising with the Landlord regarding any defaults by the current tenant and any other outstanding obligations.
Your usual obligations under the contract include:
- Completing a stock take.
- Paying the deposit under the contract.
- Ensuring there is an assignment of lease prepared. If the Landlord does not have a preferred lawyer, your lawyer can prepare an assignment of lease or an assignment and variation of lease on your behalf.
- Making arrangements for any business contracts to be transferred to you at settlement
- Attending to the transfer of any licences to you at settlement
Step 5 – Settlement Day
At settlement, the required legal documentation and funds will be exchanged. If there is a bank involved, your lawyer or business settlement agent will liaise with them in relation to payment of the settlement funds and arrange for payment of any stamp duty to the Office of State Revenue. They will also attend settlement on your behalf and will notify you and the real estate agent once settlement has been completed.
Step 6 – After settlement
The real estate agent or the Seller will make arrangements with you for the transfer of keys to the business. Your lawyer or business settlement agent will attend to the transfer of the business name. It is your responsibility to open any required utility accounts, obtain insurance and notify people of the change business ownership (if required) once settlement has occurred.
Why Choose CS Legal
CS Legal can assist you every step of the way, from putting together an offer and acceptance to settling the purchase of your business.
Our lawyers can assist you by drafting and reviewing special conditions to ensure they do not place onerous obligations on you. We can prepare specifically drafted contracts to suit the needs of the particular transaction. We also draft Vendor Finance Agreements if the Seller is financing your purchase of the business.
In the event that issues are encountered, unlike a settlement agent, our lawyers can seamlessly attempt to resolve any issues up front without having to go away to appoint a lawyer who will take time to get up to speed, often at a steep cost.