Selling a small business
The main features of a business being sold will comprise
the assignment or transfer of the lease, the sale of fixtures &
fittings, plant & equipment (the physical assets), stock, any
business name, trademark & any other intellectual property,
licences and the “X” factor called goodwill.
Selling a business is not always easy. How do you
value a business? You value the assets and the goodwill and that
equals the price. A business may be worth a lot more to a vendor
than a buyer who strictly values the business on turnover and earnings.
How do you value a business where earnings are close to zero? Sometimes
a business may be wildly successful under the management of the
vendor. Put the purchaser in control and the success factor vaporizes.
A common experience is a purchaser buys a business with little retail
or business experience and then finds it extremely difficult to
operate, sell and recover the purchase price they paid. Enough pessimistic
advice, a good solid business with a track record of earnings, a
solid balance sheet will have a significant value.
When selling a business you do need to take into account
taxation aspects, such as, income, capital gains tax and GST. In
most cases you as the vendor or as its director will be placed under
a restraint on trade for a certain period of time.
Typically a Contract will always be conditional upon
transfer of the lease and permits; sometimes on finance approval;
and occasionally upon confirmation of turnover.
When dealing with a small business, where the price
is less than $200,000 you need to provide a prospective purchaser
with a Vendor’s Statement (also called a Section 52 Statement).
The Vendor’s Statement must be in writing and provide particulars
about the business for sale, notably, the trading record of the
business and a statement by a practising accountant to the effect
that the accounting and financial information is in accordance with
the vendor’s books and is true and fair to the best of his/her
knowledge. For some vendors this is problematic in that the Vendor
has to pay his accountant to prepare the figures without the guarantee
of the sale ever being consummated.
The failure by a vendor or agent to provide
a Vendor's Statement with all the required particulars provides
the purchaser with the right to terminate the contract and recover
any money already paid. This right can only be exercised before
taking possession of the business or three months from the date
of the contract, whichever occurs first.
What we do
We act to ensure your interests are protected. We often will conduct
the negotiations and draw up the Contract and have the conduct of
the transferring the business, its assets through to settlement.
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Buying a small business
When purchasing an existing small business, you should
exercise extreme caution and conduct careful due diligence. Just
beware it is a very large responsibility in owning and running your
own business. It doesn’t take long to realize there are no
holidays or leave loadings or superannuation contributions when
you are the owner. You can’t even take a sick day even when
you are sick. It’s not just the tax man that looking over
your shoulder it’s the landlord who wants to give you a rent
hike. There does not ever seem to be an end to the outgoings that
make up the profit and loss statement. Again, I do and I don't apologise
for being pessimistic.
You do need to make careful examination of the books of account.
Any contract you sign needs to be conditional on finance approval.
You should request the contract is subject to confirming turnover
measured over a two week trial period. Remember if you are borrowing
money you need a business plan to ensure the borrowings can be repaid.
Thoroughly investigate the turnover and the outgoings as well as
key documents like the Lease. Will you be retaining key employees?
Each business is different and you need good legal and financial
accounting representation. That’s how big business operates
when they are buying and taking over other businesses. They are
ruthless in carrying out their investigations and due diligence.
Don’t get caught out like Telstra, BHP and NAB as examples
in bad business decisions in buying certain overseas assets that
were extremely over valued. These companies are large enough to
absorb the write offs. Most buyers of small businesses cannot afford
to make the same mistakes.
You also need good advice on ownership structures.
Expect to pay for good advice. Its advantageous in the long run.
If you require advice or wish us to act for you our
contact page is here
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