If you are thinking about buying a business, there are several things you should do from a legal, financial, and general business standpoint. Getting the appropriate guidance from the beginning is critical. When you acquire solely the business assets, the structure and difficulties involved in the sale are substantially different than when you buy shares in the corporation that owns the firm.

Making sure you follow the proper procedure before signing any paperwork is essential for successful company purchase.

The following are the most important things to perform before signing a contract:

  1. Due Diligence investigations
  2. Seek expert assistance.
  3. Examine and comprehend all documents

1. Due Diligence

Due diligence entails analysing the business’s records and other information to ensure:

  • Sales are as good as the proprietor claims.
  • The business systems are reliable and well-documented.
  • There are no serious legal responsibilities or liabilities for the company.
  • The transaction will include all relevant information, rights, and assets.
  • The cash flow is stable.
  • Employees will be pleased with the new owner.
  • Once you take control, customers will remain loyal.

You are familiar with the market’s/operations industries and potential.

Wherever feasible, perform due diligence before signing any contracts.

2. Professional assistance

To avoid legal and financial (including tax-related) “surprises” and arguments, later on, you should always consider briefing and employing legal and accounting consultants to assist you in doing due diligence and documenting the transaction.

You might also consider whether there are any industry-specific experts that may be useful. For example, Sunshine Coast residents who are looking for buying a business advice might seek out BizBrokers. BizBrokers are Sunshine Coast Business Brokers that specialise in helping people make the right decisions when purchasing a business. It’s important to seek the help of a business broker to make sure that the business you are purchasing is suitable for you and matches what they claim they are selling.

3. Examine and comprehend the documentation

When buying a business, there is a lot of paperwork to acquire, read, and comprehend.

The seller may request that you sign a confidentiality agreement to prevent you from utilising sensitive information for any reason other than purchasing the firm. Before you sign the agreement, be sure you completely understand it.

The following information should be gathered and reviewed.

Statements of financial position

It is advisable to get current and historical financial information for the company, which should include:

  • Statements of profit and loss
  • Assets and liabilities are identified using balance sheets.
  • Debtor and creditor lists
  • Copies of any BASs filed by the company

List of plant, equipment, assets, and stocks

You should get a list of any plant, equipment, or assets that are being sold, as well as current assessments, proof of ownership, and information on applicable warranties and guarantees.

Details of any stock sold with the business should be addressed and agreed upon with the seller, as should how it will be tallied and priced at settlement.

You should also conduct thorough searches of the Personal Property Securities Register to ensure that security interests required for the business (such as over-sale equipment leased to third parties) have been registered and to determine whether any relevant security interests are held by third parties.

Customer and supplier lists

Customer and supplier relationships contribute to the company’s goodwill, and a list of all relevant contact information should be provided so that you may initiate contact and maintain an ongoing connection.

Employees

If the firm is being acquired as a continuing concern and the buyer is assuming employee responsibilities, a list of workers, their job descriptions, salary, years of service, any disciplinary concerns, and accumulated benefits such as vacations and long service leave should be supplied.

Important Contracts

Any important contracts required for the running of the business, including copies of the premises lease and any plant and equipment leases, should be given and evaluated. Check the clauses for the term, assignment, change of control, and termination in particular.

If any of the selling assets are financed, the financier’s approval is required.

If the company is a franchise, the seller must give a franchise disclosure statement.

Keeping track of the transaction

After you have completed your due diligence, you must get the transaction formalised with a legally binding contract. There are several considerations to think about.

Structure

You must decide on the transaction structure, and it is critical that you get counsel on the legal, financial, and tax implications of the form you choose.

The following are examples of items to consider:

  • Whether you are purchasing the business’s assets or shares in the corporation that owns the assets.
  • The amount to be paid and when it is due.
  • Who will be the buyer: an individual, a corporation, a trust, or a partnership?

When purchasing a business, deciding whether to purchase the assets or the firm is crucial. There is no easy or correct or incorrect response to this issue because it is typically dependent on the business being acquired as well as the unique circumstances of both the buyer and the seller.

Consider the following while making a decision:

  • The degree to which you seek flexibility and control over what you acquire.
  • Do you need all of the company’s assets or all of its employees?
  • Do you wish to be held accountable for the company’s prior obligations (known and unknown) relating to workers, suppliers, or customers?

Payment Terms and Conditions

Once the price has been decided upon, you must decide how and when the payment will be paid.

You may wish to hold back a portion of the purchase money for a set amount of time to guarantee that the seller’s information is correct or that profit forecasts are met.

You may not wish to pay the fee all at once and may be able to arrange monthly or annual payments.

You must consider that the firm will most likely continue until the selling date, which means that stock, accounts receivable, and other issues must be finalised at a certain time and in an agreed-upon way.

Legal Agreement

A contract for the sale of a firm is the primary legal document. The sale contract details the numerous terms agreed upon by the parties, such as:

  • the parties’ rights if something goes wrong; the seller’s representations and warranties, which are intended to guarantee that: the seller stays accountable for the information provided to you about the business, and you get what you pay for;
  • a non-competition clause that forbids the seller from starting a competitive business after the transaction; and (if a lease or franchise is involved) the landlord’s or franchisor’s approval.

Conclusion

Purchasing a business may be a complicated process. You must ensure that you have done enough research, understood the hazards, and have obtained appropriate business brokering advice.