Buying or Selling a Business
To buy or sell a business is not easy. There are countless articles, guides, forums and so forth attempting to describe every conceivable aspect of how to buy or sell a business. The simple truth of the matter is this…a business is only worth what someone is willing to pay! A bold statement but one worth considering whichever side of the transaction you may be.
Remember, when you buy or sell a business it is a transaction and one where both parties are equally responsible. A business transaction can be fast-moving and will often require the preparation and review of many contracts at the same time.
The buyer is responsible for completing sufficient due diligence and the seller must ensure that all documents, material, financial statements, etc. are made available in a timely manner and without issue.
Above all, much like all transactions, there are potential issues and ramifications if it goes wrong. Obtaining expert advice from a Harbourside Legal business lawyer, as well as tax advisors and accountants is a great start – in fact, it’s imperative!
Selling a Business – What to Consider
For anyone who is selling a business, essentially there are two stages: preparing the business for sale and negotiating the sale price and what that includes (stock, assets, liabilities, name, trademarks, etc).
Furthermore, a seller should consider how the business is being valued (three methods come to mind), and what the benchmark is for a business in that industry (a business of similar size in the same or similar industry that has sold before and by what method or multiple).
Selling a business comes with responsibility. It may be a business that has significant personal value to the Seller. The sale of a business also affects staff, customers and sometimes family members.
For example, the following could be considered:
- Are the financial records of the business up-to-date and accurate? Do they provide a true and fair view of the business?
- Are there any contracts that need to be considered (with suppliers or landlords)?
- Does the business have intellectual property, specific licenses or trademarks that have specific value?
- Is the Asset Register correct and up to date?
- Are customer records and details correct?
- What does the debtors’ ledger look like (review for potential delinquent debts, concentrations, disputes, future credit notes and other dilution)?
- Identify weaknesses in the business and the operation and aim to have them address before the business attracts a potential buyer
- Is the transaction confidential (i.e. unknown to employees) and if so, what measures are being taken to ensure confidentiality?
- Has the business been valued correctly? Does the valuation reflect industry benchmarks (an accountant will help at this stage)?
Above all, whatever way you decide to structure how you sell a business; ensure you use the services of an expert business lawyer.
Buying a Business – What to Consider
Acquiring (buying) a business is much like selling one and has responsibilities that shouldn’t be overlooked. For instance, a buyer must consider conducting detailed due diligence as well as, structuring the acquisition, understanding the valuation and securing finance. In fact, the list can be equally exhausting. Get it right and the pay-off is a sound financial transaction (and hopefully one that provides a long-term yield). However, get it wrong and the financial ramifications can be devastating.
A quick checklist:
When conducting due diligence, ensure you include and review the following:
- Financial records (including financial statements, budgets and forecasts preferably three full years and the current financial-year position)
- Bank statements
- BAS returns (ideally the last four quarters)
- Employee entitlements and obligations
- Licenses, Trade Restraints, Supplier Contracts and Agreements
- Discounts and rebates (for customers)
- Delinquent and uncollectable debts
- Obsolete inventory
- Hand-over periods
This list is unique for each and every transaction and can be three-pages long, so make sure you get expert advice and guidance. Click here to request a free checklist for the business you are buying.
Additionally, ensure you have a business plan and that the potential acquisition is aligned with future expectations. Having a 3, 5 and 10-year financial forecast is also useful to ensure the business remains on track and delivers the financial return expected (for both internal and external stakeholders). Ensure you seek the advice and guidance from expert business lawyers, as well as financiers, bankers, investors and accountants. A buyer must gather sufficient information to scrutinise the numbers.
In short, take time to understand all aspects of the business and decide whether it meets with your specific skill set. Why buy a motor repair garage for example, if you have little-to-no experience of how a vehicle operates! The rule of thumb is that if it doesn’t make sense, don’t buy it!
Ask yourself the following questions:
- Is it possible to make a return higher than what it is currently being achieved (with or without your day-to-day input)?
- Is there room for expansion?
- Can you identify market demand for the product or service?
- How old is the business and does it currently rely on key personnel?
- Is it a Franchise and what potential issues could that create?
- Do you know anything at all about the businesses’ products or services and if not, does it make sense to buy?
Questions such as these should be asked continuously through the buying process.
In summary, there are so many aspects to consider, even before you ask yourself what type of investment you are willing to make (long or short-term), desired return on investment (ROI), capital requirements (for purchase and ongoing cash flow). The list is extensive so get expert advice and talk with an expert business lawyer. It makes sense, it’s a sound investment of time and money and could prevent a financial catastrophe.
To conclude, obtaining expert advice is a safe and sound approach. Secondly, an experienced business lawyer will be able to advise on all aspects of the transaction; even through to the negotiation stages and the Buy-Sell Agreements.
Moreover, Harbourside Business Lawyers can assist with:
- Setting up the correct business structure
- Preparing and advising on business contracts
- Advising on and negotiating for Retail or Commercial Leases, and Franchise Agreements
- Put and Call Options
- Tax considerations
- Liaising with Financiers, Advisors and Consultants
- Transfer for licences for liquor, equipment; even poker machines
- Arranging due diligence searches and inspections; and
- Organising and attending settlements
So, if you wish to buy or sell a business, don’t underestimate the hidden value of legal advice. Contact Harbourside Legal Commercial and get a definitive guide from an expert business lawyer.
Contact through our enquiry form or Phone 02 9955 6692