Factors to consider when buying or selling a business in Australia

Are you prepared to navigate the complexities of buying or selling a business in Australia?

Understanding the legal and contractual obligations is crucial. And it’s what this article is all about.

Buying a business

If you’re wondering how to buy a business, the process starts long before you purchase. You should consider the following factors.

Financial documents you should review

1. Financial statements. This includes profit and loss records, balance sheets and cash flow.
2. Tax returns. This helps you understand revenue and tax obligations.
3. Accounts receivable and payable. This allows you to understand the business’s financial health.
4. Sales records. How’s the performance of different product lines or services?
5. Asset valuations. This includes machinery, property and intellectual property.

Legal Factors

1. Corporate information. How is the business set up?
2. Contracts and leases. This includes property and equipment leases, supplier agreements and employment contracts. 
3. Licences and permits. Does the business have all necessary licences and permits required to operate legally?
4. Compliance with laws and regulations. For some businesses, this will include health and safety standards.
5. Litigation. Is there any potential, ongoing or past legal issues that could affect the business?

​Operational factors to review

1. Business operations. This is about the efficiency and effectiveness of the business’s processes, systems and infrastructure.
2. Condition of assets. You need to know the condition of key assets to determine their usability and lifespan. This includes equipment, vehicles and technology.
3. Customer and supplier relationships. Assess the quality of the business’s relationships with key customers and suppliers.
4. Market position. Reviewing the business’s competition, growth opportunities and industry trends will help you understand its competitiveness. 

Human Resources

1. Employee Contracts. Are they valid? Are employees being paid properly?
2. Employee entitlements. Is there any outstanding employee entitlements, such as superannuation and annual leave?
3. Workplace culture. Evaluate staff turnover rates and employee satisfaction?

Considerations when selling a business

Selling your business is equally as complex, with different factors to consider.

Valuation and financial records

1. Determine the value of your business. This isn’t just about assessing the value of assets and turnover. It also means comparing your business with similar businesses that have recently sold.
2. Financial records. Ensure your financial records are up-to-date and accurate.

​Legal structure and approvals

1. Review legal structure. Depending on how your business is setup, you may need to confirm that you can legally sell your business.
2. Third-party approvals. What do you need to do to transfer a lease or any licences to a new business owner?

Employee management

1. Employee obligations. Check that all superannuation and leave entitlements are up-to-date. You’ll also need to provide a notice of sale.
2. Transfer or termination? Decide whether employees will transfer to the new owner or if their employment will end. 

Tax implications

1. Capital Gains Tax. Understanding the capital gains tax implications will help you plan for any tax liabilities.
2. GST considerations. Determine if the sale qualifies for the ‘ongoing concern’ exemption for GST. 

Contract for sale

A contract should include the:

1. purchase price
2. allocation of assets
3. transfer of business name
4. amongst other things.

The contract will also need to cover transferring any leases, licences and intellectual property.

Confidentiality and privacy

1. Confidentiality agreements. Protect sensitive information by having prospective buyers sign a confidentiality agreement before they can access business details.
2. Privacy compliance. Comply with Australian Privacy Principles when handling personal information during the sale process. 

​Conclusion

Whether you’re buying or selling a process, the key to a successful transaction lies in thorough preparation. Obtaining professional advice is also very important to ensure it goes as smoothly as possible.

Every decision and contractual agreement you make can impact the outcome of your business transaction. 

Our commercial lawyers are here to help you throughout the whole process. Get in touch with our specialised team today.