It’s tax planning season and EOFY is fast approaching. If you are selling or buying a business, this is a very convenient time to change the ownership as it can take effect with the change of financial year.
Your accountant may also recommend changes to your business structure to take effect for the new financial year. Here are 5 tips to help whether you are buying or selling, and whether the transaction is an asset sale or a share sale.
Do your homework
Take the time to prepare your business for the sale. Ensure that the business is well organised, the accounts are done and key contracts are in place before putting the business on the market. In particular, the books need to be in good order and all personal expenses must be separate from business expenses. Buyers will be looking for issues and problems, and they will use these to reduce the price.
Buyers need to look through the accounts and other records to ensure they are buying what they think they are buying and that the price is fair. Buyers may also need to satisfy their financiers on the soundness of the deal to be able to get approval for finance of the purchase price.
Be prepared to assign the lease
It’s a rare business that doesn’t require premises! Most businesses lease their premises and part of the sale will be taking over the lease, either by assignment or a change in control of the tenant. You don’t want the consent of the landlord to delay the sale so our recommendation is to be organised! Make sure you understand the requirements in the lease and relevant legislation and allow time for the landlord to consider the incoming owner.
The buyer can assist by providing financial and business references for the landlord.
Review your debts and securities
Suppliers, banks and any owners of hired equipment are likely to have registered security interests on the Personal Property Security Register (‘PPSR’) against the assets of your business, you personally or the entity that owns your business.The seller needs to give clear title to the buyer for the assets being sold which means these registrations need to be removed.
Contacting and arranging the various releases of these security registrations can often take a few weeks, particularly if banks need to verify the amount of remaining security they have for any loans that will be ongoing. Doing a search of the register and starting early is strongly recommended!
Arrangements will need to be made in relation to transferring employees and their entitlements if the transaction is a sale of assets. Buyers need to consider if there are key employees that are necessary for the smooth transition of the business. A buyer may require the sale to be conditional on key employees being willing to transfer with the business.
Both parties need to be aware that the decision to take employment with the buyer is up to the employee. Each party needs to consider the financial effects of the employees’ decisions. The seller may be responsible for paying redundancies for staff that do not transfer, or there may be a financial adjustment on the purchase price to take into account that the buyer will take on the liability for the transferring employees’ entitlements.
Are your licences and other registrations up to date?
To run the business you need to ensure all necessary licences, authorisations and permits are in place. These requirements vary from industry to industry. In several cases, these licences are not transferable and the buyer will need to go through the application process. Often, there are prerequisites such as police checks and responsible service of alcohol qualifications, and you need these before you even start filling in the transfer application!
Transferring trade marks, domain names and business names are usually straightforward provided everything is up to date in the applicable register. In particular, make sure your business name registration or trade marks haven’t lapsed. Listen to our podcast on Sale of Business.