Buying a Business
Now that you have negotiated the terms of your purchase, either through a commercial agent, or with the seller direct, there are certain aspects of your purchase you need to consider. For example:
- Have you considered in what entity or name you are purchasing the business? That is: are you purchasing the business in a corporate entity with a supporting trust structure, or as an individual. It is imperative that you seek expert accounting and tax advice in this regard because the way in which you set up your business structure from the beginning will have the greatest benefit to you and your business in the years to come.
- Does the purchase price reflect a break-up of: “goodwill”, “stock”, “equipment”, transfer of licences etc? If not, it should so that you can gain the benefits from a tax perspective and you should seek advice from your accountant in this regard.
- Is the purchase price inclusive of GST? If the business is sold with leased premises and the lease will transfer/assign to you, or you take up a new lease with the landlord, then the purchase is considered to be a “going concern” for GST purposes. If not, then the purchase is a “taxable supply” and you are required to pay 10% GST on top of the purchase price.
- Are you purchasing a business with “premises” attached with a current lease in place? If so, you will need to provide the landlord of the premises with your financial details to assure the landlord that you will be a good tenant. The landlord is required to “consent” to the transfer/assignment/new lease to you.
- Is it your intention to retain the current employees of the business? If so, it is important that you are aware of the employees’ entitlements, their employment status and whether you wish for them to remain with you, or be terminated upon settlement of the business.
- Is there any leased equipment in the premises? If so, ensure that the leases will transfer to you upon settlement, or are you required to take up new leases with the lessor.
- What other equipment is in the premises? Obtain a full list of the equipment, and if possible, a depreciation schedule for the equipment. Ensure that the equipment is in “working order” and whether there are any manufacturer warranties still in place to ensure that these will transfer to you.
Often a seller engages a commercial agent to act on his/her behalf, much the same way as a seller engages an agent to sell his/her house and preparations must be made well in advance to ensure the smooth processes which are required.
It is usual for the seller’s solicitor to prepare the sale of business agreement and for this to be sent to you, or your solicitor. It is important for your solicitor to confirm the content of the agreement and for your accountant to confirm the figures and business structure for you, prior to entering into the agreement to purchase the business.
There are many things to consider and the above by no means covers it all – hence, it is important that you seek informative and expert legal and financial advice.