Buying a business is an exciting venture. It’s that moment where you step into the driver’s seat, becoming the boss and steering the business into new horizons. However, the path from signing on the dotted line to actually holding the keys is a journey fraught with details and obligations. Let’s demystify this journey, with a few tips to ensure you glide through the settlement process rather than stumble over it.
1. Paying the Purchase Price: Show Me the Money
Once the sale of business agreement is signed, the buyer typically pays a deposit (often 10% of the purchase price) to be held in trust until settlement. This deposit acts as a placeholder, reassuring the seller of the buyer’s commitment. When settlement day finally arrives, the buyer pays the remainder, making their wallet a bit lighter but their ownership dreams a reality.
Of course, adjustments come into play here—such as pre-paid rent, utilities, and any lingering stock. Think of it as ensuring both parties settle the tab fairly, so nobody’s left footing the bill for expenses they didn’t sign up for.
2. Transferring Intellectual Property: What’s in a Name?
The business’s identity—name, domain, email addresses, trade marks, client lists, social media handles—is a valuable asset, often more precious than any physical inventory. At settlement, the vendor hands over this intellectual treasure chest, complete with the passwords, transfer codes, and domain secrets that unlock it.
Word of advice: double-check that the sale agreement clearly states each IP asset being transferred. After all, you don’t want the seller using the business name to launch a competitor next door.
3. Sorting Out the Lease: Securing Your Territory
Most businesses come with a physical location, whether it’s a bustling café or a sleek office. You, as the buyer, will need to either take over the existing lease or negotiate a new one. If the lease is close to expiry, now’s the time to ensure you’ve secured either an extension or a fresh lease agreement with the landlord.
Landlords aren’t too keen on strangers waltzing in and taking over without an introduction. Be prepared for a little show-and-tell—proof of your finances, your professional background, and maybe a few sparkling references to reassure the landlord of your reliability.
4. Handling Business Licenses and Approvals: Keeping It Legal
From liquor licenses to council permits, every business has its red tape. Before popping that celebratory champagne, ensure all required licenses and authorisations are transferred to you. Nothing puts a damper on post-settlement celebrations like discovering you lack permission to operate that outdoor seating or serve alcohol.
5. The Great Equipment Inspection: Shiny, But Does It Work?
The sale agreement should list all equipment included in the deal, from espresso machines to computer servers. Settlement is your chance to ensure that each piece is in good working order. Picture yourself flicking switches and pushing buttons, verifying that everything works as promised.
If certain items are mission-critical (say, the cash register in a retail store), consider bringing in a professional inspector to assess their condition. There’s no harm in having a second pair of eyes when it comes to avoiding costly surprises.
6. Employee Transfers: Welcoming the Troops
Employees are often part of the deal, and you’ll need to decide who stays. The sale agreement may require you to make employment offers on similar terms, keeping the transition smooth. Of course, before rolling out the welcome mat, ensure the vendor has squared away any outstanding entitlements with departing staff.
7. Requisitions: Asking the Hard Questions
Once contracts are signed, it’s customary (in most Australian states) for the buyer to provide a list of questions to the vendor—commonly known as requisitions. Consider it your opportunity to dig deeper and uncover any skeletons in the closet, be it pending legal disputes or council orders. Don’t be afraid to ask; it’s better to know before you take the plunge.
8. Releasing Securities: No Strings Attached
If the business’s assets have security interests attached, these need to be released before settlement. Imagine buying a car and later discovering it’s still under finance by the previous owner. Not ideal, right? The same principle applies here. Make sure the vendor clears any outstanding loans or debts that could interfere with your ownership.
9. Utility Transfers: Lights, Internet, Action
Once you’re in charge, you don’t want any disruption to the essentials. Ensure the vendor helps you transfer or set up new accounts for utilities like electricity, gas, internet, and EFTPOS facilities. Some accounts may take a couple of weeks to establish, so plan ahead to avoid any hiccups on Day One.
10. Collecting the Keys: The Big Moment
Now we arrive at the symbolic gesture of ownership: the key handover. Settlement can happen in-person at a lawyer’s office or remotely via electronic means, especially if both parties are in different states. Either way, receiving those keys means the business is finally yours. Time to breathe a sigh of relief (and maybe pop that champagne).
11. Stocktake: Counting Every Coffee Bean
In retail or hospitality, stock levels fluctuate constantly. A stocktake ensures you’re only paying for what’s on hand. Ideally, the stocktake happens just before settlement, allowing the buyer to tally up and confirm the amount due without overpaying. Some contracts set a maximum stock value—anything beyond this can wait until you’ve settled in.
12. Transferring Third-Party Contracts: Keeping Suppliers on Your Side
The vendor may have contracts with suppliers or service providers—be it for coffee beans, cleaning services, or office supplies. Transferring these contracts secures your relationship with these vendors, ensuring business continuity. If contracts can’t be assigned, be prepared to negotiate new agreements so that you’re not left scrambling after settlement.
Final Thoughts: The Road to a Smooth Business Takeover
Buying a business is a rewarding venture, but the settlement process is where things can get real. From paying the right price to securing leases, utilities, and IP, it’s essential to have every detail ironed out. After all, you want the transition to be as seamless as possible, so you can focus on growing the business without the distraction of unresolved issues.
And remember: a skilled sale of business lawyer can be your best ally in ensuring that all steps are completed and that you don’t miss a beat. A smooth settlement process is the key to stepping confidently into your new role as a business owner.
All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.
