It would be a brave person indeed, who would enter into either a business sale or a business purchase with anything less than a properly prepared contract that fully covers the specifics of the transaction so that all concerned are precisely aware of all details. Innuendo, assumptions, vague references and unsubstantiated promises have no place in these transactions.

‘Conditions Precedent’ 

A contract may include several legal terms. Essentially, these clauses will specify certain actions that need to occur for the contract, even if signed, to become binding. This is known as conditions precedent. Perhaps the sale is dependent upon finance being obtained. Possibly settlement is to only occur if certain licences, contracts, or permits are transferred. It is incumbent on both parties to ensure that such dependencies are formally locked into the contract. These are vital legal considerations.

Clarity on inclusions 

It is imperative that both parties are entirely clear upon what exactly is included in the intended sale:

• Plant and equipment – owned outright, leased, or on loan?
• Supplier deals – are these locked in with contracts, or based only on some loose verbal arrangement buried in time?
• Company name – company name and branding can carry significant goodwill. Is it included in the sale?

These are some of the items that need to be definitively ascertained, and various business types will infer their own specifics to be considered.

Due diligence

It is essential that sellers present and provide accurate financial records to justify the financial credentials of their business. It is equally important that potential buyers, either themselves or their lawyers and accountants, satisfy themselves that all is as it should be, by inspecting:

• Tax returns
• Profit and loss statements
• Business Activity Statements (BAS)
• Supplier and customer contracts

Staff

It is important for potential buyers to ascertain, as far as possible, the disposition and possible changes in staffing. 

Long-standing and experienced staff have intimate knowledge of products, procedures and customer needs. A new owner going in cold with a new and unfamiliar staff line-up may find that the expected outcomes are not being achieved.

It is also important to be fully cognisant of staff contracts, leave and pay liabilities, and superannuation status.

Question time

As the old saying goes, the only silly question is the one that wasn’t asked.

It is vitally important that sellers have a frank discussion with their lawyer to make sure their business is fully presented in not only the best light, but in a manner that is fully justifiable, and ready to withstand full analytical scrutiny.

Likewise, potential purchasers should not be backward in satisfying themselves fully on every aspect of the intended purchase, the contract, and the timeline of the process that will ensue. Anything less is tempting fate.