BUYING A BUSINESS? WATCH FOR THESE HIDDEN COSTS

BUYING A BUSINESS? WATCH FOR THESE HIDDEN COSTS

Buying a business?  If you are looking at buying a business or are in the process of buying a business, then there are a multitude of things you will need to consider. Not only should the typical pre-purchase due diligence enquiries be made, but some more in-depth matters (which are often glossed over or forgotten about in their entirety due to time constraints or simply a lack of knowledge in this particular area) should be discussed and considered, to ensure that you are aware of all aspects of the business prior to going all in.

In terms of typical pre-purchase due diligence when buying a business, some items that Affinity Lawyers advises should be considered as a matter of course are:

  • Whether you require any specific terms or requirements to be included in the offer, or the contract;
  • Whether there are any terms contained in the offer or the contract which you need to be explained to you prior to signing or amended;
  • How you intend on purchasing the business – i.e. the entity which is most suitable for you to purchase the business taking into account any asset protection or tax minimisation requirements;
  • Potential restraint of trade for the seller and/or other key staff members of the business;
  • The current status of business assets and property;
  • The lease (if any) and the associated obligations.

There are many ins and outs of the business that should also be considered and discussed prior to purchasing a business and Affinity Lawyers are able to go through each of these in detail with you in a consultation. Despite their importance, they are often left until either the last minute to be investigated or are not investigated at all until after the business purchase has been finalised.

Such things can include (but of course are not limited to):

  • Business equipment (including computers and software) – how old are these items and are they up to date?

Old, dated computer equipment/hardware and unlicensed software or software licences due to expire can become very costly matters if the business relies on these to operate.

Similarly, find out when large assets or equipment are due for servicing or repairs. If the date is looming, there could be a significant cost associated with this that the seller does not want to pay and that you will be stuck with.

  • Owned outright or leased?

Are the business’s pieces of equipment, stock and other assets owned outright or subject to costly repayments?  These types of things can affect your bottom line and increase your monthly outgoings if you are paying unexpected outlays for items you thought were owned outright.

  • Website

Is the website up to standard and functional?  Are there ongoing costs associated with its maintenance or is it something you can maintain yourself?  If a new website is needed, or significant work is required on the existing site you can be up for thousands of dollars, not to mention significant downtime which also results in a loss of business. Make sure you are aware of the website status prior to purchasing.

  • Administration Access, Login Details, Authority

It goes without saying that you will need to make sure you are provided with administration access, login details and authority to make changes to any and all social media accounts for the business (if included in the sale), as well as any other accounts linked to the business including software, hardware, website hosting account, google, marketing, Paypal, Afterpay, and even MyGov.  It is imperative that you have all of the correct information prior to settlement, and that you attend to removing the sellers access to any of the accounts (as well as updating all passwords) after the sale has been finalised.

  • Existing marketing strategies, accounts, subscriptions and services

Similarly, you should ensure that you have a working knowledge of the subscriptions and services the business is currently utilising and what these items are costing each month so that you are aware of the expected monthly outgoings for these and the return on investment.  Also, being aware of the contract lengths and terms so you can factor this in to your budget.

  • Supplier agreements and licensing

All supplier agreements and licensing information should be obtained so you are aware of the terms of trade, opportunities for expansion and to ensure that you are able to continue to operate the business on the same basis as it is currently being run.

  • Employee entitlements, staff qualifications

Generally these things are adjusted at settlement, but it is prudent to be aware of them, particularly any employees who are owed long service leave, so you don’t take over the business and have to pay out a large some of money for long service leave straight off the bat!

Also, consider whether there any key employees that the business actually relies on the function or you could find yourself with a problem should that employee decide to move on.

  • Reason for the sale of the business

This is something that should be considered as a whole and then investigated if the reason doesn’t feel right or if you are in any way concerned about its authenticity.  You do not want to left holding the bag if the business is in financial trouble, not operating successfully or which is more trouble than its worth unless you are fully appraised of all of the facts and circumstances prior to going in.

Affinity Lawyers have a team of professional and experienced commercial lawyers who are able to provide legal advice and guidance to you throughout the process of purchasing a business.

Not only can our commercial team prepare, negotiate and advise on business contracts, they can also provide lease reviews, prepare assignments of lease/put and call options/joint venture agreements, assist with all purchasing enquiries and due diligence procedures and provide business structuring advice for asset protection and tax minimisation purposes.  You can also access some important business information from the Queensland Government here.

Telephone our friendly legal team today on 5563 8970 to discuss your matter or arrange a consultation at our Runaway Bay office.