Recently I spent more time in business completion as I have nothing much to do during Covid outbreak.
What’s involved?
Always run your business until completion and maintain equipment and stock as usual as you can. And then at the settlement date, you need to transfer all things necessary running your business to the buyer, including lease, equipment, stock, goodwill like business name, website, email, social media accounts, customer list and so on.
1．Lease is top important especially if it is a retail business.
There are two ways for the buyers to get the lease, meaning lease assignment and having a new lease.
A. Current lease assignment.
It is simpler than granting a new lease, but the landlord must make sure the incoming tenant has the experience, capability and financial status not less than the current tenant. Documents needed like as followings,
- the buyer’s driver’s licence or passport.
- details of the buyer’s financial status, like an assets and liability report, prepared by your accountant.
- Resume telling the buyer’s business or working experience.
- Business or employment references.
Never assume the landlord will approve the assignment very easily. Sometimes, it can be also difficult. Though the landlord is required to approve the assignment, but it really depends. If the buyer has less capability than the current tenant, the landlord can always say no. It is the seller’s responsibility to facilitate the process, not the buyers unless the business on sale is very popular and sought after by the buyers.
The seller should notice the landlord of the sale of the business and ask the buyer to provide the documents as above. The Deed of consent to assign or transfer the lease to the buyer needs to be signed by three parties. As the seller, you need to sign a surrender deed of lease to release you from liability and obligations under the lease. The seller needs to pay the owing rent or clear everything with landlord before settlement. The buyer needs to provider bank guarantee/cash deposit, insurance to the landlord according to the lease.
B. New lease/s
If the buyer wishes to negotiate or start a new lease with the, both the seller and the buyer will need to consider any possibility that the lease terms can be worse than the current lease. If the landlord wants to change the lease length, the rent and outgoings, market review, the business sale deal can be quite different. So always bear in mind anything can happen. The market can decide if the process can be easier.
2．Settlement checklist
Employees: The seller needs to notify the employees and confirm with the buyer if the buyer will keep any or all employees. You will also need to notify the buyer what employee entitlements each employee is owed as at the completion date. The seller needs to clear the entitlement of employees before completion. If the liability is transferred to the buyer, there is some adjustment needs to be agreed.
A. Staff: The vendor needs to notify the buyer that the business will be sold and checks with the buyer which employees the buyer wants to take on settlement. The buyer needs to make an offer of employment to those employees. The vendor must also pay employees who they have terminated any outstanding entitlements owed to employees on or before settlement. If the employment entitlement needs to be transferred to the buyer, the price adjustment is needed and most of the time there is a discount.
B. Lease: As discussed above.
C. Intellectual Property: Transfer the business name, trademark, social media accounts and email address, domain names, website to the buyer.
D. Utilities and Licences: Arrange for the transfer of the relevant utilities (phone, water, electricity and EFTPOS) and licences (software, liquor or food licences).
E. Contracts: Either transfer or terminate any business contracts you have with the third parties, suppliers for instance. You may need the consent of the supplier to transfer the contract.
F. Equipment: As part of the settlement process, the buyer should check each piece of equipment to make sure it is in good working order. The buyer also needs to contact the owner of any equipment hired to make the transfer happen.
G. Securities: Search the PPSR to make sure there are no securities registered against the equipment or lease. It may take some time so please do it as early as possible.
H. Stock: You can hire a third-party stock taking company to provide this service for you. Or the buyer and the seller can agree on a way to calculate the stock.
3．The last is the money issue
The solicitors will do the calculation for the two parties about how much has been prepaid, how much to be paid, how much is the adjustment including rent and outgoings, stock, work in progress, employee entitlements, any debt and credit. The buyer needs to pay the balance considering the adjustment before or on settlement. Plus, as the business broker, we need the solicitor to give an Order on Agent to release the commission from the trust account as the part of the deposit, and the balance will be transferred to the seller’s nominated account.
