Business Law

9 Points To Consider WhenSelling Your Business

July, 2014

By Gavin Hanrahan

Legal Disclaimer

This presentation is offered for general information

purposes only. It does not constitute specific legal

advice or opinion. You should not act or rely upon any

of the information contained within this seminar

without seeking the advice of a qualified solicitor who

specialises in the particular area of expertise and

jurisdiction that you require.

Presentation Outline1. See Your Advisors Early 4

2. How much should you sell for? 7

3. What are you selling?11

4. Getting Ready For Sale 15

5. Due Diligence19

6. How to sell your business? 24

7. Premises26

8. Employees 29

9. Close To A Deal33

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1. See Your Advisors Early

Many vendors leave it far too late when it comes to involving their professional advisors in the sale process.

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1. See Your Advisors Early

Your business lawyer can assist in: Providing initial structure advice; Preparing a good confidentiality deed prior to

negotiating with potential purchasers; and Providing guidance during the negotiation period

on issues such as: Employment law issues; Business contract transfers; Commercial lease issues; Tax law; and Stamp duty related concerns

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1. See Your Advisors Early

Accountants can also be very useful in assisting determining price and tidying up a business ready for sale.

A list of other professional advisors who may be able to assist you in your transaction include: Commercial Advisor / Business Broker Industry Specialist / Business Consultant Financial Planner Finance Broker

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2. How much should you sell for?

It is worth studying what sort of money like-businesses are being advertised for in your local market. However, often your accountant or business broker is best placed to provide an accurate estimate of what your business is worth.

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2. How much should you sell for?

Once you have a price in mind, you need to determine and then deduct from that price the net cost of removing yourself from the business. You will be left with your likely net proceeds of sale.

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2. How much should you sell for?

Costs to take into consideration include broker commissions, accounting and legal fees, and the satisfaction of business debt.

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2. How much should you sell for?

It is also worth noting that many sale contracts often make the vendor liable to adjust the price in favour of the purchaser for the net value of any employee entitlements, and any costs of the landlord of business premises in consenting to a transfer.

You may also wish to factor in the cost of any restructure or “tidying up” required to get your business into saleable shape.

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3. What are you selling?

Businesses can be structured in many different ways – so too can business sales.

You may want to sell your business as a going concern. That is, transfer the whole operation, (including plant and equipment, stock, a right to occupy premises, the employees and their accrued entitlements) as an operational enterprise.

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3. What are you selling?

Alternatively, you may not wish to sell off your entire interest in the business in one go. You may wish to slowly invite employees to purchase an equity stake in the business.

This may mean selling shares in the company which owns the business, rather than pieces of the business itself.

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3. What are you selling?

A share sale can also be used where the business includes some assets which are not easily transferable, like key contracts or licences.

In some instances, the subject licence or contract may allow a share transfer, but not a complete assignment of rights.

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3. What are you selling?

The sale of a business can include the transfer of any one, a few, or all of the following: Business name and/or company name; Plant and equipment; Goodwill; Intellectual Property; Stock in trade; Right to occupy premises; Key customer contracts; Employees; and Licenses and permits.

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4. Getting Ready For Sale

What shape is your business in?

Does your business rely on its name and logo in the marketplace?

If so, make sure your business name is registered. Further, make sure your logo is protected by registering it, along with your name, as a trademark.

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4. Getting Ready For Sale

You should also give consideration to your relations with third parties.

The basic rule of thumb is:

“get everything in writing”

If your business relies on a key customer or a number of key customers, consider signing them up to long term contracts. These contracts can become assets of your business.

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4. Getting Ready For Sale

There are many statutory requirements associated with running a business, particularly when employing staff.

Make sure you are in compliance. Take the time to audit your OH&S documentation, your policies and procedures manual, even employment contracts. Make sure they exist and make sure they are legal. You may be asked to warrant to a purchaser that these systems are compliant.

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4. Getting Ready For Sale

What about your structure?

Is it saleable?

Do you have different parts of the business owned by different entities?

Are all assets easily transferable?

Your lawyer can assist in re-structuring parts of your business, drafting necessary governing documents and successfully implementing the changes.

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5. Due Diligence

Due diligence is the formal process during which a potential purchaser of a business or company evaluates the assets and liabilities of that business or company.

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5. Due Diligence

Often, the purchaser will ask a vendor to warrant that any information produced by the vendor during the due diligence process is accurate and not misleading.

This is because the purchaser will be relying, to varying degrees, on the information produced as a result of due diligence.

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5. Due Diligence

It is reasonably common in transactions involving small to medium enterprises for the vendor and its advisors to be heavily involved in the due diligence process.

Normally the purchaser or its advisors will request a large volume of information about the business or company, including…

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5. Due Diligence

Financial documentation; Key contracts; Leasing arrangements; Employee arrangements, including employment contracts,

entitlements etc.; Details of any current or threatened legal action regarding

the business or company; Evidence of compliance with certain legislation or

regulations; Currency of licenses and/or permits; and/or Any other information which a prudent purchaser may

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5. Due Diligence

As a vendor, you will need to be able to respond accurately, honestly and reasonably quickly to enable the sale process to progress.

A due diligence response needs to be given careful and considered attention to ensure not only that the response is accurate but to ensure that the response does not inadvertently mislead or deceive a purchaser.

Your lawyer and your accountant should play significant roles during this process.

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6. How to sell your business?

Business brokers are often a very good resource for a vendor looking for potential purchasers.

They also possess sound knowledge of the local market and can invariably assist with pricing and marketing strategies.

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6. How to sell your business?

Some other options to consider include talking to your accountant and other advisors to see if they have any clients who may be interested in purchasing your business.

Alternatively, some vendors need not look any further than their own backyard – their own employees may see a great opportunity.

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7. Premises

Will the occupation of premises be included in the sale of your business?

If so, is the premises being sold as an asset or being leased to the purchaser?

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7. Premises

If the premises are leased premises, then the existing lease (if any) can be transferred with the consent of the landlord to the new purchaser; or a fresh lease can be negotiated between the landlord and the purchaser and entered into on the date of settlement of the business sale.

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7. Premises

Either way, where the vendor is not the owner of the premises, the transaction will necessitate the involvement of a third party, the landlord.

This should be factored into any timeframes for completion of the deal.

So too should the possibility that the landlord may either refuse to consent to an assignment of an existing lease or may be difficult to deal with in negotiations for a new lease.

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8. Employees

Will the transaction involve the transfer of employees from one employer to another?

If so you need to give consideration to a number of issues, including…

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8. Employees

Termination of the employment of each employee. This must occur on completion along with the re-employment of each employee by the purchaser.

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8. Employees

Redundancies - ensure where possible that a purchaser takes on all employees on terms no less favourable to each employee.

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8. Employees

Employee entitlements – these are obviously the responsibility of the vendor up until completion.

The purchaser must then take responsibility for entitlements accruing on and from completion. The purchase price will often be adjusted in favour of the purchaser for any accrued entitlements existing as at completion.

However, some entitlements, such as superannuation and sick leave, are often heavily negotiated points.

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9. Close to a Deal

Once the “big ticket” items have been negotiated (with the assistance of your professional advisors), you need to make sure all points are reduced to writing in the form of a binding contract for sale. 

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9. Close to a Deal

This document should be prepared by a lawyer with experience in business law and will include, in addition to those items already discussed and agreed to in principle: A number of administrative and mechanical provisions

to cover issues such as costs, stamp duty & GST; Stocktake; Debtors; Assignment of contracts; Employees; and Break up of purchase price and warranties (if any)...to

name just a few.

9. Close to a Deal

Once contracts are finalised, they can be signed and exchanged.

At this point the contracts become binding on all parties (unless there are some preconditions allowing one party to exit the contract) and a deposit is normally paid.

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9. Close to a Deal

Depending on the deal, completion of a sale can be simultaneous with the execution and exchange of a sale contract, or it can take up to a month or, in some cases, much longer.

It all depends on the circumstances.

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Turnbull Hill Lawyers – Contact Us

If you have any further questions about selling your business or you'd like to discuss a related matter, please do not hesitate to call me:

Gavin Hanrahan on:

1800 994 279 or email

I will endeavour to respond to your enquiry within 24 hours.