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Issues to consider when buying a Business in Tasmania

When buying a business there are many legal, financial and general business issues that you need to consider. A year or so ago we published an article on this topic. This article is a timely reminder of the issues that should be front of mind when you are looking at buying a business in Tasmania.

Before signing a contract to purchase a business you should do your research on the business. This process is commonly referred to as ‘due diligence’.

Due diligence is carried out when you have decided that you are interested in purchasing a business and before you sign the contract to purchase the business. The process involves checking the records of the business to ensure that you are satisfied that:

  • Business systems - are they sound and well documented?
  • Sales - are they as good as the owner says they are?
  • Cash flow - is it sustainable?
  • Customers - will they remain customers when you take over the business?
  • Employees – are they the right people to work in the business?

It is fundamental that you engage legal and accounting professionals to assist you in carrying out due diligence and documenting your purchase of the business. 

You should ask the seller of the business to provide you with current and historical financial records for the business, including:

  • Profit and loss statement
  • Balance sheet
  • List of debtors and creditors
  • Business Activity Statements which contain important information relating to GST and sales

Copies of all major contracts necessary for the operation of the business should be provided to you. For example copies of the lease of the premises where the business operates from and any plant and equipment leases. If the business is a franchise the seller must provide you with a franchisor’s disclosure statement.

Once you are satisfied with the due diligence and have decided to proceed with the purchase, you will need to decide on the structure of the transaction. Again it is a good idea to obtain professional advice on the legal, financial and tax implications of the structure for your purchase of the business.

The issues that need to be considered are:

  • Who will be the buyer - an individual, a company, trust or partnership?
  • Whether you are buying the assets of the business or the shares in the company that owns the assets?
  • The price to be paid and when it is to be paid?

Whether to buy the assets of a business or to buy the company that owns the assets is important. There is no right or wrong answer, it normally depends on the business being purchased together with the individual circumstances of both the buyer and the seller.

The main legal document required when purchasing a business in Tasmania is a contract for sale. After you have completed your due diligence and are willing to proceed with the purchase, it is standard practice that the seller’s lawyer prepares a contract of sale that outlines the terms of the sale of the business. Once you receive a copy of this contract, you should provide a copy to your solicitor and ask them to review it on your behalf.

Buying a business can be complex involving legal and financial consequences. Accordingly, it is essential that you make sure you have done the proper research, understand the risks involved and have received professional advice.

If you are considering buying a business and would like our assistance please oontact us on 03 6332 9353 or use our simple Contact form that can be found at http://www.cormistonlegal.com.au/contact.

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