Burgess Thomson Lawyers

Buying A Business

Business & Commercial

Expert legal advice when purchasing a business

When purchasing a business there are many factors to be considered. Although the prospect of owning your own business in an exciting opportunity, it is imperative that you seek legal advice to ensure all aspects of the transaction are analysed and evaluated. The team at Burgess Thomson have a wealth of experience dealing with all kinds of business purchases, including motels, restaurants, retail outlets, and financial businesses. We assist in reviewing agreements and identifying any issues, negotiating terms to better suit your needs and goals, drafting the agreement and working along side you throughout the process to ensure you understand the full extent of your obligations and responsibilities.

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Are there any potential pitfalls to be aware of?

As with any business transaction, the parties involved are inherently motivated by self-interest. One consequence of this motivation is the possibility that the seller of a business may mislead you. It is critical that information is not taken at face value, you must make enquiries and be satisfied that the information provided to you is a fair representation of the business. The best way to do this is to conduct due diligence.

What is due diligence?

Due diligence involves, you, the purchaser, reviewing and verifying the information provided to you about the business. One common example is financial due diligence, where you analyse the businesses financial statements, assets, operating costs and other factors that could impact the financial viability of a business. The questions you must consider include:

  • Can the business operate to make a profit year on year?
  • What condition are the assets in?
  • Are the assets owned by the business, are they leased, subject to licences etc?
  • Who are your competitors and what is your competitive advantage?
  • Will I need to hire any new employees?
  • What stock or inventory is included in the purchase?
How does the due diligence process work?

Due diligence often occurs before signing an agreement to purchase the property, but alternatively can be done in a due diligence period agreed to by the parties whereby the agreement could be terminated if you were not satisfied with the business after conducting your due diligence. Broadly, the process can involve some or all of the following steps:

  • Your acting solicitor or accountant requests authority to inspect certain documents or physical premises, or assets.
  • Authority is granted and the documents or access to the premises or assets are provided.
  • The documents, premises, assets or otherwise are reviewed.
  • If any further information is required, it is requested by your acting solicitor or accountant.
  • The further information is obtained and reviewed.
  • The due diligence report is prepared.
  • On the basis of the due diligence report, you decide whether to go ahead with the purchase
Should I be concerned about any confidentiality requirements?

If the seller of a business is concerned about the confidentiality of any information provided to you and is reluctant to provide it due to fear of the information becoming public, the following options may be considered:

  • The parties agree to enter a confidentiality agreement; or
  • A special condition is added to the Contract stipulating the confidentiality requirements to be imposed on the purchaser.

If any information is still not provided to you, this may be all the information you need to decide whether to proceed with the purchase.

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