Buying a Business in NSW? Five Key Considerations Before You Commit

Purchasing an established business can be an excellent way to enter the market or expand an existing operation. Unlike starting a business from scratch, you acquire an established customer base, experienced employees, proven systems and an operating business from day one.

However, purchasing a business also means acquiring legal obligations and commercial risks. Before signing a contract, it is essential to undertake thorough due diligence and obtain legal and financial advice so you understand exactly what you are buying and whether the business is the right investment.

1. Know Exactly What You Are Buying

Not every business sale includes all of the assets used in the business. Before committing to the purchase, confirm exactly what is included, such as plant and equipment, trading stock, intellectual property, customer databases, business names, domain names, websites and social media accounts.

You should also ensure the seller has legal ownership of those assets and is able to transfer clear title to them at settlement.

2. Review the Lease

For many businesses, the premises are one of the most valuable assets. If the business operates from leased premises, carefully review the lease before signing the contract.

Consider the remaining lease term, any option periods, rent review provisions, outgoings, the permitted use of the premises, whether the landlord’s consent will be required to assign the lease, and any clauses that allow the landlord to redevelop, demolish or relocate the premises. A favourable lease can significantly enhance the value of a business, while an unfavourable lease may affect its profitability and long-term viability.

3. Understand Employee Obligations

If employees will continue working in the business after settlement, it is important to understand your obligations as the new employer.

The contract should clearly address responsibility for employee entitlements such as annual leave, long service leave and superannuation, together with any settlement adjustments. Buyers should also obtain details of employees’ commencement dates, employment arrangements and accrued entitlements to ensure a smooth transition and understand any ongoing obligations that may arise following settlement.

4. Conduct Thorough Due Diligence

Due diligence allows you to investigate the business before you become legally committed to the purchase. This includes reviewing financial records, major customer and supplier contracts, licences, permits, insurance policies and any existing or threatened legal disputes.

If the business operates from leased premises, buyers should also ensure that the lease permits the existing and intended business use. It is equally important to confirm that the current use of the premises is lawful and complies with applicable planning and regulatory requirements.

As part of the due diligence process, buyers should consider searching the relevant local council’s records to determine whether the necessary development consent (DA) has been granted for the existing use and if so the conditions of approval which may restrict the way the business has to be conducted, or otherwise confirm that the use is lawfully established. Where applicable, buyers should also confirm that any required occupation certificate has been issued and review any conditions attaching to the development consent that may affect the operation of the business.

It is also prudent to conduct Personal Property Securities Register (PPSR) searches to identify any registered security interests over the business assets and confirm that the seller will be able to provide clear title to those assets on settlement.

5. Make Sure the Contract Protects You

A well-drafted business sale contract should do more than simply record the purchase price. It should include appropriate conditions, warranties and indemnities that protect your interests if issues arise before or after settlement.

Depending on the transaction, buyers may wish to negotiate conditions relating to satisfactory due diligence investigations, finance approval (where applicable), landlord consent, the transfer of key contracts or licences, and restraints preventing the seller from competing with the business after completion.

Protect Your Investment

Buying a business is a significant investment, and careful preparation can help avoid costly surprises. By understanding the business, conducting thorough due diligence and ensuring the contract appropriately protects your interests, you can proceed with greater confidence.

Obtaining legal advice before signing a contract allows potential risks to be identified early and helps ensure the acquisition is structured to protect your investment. It also provides an opportunity to negotiate important contractual protections, including warranties, indemnities and appropriate restraint of trade provisions preventing the seller from competing with the business or soliciting its customers, clients or employees following settlement. These protections can be critical in preserving the goodwill you have purchased and maximising the long-term value of your investment.

Thinking about buying a business? Before you sign on the dotted line, speak with the team at Solari & Stock. We can answer your questions, review the contract, and help you understand your legal obligations so you can proceed with confidence.

To speak with one of our experienced Solicitors call us on 8525 2700, click on the Book Now button below or click here to request an appointment.

Article by Valentina Abouzeid
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