5 Stages of a Business Sale
The sale of a business is a complicated process with many moving pieces and numerous critical deadlines which must be met. The process of a business sale can sometimes take months to finalise. If you are thinking about selling your business it is important to understand the process and the different stages of the transaction to ensure matters run as smooth as possible.
We have summarised the business sale process into 5 key stages below.
As the first stage in contract negotiation the seller and buyer may choose to enter into a heads of agreement which will set out the key terms and conditions which will ultimately be the basis of the contract of sale. These could include:
The purchase price
What the sale includes (i.e. Plant and equipment, stock-in-trade, etc.)
Any deposit payable
Whether the contract will be subject to the buyer obtaining satisfactory finance
Once the heads of agreement document has been agreed and entered into the parties’ solicitors can begin to prepare a contract of sale. The contract of sale may still be subject to some minor negotiations however as most of the key terms and conditions have been agreed under the heads of agreement only minor matters should be left to be addressed.
We highly recommend that sellers seek advice from their accountant prior to entering into a contract so that the tax consequences of the sale can be determined before the parties enter into a binding agreement.
Once the contract has been agreed and finalised the buyer should execute the contract of sale first and the seller second. The Contract is dated on the day that the last person executes the contract.
CONDITIONAL CONTRACT STAGE
Once signed the clock will start ticking on any conditions that your business sale contract is subject to. These conditions may include:
Review of and satisfaction of lease and other third party agreements.
Your business sale contract may be subject to the buyer completing a ‘trail period’ whereby they will be permitted to trial the business for a set period in order to verify its trading performance.
The above conditions are typically for the benefit of the buyer and must be either satisfied or waived by the buyer on or before the date each condition falls due.
If you are selling a franchise business it is likely to be condition of the sale that you obtain the franchisor’s consent prior to the transfer taking place (read our article on How to Sell a Franchise Business by following the link).
UNCONDITIONAL CONTRACT STAGE
Once all conditions of the contract have been ‘satisfied’ by the required party the contract becomes ‘unconditional’ meaning that settlement must proceed.
A number of matters need to be actioned between the time that the business sale contract becomes unconditional and settlement.
Stock-in-Trade – if the purchase price under your business sale contract is stated to include stock-in-trade and work-in-progress. If these are not included in the purchase price the value of the stock-in-trade and work-in-progress must be determined and the relevant values must be added to the purchase price.
Employees – the buyer must, prior to settlement, notify you of the names of the employees they propose to employ following settlement and need to make an offer of employment to each relevant employee. The business sale contract will specify who is responsible for payment of the leave entitlements of the employees. Adjustments should be made to the purchase price for these amounts.
Security Interests – you may have registered security interests (for example with the Personal Property Security Register) over your stock-in-trade or business equipment. These will need to be released and any partial releases handed to the buyer at settlement so that the buyer has clear title of the business as will be required under your business sale contract.
Congratulations! You’ve reached your settlement date! Your solicitor will likely book your settlement to occur sometime in the early afternoon. All parties will attend a physical settlement where cheques, original documents and keys are handed over.
POST SETTLEMENT STAGE
Although settlement has been completed for all intents and purposes, the following matters will still need to be dealt with post-settlement:
Transfer of business name;
Completion of transfer of lease and registration of documents with titles office as required; and
Transfer of trade marks, websites, domain names, trademarks, email addresses and other contacts for the business, social media accounts.
Your business sale contract may also be subject to a ‘seller’s assistance’ period. If this is a condition of the business sale contract you, or a nominee of yours who is familiar with the business, must attend the business for the specified period following settlement to give assistance to the buyer in relation to the conduct of the business.
This is not an exhaustive list of matters which need to be dealt with following completion of your business sale and you solicitor will advise you of any matters which you need to action following settlement.
OTHER MATTERS TO CONSIDER
We highly recommend that all seller’s undertake a ‘Seller’s Due Diligence’ prior to entering into any negotiations with another party in order to prepare your business for sale. (Contact our office to find out more about our Seller’s Due Diligence).
If you are thinking about selling your business and require any assistance with the business sale process, or any other commercial legal issue, please do not hesitate to contact our dedicated commercial team.