Contract of sale of business victoria

Once you've assessed the value of a business and decided to buy it, you can start the sales process.

Make sure you understand the sales process so you minimise your risk and protect your investment. A lawyer or accountant can guide you through the sales process.

Make sure you have all the information

Read and check the documentation

The seller must provide you with:

• the contract of sale
• a copy of the lease
• a vendor's statement or Section 52 statement (if the business costs less than $450,000)

Be wary of a seller who doesn't disclose important information, such as why they're selling, the lease, licences, permits and staff.

Check the financial records carefully

The vendor statement has information about the businesses finances.

Do 'financial due diligence' to make sure you're not overpaying. Get help from an accountant so they can make an objective appraisal of the business.

Poor business performance

Be wary of sellers who:

• are subject to pending litigation
• have a record of customer complaints
• talk up the cash trading
• drop the sale price of their products or services to bump up gross sales before selling the business

Verify the seller's claims

Insist on the right to work on the business before you enter into a binding contract, or at least before settlement. This way you can assess the truth of the seller's claims.

Watch out for sellers who:

• won't allow a trial period
• won't introduce you to suppliers, the landlord or estate agent
• make the deal seem too good to be true
• are keen to close the deal quickly
• give in too easily to an offer

Read and check the contract

Get your lawyer to look over the contract of sale. Check to see if they can add the following to the contract:

• a performance clause that specifies the minimum takings of the business over an appropriate period leading up to settlement
• a condition that guarantees any representations made by the seller are correct (whether written or otherwise)
• a restraint of trade clause that restricts the previous owner from operating a similar business within a certain distance for a number of years
• a condition that transfers important existing contracts to you

Structure the payment of the sale in stages

Work out a payment plan that allows you to pay in stages. You can retain some part of the purchase price for a certain period and, if necessary, place it in a trust with a solicitor or estate agent.

Prepare the transfer of premises

If the seller owns the business premises and is transferring the title to you, search Landata to make sure the seller has free and clear ownership of the premises.

If the seller is assigning the lease to you, prepare the proposed assignment of lease.

• landlords who only give short leases
• leaseholders who offer the business for sale at reduced price, but then offer you the same lease at a premium.

Verify right to the business name

Use ASIC's business name register, and company and other registers to search the name of the existing business to ensure the seller has:

• free and clear ownership of the business
• full rights to transfer the business to you

Look out for other businesses that own rights over copyright or other intellectual property.

When you sign the contract

When you're ready to sign the contract:

1. Ensure the seller provides you with the signed contract.
2. Return a signed copy of the contract to the seller.
3. Pay the preliminary or full deposit.
4. Receive a receipt for the deposit from the seller

Immediately after settlement

Once the contract has been signed:

1. Lodge the applications for transfer of the registered business name.
2. Transfer all necessary permits, licences, registrations and certificates – check the Australian Business Licence and Information Service (ABLIS) to see which licences you need to transfer

Set your vision and goals

Even though you're planning to buy an existing business, it's essential to review the current operating processes, cash flow and marketing strategies to see if they need refreshing.

It's also good to set goals on how you want your business to look over time.