WHAT IS A SMALL BUSINESS?
A small business is defined by The Estate Agents Act 1980 as 'one where the goodwill, plant, equipment and fittings are sold for a total price of not more than $200,000.' This figure is exclusive of stock owned by the business.
ARE ALL SMALL BUSINESSES SET UP IN THE SAME WAY?
Small businesses can be set up in an array of differing structures. They can be: -
* a one-man or one-woman business;
* a partnership, (where two or more people have decided to start a business);
* a private company
* a trust.If you are considering purchasing a small business, we recommend that you consult with a Solicitor at Portelli & Co, in addition to an accountant about which structure is best for your business. There are a number of issues that would need to be canvassed before the best possible structure for you could be determined. Amoung some of the issues that we advise that you come and consult us on are convenience, flexibility, taxation issues, cost to set up and cost to run.
By getting the legal structure to your business right, you are helping to ensure that your venture is successful. Without careful and informed decisions you may be setting yourself up for loss, before you begin.
WHAT THINGS WE WILL DIRECT YOU TO CONSIDER BEFORE DECIDING TO BUY A SMALL BUSINESS
i) The type of business structure best suited to your needs.
ii) What do you need to know about running a business? For example, relevant management experience.
iii) Can you afford the initial outlay and the continuing costs? It is relevant to note that almost 90% of failed businesses did so because they lacked adequate capital.iv) Where will your finance come from?
v) What sorts of insurance do you need to protect yourself, your employees and your clients?
vi) What do you know about the industry your business is involved with? For example, trade or product knowledge.
vii) Is the business in the right location? Will you have sufficient customers?
viii) Do you have all the equipment you need? If not, can you finance necessary additions? ix) How will you protect your investment? For example, security of tenure of premises, registration of ownership etc.
xii) Are you familiar with all the laws relating to business, particularly income tax, GST, sales tax, payroll tax, local government, health, industrial awards, and trade practices? x) Are you eligible for government assistance?
xi) Have you received professional advice about the terms of the contract and the terms of the lease?
This list is not exhaustive, it is essential that you consult Portelli and Co before you decide to buy a small business we will help you make the right decisions about your business venture.
THE LAWS AND LEGAL AREAS WHICH APPLY TO SMALL BUSINESSES
There are many laws which govern elements of small business. On consultaltion we can give you a more precise idea of the laws you should be concerned about, but some of the areas involved are:
* Your rights in relation to representations made by the seller of the business during the negotiation process.
* Local government and town planning restrictions.
* Clauses which you should have in the sale of business contract eg. restricting the seller from competing with you
* Occupiers' Liability. The law differs about the responsibilities of occupiers, depending on the purpose of someone's visit to the premises, but as a first step you should make sure your business premises are safe, and take out insurance to cover unforeseen accidents.* Registration of a business name and incorporation.
* Retail tenancies legislation.
* The law of contracts.
* Franchise agreements.
* Consumer protection legislation such as the Commonwealth Trade Practices Act and Victorian Fair Trading Act.
* Protecting original ideas by use of the Patents Act, Copyright Act, Design Act and trademarks.
* Employment laws including Work Cover, wages, employee benefits, enterprise bargaining, discrimination, superannuation, training and unfair dismissal.
* Income tax, including capital gains tax, sales tax and payroll tax.
* Leasing arrangements for plant & equipment.
* Licensing requirements. It is easy to see that with so many laws to be concerned about a small business operator needs professional legal advice we can provide this for you.
I HAVE FOUND A SMALL BUSINESS I WANT TO BUY: WHAT HAPPENS NOW?
The person selling the business should supply you with several documents:
- a statement called a "section 52" Statement which gives details of the financial position of the business;
- a copy of the sale of business contract;
- if an agent is being used for the sale, a statement called a "section 51" which states whether or not the agent will help you find finance;
- a copy of any lease and assignment, or if the property is being sold, a copy of the contract of sale and "section 32" statement.
We suggest that you discuss each of these documents with us thoroughly. In most cases, the contract and lease will require negotiation and drafting. We will carry out a number of inquiries, including:
- zoning restriction;
- permits and licences required; and
- rates ad other outgoings payable
It is a good idea to arrange for the seller to work in the business with you for a couple of weeks to become familiar with the system, meet customers and meet suppliers or sales representatives. This is usually done pursuant to a specific clause in the sale of business contract. It is also a good way to verify cash-flow representations made by the seller.
DISCUSS THE DAY-TO-DAY DECISIONS WHICH WILL NEED TO BE MADE
Once the business is operating, there are a number of day-to-day decisions which will need to be made. These include:
- marketing decisions (promotion and advertising);
- commercial decisions such as whether to bring out a new line, offer a new service, expand the business or take on additional staff or equipment;
- how to prevent debts from accruing and how to collect them when they do (credit control);
- how to properly pay and manage all staff;
- how to manage your financial affairs - usually these decisions are made in consultation with your accountant.
WHAT ABOUT SELLING A SMALL BUSINESS?
If you have decided to sell your business, the first step is obtaining the section 52 statement. This statement must include details of the income and expenses of the business, details of the lease, and hire purchase agreements, equipment, loans or bills of sale. The income and expenses details must be certified by a practising public accountant.
Once the section 52 statement has been prepared, you can consult a business or real estate agent to sell the business, or you can advertise the business for sale privately. A contract of sale is necessary, which we can prepare for you.
Once you have a buyer, you will have to transfer any registered business name to them, assign the existing lease of the premises to them or arrange for a new lease. The sale of a business usually includes an agreement that the buyer will buy all the stock or some of the stock. It is usual to employ a professional stock-taker to decide the value of the stock.
Everyday many small businesses change hands. The decision to buy or sell a small business is important. The decision may affect the lives of both the buyers and the sellers. Yet we are surprised by the number of people who rush into small business transactions without being properly prepared.
Buying or selling a small business is a complicated matter requiring careful consideration. If you establish a working relationship with a solicitor and an accountant from the outset your investment will be one that will repay itself time and time again. At Portelli & Co we are happy to provide this invaluable service to you.
