Whichever situation applies to you, business transactions are significant.
Not only because of the amount of money involved, but also due to the lifestyle and career changes that follow. It’s difficult to avoid some risk when you’re buying or selling, but the right legal advice can minimise that risk, resulting in a greater potential for a smooth transaction.
It’s a good reminder to do your homework if you’re in the market for a new enterprise. Not only do you need to settle on the type of business to buy, you also need to work out whether there’s a consumer need for the services on offer. And then the real work begins.
It’s an evaluation of assets and liabilities to work out commercial potential. It’s also an assessment of whether the business is complying with Australian laws. It’s an effective way of establishing all the pitfalls of owning and operating the business before you sign on the dotted line.
This process is crucial to the decision to buy. You’ll need business law advice from lawyers who know commercial law inside out.
There are, however, some crucial differences which can make all the difference to the longer-term success of your venture.
You’ll be aware of franchise fees, but other expenses may not be as obvious. For example, royalties, marketing levies, equipment fees, stock, rent and refurbishment obligations.
The term of the agreement is usually a licence for a limited period. You’ll need to know what will happen after the agreement expires and especially after any renewal rights have been exhausted.
If the location is in a shopping centre, there may be some unique issues with the lease terms, for example, rent reviews, refitting the rented space, negotiating a new lease and relocation. You’ll need an excellent understanding of these longer-term obligations.
Whether the business will perform is a crucial concern for many prospective franchisees. As part of its disclosure obligations, the franchisor must give contact details for former franchisees. You’ll need to contact them to find out more about your responsibilities and whether any hidden issues may affect your business.
Whether there’s any scope for you to introduce your ideas and innovations into the way the business operates, and the extent to which the franchisor controls operations, for example, the use of certain products, suppliers, advertising mediums and content.
Investigate whether there’s any way that you can exit the franchise agreement before the franchise term expires. Check on penalties, special conditions and whether you’ll be restrained from working after the agreement ends.
Investigate whether you’ll be required to find guarantors who will be personally liable for your obligations under the franchise agreement. In some circumstances, liability may be capped or limited to a specific person.
You’ll need expert legal advice from the beginning. The great news is that we’ve partnered with Australia’s leading franchising law firm, Franchise Legal, to give you access to the best franchising lawyers in the business. Get in touch to find out more.
Once you’ve worked out when to sell, your business will need to be valued, and the process of finding a buyer will begin. You’ll have to ensure that you’re complying with all legal obligations, especially for disclosure of key information.
When negotiating the terms, you’ll need to consider many questions, for example:
You may also want to ensure that the buyer is the right fit. Once the terms are agreed, the contract is drafted and signed. Then you can prepare for settlement, for example, by transferring the lease, business name, and any intellectual property.
If you have a franchise business for sale, many of the same elements will apply, although you’ll have additional requirements in your franchise agreement.
Before deciding to sell, you’ll need legal advice to make sure that you can do so within the terms of your agreement, or whether you’ll attract any penalties for breaking the agreement. We’ve partnered with Australia’s leading franchise lawyers to help you sort this out.
This process is complex and may be time-consuming, especially if there are errors along the way. We have great expertise in this area, especially selling small businesses. Contact us to find out how we can help you.
The advice of a reliable, trustworthy business accountant is crucial to the success of your business, whether you’re entering the market or you’re preparing to sell. We pride ourselves on working closely with business accountants to make sure you get sound advice and the best possible outcome.