Jim Abbass, Principal and Founder, Create Legal
Whether you’re stepping into business ownership or preparing for sale, getting the right commercial and legal advice is essential. This article explains how the right legal support will help you identify and mitigate risks early, structure the deal appropriately, and ensure the transaction runs as smoothly as possible.
Assemble Your Deal Team Early
Getting the right advice can make all the difference. It is advisable to engage the right team of professionals early to support you throughout the process. In our experience, there are typically three key advisers:
ACCOUNTANT: Your accountant plays a key role in financial due diligence, identifying potential financial issues, and advising on tax implications.
FINANCE BROKER: For buyers, a finance broker will help structure and secure funding to purchase the business and provide working capital to operate it.
COMMERCIAL LAWYER: Your commercial lawyer will guide the legal aspects of the transaction, including negotiation, due diligence, contract drafting, and settlement.
Due Diligence: An essential investment
When purchasing a business, due diligence helps uncover potential red flags and understand the true value of the business. Due diligence should start before making any offer to purchase, so you are equipped with information needed to negotiate confidently.
Legal Due Diligence: What does it involve?
Legal due diligence goes beyond financials. It’s a deep dive into the operational and legal framework of the business. This can include:
- Reviewing customer and supplier contracts
- Assessing employee arrangements and entitlements
- Checking business licensing and permits
- Reviewing regulatory compliance
- Verifying ownership of assets, including intellectual property, that are critical to the brand or business’ operations
- Regulatory Compliance
Every business operates within a regulatory framework. Whether it’s health and safety, privacy, or industry-specific licensing, failure to comply can result in fines, reputational damage, or major operational disruptions.
As a buyer, ask if you have the necessary qualifications, certifications, or approvals to take over the business.
As a seller, ensuring your business is fully compliant helps to achieve the maximum sale price for your business.
The Art of Negotiation
Business deals are often shaped as much by negotiation strategy as they are by the underlying business metrics. Whilst many business sales share common elements, no two business sales can be negotiated in the same way. The value of goodwill being purchased, the condition of assets, regulatory matters and financing constraints are just some of the factors that can shape negotiations.
Negotiation of a sale or purchase of business is a collaborative effort with your advisors, each bringing a different skill set to the table. Whilst the buyer and seller will each strive to achieve the best outcome, it is equally important to be commercial and realistic in negotiations.
To be able to agree on terms as a buyer, it may mean implementing operational measures to mitigate identified risks, paying a premium to secure the business or conceding on other matters in order to come to an agreement with the seller. As a seller, you may need to provide flexible payment arrangements or compromise on other terms, in order to entice the purchaser to agree to purchase.
Your advisory team will guide you through the negotiations process and offer advice, support and strategies to help you achieve your goals in selling or purchasing the business.
Understand the Lease Before You Commit
If the business operates from leased premises, the lease is a critical part of the sale transaction. As a buyer, key considerations regarding the lease include:
- How long is left on the lease?
- Are there renewal options?
- Are the lease terms commercially acceptable to you?
- Is there any damage to the premises that you may be responsible for on expiry of the lease?
As a seller, you can expect the sale agreement to be conditional on the landlord providing consent to assign the lease. As such, doing your due diligence on the buyer is just as important as the buyer doing its due diligence. A landlord may be reluctant to agree to assign a lease to a financially unstable new tenant or to a purchaser who has no business or industry experience. Your lawyer can also assist with leasing matters.
Structuring Payment: More Than Just Price
Agreeing on the purchase price is one thing; structuring the payment is another. Will the buyer pay the full purchase price at settlement? Will there be a deferral of part of the purchase price? Is any part of the purchase price contingent on business performance post settlement?
In many transactions, the nature of the business being sold may dictate the payment structure. For example, in service-based businesses involving the purchase of a client book, it is common to tie part of the purchase price to business performance. If business performance meets expectations over an agreed period, the full purchase price is payable. If business performance is below the agreed expectations, then the purchase price may be reduced accordingly.
For other businesses where the purchase price is made up predominantly of tangible assets (e.g. plant and equipment, stock, etc.), there may be no adjustment to the purchase price for business performance, but the purchaser may seek to pay in instalments.
Data Privacy and IT: An Emerging Risk Area
Data privacy is an increasingly important consideration, especially when buying a business with a customer database or operating online.
Buyers should assess:
- How has the vendor handled customer data?
- Were proper privacy consents obtained?
- Does the business adopt adequate IT systems and cybersecurity?
- What is the cost of upgrading the IT infrastructure?
Sellers should be prepared to demonstrate compliance and provide a clear record of data practices. Buyers, particularly in data driven businesses, should exercise care and diligence, with the support of IT professionals, before making any commitment to purchase the business.
Clear Contracts, Fewer Disputes
Clear descriptions of the assets being sold, payment terms, arrangements with employees, data security, regulatory compliance and all other negotiated terms should be documented clearly and unambiguously in the contract of sale to ensure the sale and purchase of business is a success. Conversely, poorly drafted or ambiguous terms can quickly become the subject of disputes.
The role of a commercial lawyer, whether acting for the seller or purchaser, is to ensure that the sale agreement clearly reflects the commercial intentions of the parties and that no material issues are left out.
As a buyer or seller of a business, carrying out your due diligence and getting the right advice is an investment that can avoid costly disputes in the future.
Final Thoughts
No two business sale transactions are the same. Buyers and sellers often come to the table with different motivations, and that’s entirely normal. It is critical to ensure that the deal is approached with diligence, clarity, and the right support.
Being proactive about due diligence, understanding your legal obligations, and seeking tailored advice can make all the difference. A well-structured, carefully negotiated transaction gives both parties the best chance of a smooth transition and long-term success.
At Create Legal, we help buyers and sellers navigate the entire business sale process, from early-stage advice and legal due diligence to negotiating contracts and attending to settlement. If you are considering buying or selling a business, small or large, contact us to find out how we can support you at every step.
Jim Abbass
Principal, Create Legal
🌐 www.create.legal
📱 0421 998 049
🔗 LinkedIn – Create Legal