If you are considering buying or selling an existing business, you will be involved in the transfer of certain business assets. Most sales of a business involve the following assets changing hands:
The goodwillis the name, reputation and established customer or client base of a business built up over time. If, for example, you are purchasing a restaurant, you would expect the existing customers to keep visiting the restaurant once you have bought it. The restaurant may also be highly recommended on social media sites and well known in its vicinity. This is why goodwill has a significant value attached to it. You must always be vigilant and carefully inspect the business accounts and business records to check the turnover and the profitability of the business before buying.
Fixtures , fittings and equipment
The fixtures and fittings and equipment are part and parcel of the business. Care must be exercised to check that they are owned outright by the seller and are not on hire purchase or lease. This particularly applies to expensive assets such as a frying range or a coffee machine.
The other important asset usually changing hands is the property from where the business operates. The property may be held under a lease or alternatively the freehold may be owned by the seller. If the freehold is being sold as part of the business assets, this would make the purchase price a lot more expensive, although the buyer would have the benefit of an owning their own property which should become a good investment in the future. More frequently however, the buyer takes over a lease of the premises. Commercial leases are far more sophisticated than a simple tenancy agreement of a house or flat and they do need an experienced lawyer to carefully check through them. The repair liabilities can be particularly onerous in a commercial lease compared to a residential lease.
Landlords often require a rent bond from the incoming tenant as a security condition for the giving of consent to the transferring of a lease to the buyer. This is commonly three months’ rent.
Buyers and sellers also need to be aware of their respective liabilities to the landlord even after a lease has been transferred.
Other matters to consider
Your solicitor will be able to advise you further on matters such as stock, employees, who automatically pass under TUPE Regulations, and VAT implications. You should also consider what entity should purchase the business ie whether to purchase in the name of a company or as a sole trader or partnership. An accountant should advise on all taxation considerations.
Finally, where possible and permitted by the seller, a buyer should try and spend some time working in the business alongside the seller before completion takes place.