There are many important issues a vendor needs to deal with in the transfer process leading up to a business sale settlement.

The last thing anyone wants is a handover whereby business performance is negatively impacted by transfer issues not planned out ahead of time and dealt with appropriately. These issues may include:

• staff entitlements and employment contracts
• managing key customer and supplier relationships and communication
• transfer of registrations and insurances on P&E
• work in progress
• final stocktake
• premises lease transfer.

Buying a business is not an investment decision to be rushed into or made lightly.

For those of you considering buying a business, we have created the Business Buyer's Checklist.

• ensure you have a clear purchase objective 
• work out whether identified business opportunities are a good match for your skills and interests
• prompt you to take necessary steps regarding market appraisal, due diligence and financing.

In this blog we’re sharing information and case studies first presented by Watson Mangioni lawyers David McGuiness and Fleur Gibson in our eBook, How to conduct due diligence when buying a business.

Please keep in mind the material in this blog is not advice and should be regarded as a general guide only.

What is the purpose of legal due diligence?

Comments by David McGuiness and Fleur Gibson
Watson Mangioni Lawyers Pty Ltd

The purpose of legal due diligence is to enable an intending purchaser to assess the legal risks associated with either a business or a company, in order to make an informed decision as to whether they will proceed with the transaction and, if so, on what terms.

Where issues are thrown up during legal due diligence and the buyer still wishes to go ahead, they may renegotiate the purchase price they’ve initially offered and also request additional warranties from the vendor.

When business owners come to see us, wanting to sell their business, we often get involved in providing what we term ‘vendor due diligence’.

When conducting vendor due diligence for clients, our role is basically to ‘pretend’ we are the buyer.

We look at a range of business health factors including:

• financial performance
• business performance
• staff and organisational aspects
• contracts, systems and suppliers
• how the business creates and drives value in terms of its point of difference in the market
• forward order book i.e. the pipeline, to understand the true nature of the business as a going concern
• how exposed the business might be to individuals or particular customers or suppliers.

Strategic value is the value a purchaser is willing to pay for a business, over and above what an impartial business valuer might determine is ‘fair market value’.

As we have discussed in our eBooks, one common method of determining a business’ fair market value is to use a multiple of earnings.

Multiple of Earnings is the term for how many years or months a purchaser is prepared to wait before they recoup the value they paid the outgoing business owner, based on an assessment of business maintainable earnings (or sustainable earnings).

In a perfect world, business owners would be preparing their businesses for sale from the moment they established or purchased them. For example:

• important business structures, systems and processes would be carefully devised and executed from day one;
• succession plans would be in place and understood by senior members of the team;
• clearly worded partnership agreements would reduce the chance of misunderstandings on exit, and so on…

If you’re a business owner considering taking on an investing party or shareholder, some form of written shareholders’ or partners’ agreement is vital.

Use the agreement to make clear all parties’ investment and partnership intentions and responsibilities from the outset.

Remember, this is your business, so you can cover whatever you think important, from business relationships, ethics and cultural issues, to insurances, taxation and debt obligations; it’s your blank canvas.

As a business owner or manager, there are a number of 'levers' you need to control to successfully manage working capital and drive a successful, cash-generating business.

As our Working Capital Checklist shows, those levers fall into two buckets: current assets and current liabilities.

You can use the free checklist to assist you in achieving a firm control of your working capital levers and cash position, so your business proposition is not hampered by poor cash flow.

Small businesses (under 100 employees) lose almost twice as much to occupational fraud – per case – as large businesses. [Source: ACFE Report to the Nations: 2018 Global study on occupational fraud and abuse]

And according to the PWC Global Economic Crime Survey 2016, seven out of 10 organisations believe the biggest driver of internal economic crime is opportunity.

What you can do

While business owners can’t do much about a fraudster’s personal drivers, we can definitely limit opportunities to commit employee crimes and create a work environment that actively discourages fraud.

Listed below are 15 strategies to minimise the risk of employee fraud occurring in your business.

There are many important issues a vendor needs to deal with in the transfer process leading up to a business sale settlement.

The last thing anyone wants is a handover whereby business performance is negatively impacted by transfer issues not planned out ahead of time and dealt with appropriately. These issues may include:

• staff entitlements and employment contracts
• managing key customer and supplier relationships and communication
• transfer of registrations and insurances on P&E
• work in progress
• final stocktake
• premises lease transfer.