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Sale of business – Protecting goodwill

When purchasing a business, it is not unusual for the purchaser to be well into the acquisition before realising that there are key issues which were not contemplated either:

  •  during the early stages of their decision to acquire the business or
  • around the time the business is transferred.

The implications of such ‘surprises’ can range from being a temporary nuisance, through to having a disastrous impact on the goodwill and value of the business. If you are either buying or selling a business, consider the following issues to ensure the goodwill is maintained:

Key staff either remain with the business during the handover period, or transfer their knowledge over to the new owner. Fundamental staff retention issues should be addressed early in the transaction. They include the issue of who will be responsible for accrued leave entitlements.

Consider providing sufficient time for the seller to introduce customers to the purchaser by organising introductory visits.

Supply agreements should be identified and transferred across to the new owner.

The intellectual property is very important. Business name(s), slogans, copyrights, trademarks, licenses, agreements, systems and processes should be identified and transferred.

Advertising agreements should be identified and transferred, including permission to use artwork and designs.

Passwords, logins and keys, software ownership, security and telephone information should be transferred.

Eftpos facilities must continue to function uninterrupted.

Permits, accreditations, compliance certificates and approvals are frequently overlooked but they must be considered. For example a rural corner store supplying postal services, fuel, gas bottles and alcohol involves:

  • Australia Post accreditation – a lengthy course, conducted in capital cities
  • hazardous goods handling compliance
  • liquor licensing accreditation

Once the premises are taken over, the buyer will possibly already be overstretched just settling in. Therefore to avoid business interruption, the best time to ensure everything is in place is prior to the business being transferred or during a handover period.

The old and new business owners need to follow through to ensure all documentation relating to the transfer is completed. This can include share transfers and/or business name transfers.

restrictive covenant is important. The new business owner needs to ensure the vendor does not set up and compete against the buyer. This usually involves a restriction which is:

  • to the extent of not participating within the industry
  • geographical
  • for a period of time
  • extends to associates of the vendor

Having dealt with many business purchases and sales, Saward Dawson can help ensure goodwill, which the buyer pays good money for, is protected.

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