Five Essential Questions to Ask Before Buying a Business

Buying an existing business can be an exciting and rewarding venture, but it’s crucial to make informed decisions before finalising any contract. Whether you're purchasing a small business or a larger corporation, here are the five essential questions you must ask:

1. If This Is a Loan, Will There Be Interest Fees?

If you plan on financing the purchase through a loan, ensure that the contract clearly details whether there are interest fees. Once you complete Item Q in the REIQ contract, you’ll have the right to cancel the agreement, provided the finance is approved by a certain date. It’s important to allow at least 21 days for proper financing arrangements. Without secured funds, you will not have the right to exit the contract.

2. Does the Contract Contain a Due Diligence Clause?

A due diligence clause in the REIQ contract allows you to thoroughly review the business’s books and financials. This is crucial to identify any inaccuracies or discrepancies. We recommend requesting a due diligence period of at least 14 days to verify the business records and ensure that everything is in order before you commit.

3. What Equipment Does the Purchase Include?

Ensure the contract specifies the equipment included in the business purchase. Equipment should be categorised as:

• Unencumbered (no debt or liabilities attached)
• Leased
• Rented

The seller must obtain approval from the owner of leased or rented equipment to transfer these agreements to you. If the seller cannot secure this, you may need to renegotiate or consider other arrangements. Be aware that financial institutions may place security interests on certain assets, so check the Personal Property Securities Register (PPSR) for any liens. You’ll also need confirmation that the seller no longer holds ownership or control of these assets after settlement.

4. What Intellectual Property Is Included in the Business?

Intellectual property (IP) such as trademarks, business names, contact details, and websites can be key to the value of the business. It’s essential to verify the status of these IP assets, including checking:

• Business name registration with ASIC Connect
• Trademark registration with IP Australia

You may also want to ensure that passwords and access to any business-related social media accounts are transferred upon settlement.

5. How Much Does Transfer Duty Cost?

In Queensland, most business transactions are subject to transfer duty (formerly known as stamp duty). Transfer duty is typically based on the purchase price, including stock valuation. Ensure the duty is paid within 30 days after settlement to avoid penalties. It’s also important to factor in interest rates, which may apply if payment is delayed. A skilled company lawyer can help ensure that transfer duty is managed correctly and that all legal aspects of the transaction are reviewed thoroughly.

Conclusion: Do Your Due Diligence

Before you proceed with purchasing a business, make sure you fully understand what you're buying. Engage with experienced legal professionals to conduct a thorough review of all contracts and documents involved. Proper due diligence is essential to avoid potential pitfalls and ensure a smooth acquisition process.

If you're seeking professional guidance on buying a business in Queensland, GLG Legal is here to assist you. With our tailored, innovative legal solutions, we provide clients with expert advice to navigate the complexities of commercial contracts and business acquisitions.

📞 Contact us today: (07) 3161 9555
📧 Email: info@glglegal.com.au