When selling any hospitality business, be it a café, restaurant, bar or venue, it's important to document the sale correctly using a well drafted Business Sale Agreement. The RMB Commercial Law Division list eight common issues.
The premises
Usually a hospitality business will operate from leased premises. You will need to work with the landlord to secure their consent to the lease being transferred to on settlement. If the lease has expired, the purchaser may request the sale is conditional on a new lease being entered into.
Taking steps to liaise with the landlord prior to the sale process, to understand their expectations, can assist in streamlining your sale. The last thing you want is the sale of your business to be delayed or worse, fall through, for want of the landlord’s consent to the transfer of the existing lease or the grant of a new lease.
Considering your options early and discussing it with your lawyer is important, as it may affect how you structure the sale.
Any licence that you have which is relevant to the operation of your business should typically be included in the sale. For example, a small bar may be of little worth to an incoming purchaser if the associated liquor licence is not included.
A Business Sale Agreement should include terms where the approval of the grant or transfer of a liquor licence is a precondition to settlement. In order to ensure the issue is appropriately dealt with, you will need to have a full understanding your liquor licence and other licences to include with a Business Sale Agreement.
Licences
Any licence that you have which is relevant to the operation of your business should typically be included in the sale. For example, a small bar may be of little worth to an incoming purchaser if the associated liquor licence is not included.
A Business Sale Agreement should include terms where the approval of the grant or transfer of a liquor licence is a precondition to settlement. In order to ensure the issue is appropriately dealt with, you will need to have a full understanding your liquor licence and other licences to include with a Business Sale Agreement.
Employees
Depending on the purchaser, your existing employees may either remain with the business or their employment may end with the sale of the business. This is a decision that could impact your choice of purchaser, as many vendors have longstanding relationships with their employees and wish to see their employment continue.
When considering the impact of a sale on your employees, it is helpful to understand that full-time and part-time employees have different considerations to casual employees.
If a full-time, part-time or long term casual employees are to remain employed by the business following its sale, you need to consider the entitlements those employees have. An adjustment at the time that settlement occurs that takes into account any outstanding entitlements owed to these employees. If the incoming purchaser does not wish to recognise all of the employee’s entitlements and length of service, then redundancy payments may be required.
It is important to understand any notice of termination periods that apply to both permanent and casual employees. Your lawyer can assist you with this.
Business assets
Over the course of running your hospitality business, it is quite possible that you have acquired many valuable items including the venue fit out, commercial kitchens, refrigeration, point of sale technology, delivery vehicles and alike.
Other non-tangible but valuable assets include your business name, website, social media accounts, and telephone numbers.
You will need to consider exactly what items you wish to include in the sale. It is best to have all items of equipment listed in an inventory so it is clear what you will be providing to the purchaser as part of the sale. All other inclusions should also be specifically addressed in the Business Sale Agreement.
It is also good practice to consider and expressly advise the purchaser as to which items you do not wish to be included in the sale so that there is no misunderstanding.
Stock
Business sales can be structured on a stock inclusive or plus stock basis.
The parties will also need to decide if a stocktake is necessary to determine the value of stock prior to settlement.
Restraint of trade
The purchaser will likely want to restrain you from setting up a competing business nearby. For this reason, a purchaser will usually insist on the inclusion of a restraint of trade time period and a distance radius within which you are prevented from owning or managing a similar business.
A restraint of trade clause is only enforceable if it is “reasonable”. The restraint cannot impose too harsh of a geographic or time-based burden on the previous business owner. For example, a restraint of trade might be unreasonable if it applies to the entire city CBD for an indefinite period. However, most Business Sale Agreements do include a restraint period, and you should expect to be restrained from operating a business similar in nature anywhere between six to 24 months as a rule of thumb.
Supplier Contracts
In order to operate your business, it is likely you entered into contracts with various suppliers to provide you with the tools and stock to provide your products or services. For example, food and beverage wholesalers, leases over coffee machines and POS devices, cleaning services etc.
There are usually two options for dealing with these contracts:
- The supplier contracts can be transferred to the purchaser. In this case, the supplier will need to agree to the transfer of the contract to the purchaser; or
- Terminate your existing contracts with your suppliers, then it is for the purchaser to enter into new contracts with their own suppliers.
Before proceeding with the sale, you should review all your supplier contracts so that you can determine what is required by your suppliers.
Accounting and Taxation
The sale of a business creates a number of tax events that you need to give consideration to, for example, the calculation of GST on the purchase price and liability for Capital Gains Tax. In order to ensure these issues are addressed appropriately, we recommend you have your accountants and lawyers work together to ensure a wholistic and unified approach to structuring the deal.
How can RMB Lawyers help?
RMB Lawyers provides business owners with personalised legal advice. Our commercial team will take the time to listen, understand and consider your personal and business circumstances before advising you on the best way to structure the sale of your business.
RMB Lawyers can also assist our clients with incorporating new companies and trusts, restructuring businesses in distress and winding up companies. We believe in working collaboratively with other professional service providers to ensure you receive a consistent approach to your commercial endeavours. Your first step should be to contact our office to arrange a consultation. You can contact us by by phone or our 'Ask a Question' tool on our website.