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Taking over an existing business is not like buying a second-hand car because you can't just pick up the keys and get going. When you buy somebody else's business, you always have a lot to sort out, so an effective, detailed handover is a vital part of the process. The best way to achieve the results you want is to detail the terms of the handover in the contract, but some new business owners aren't sure what to include. Make your handover as effective as possible by making sure you consider the following five issues in your takeover contract.
Employee relations
In Australia, the Fair Work Act 2009 sets out strict rules about the way you must treat employees when a business owner transfers the company to you. These rules mean that you must carry on certain rights and working conditions that the employees enjoyed under the previous owner.
As part of any business handover, it is vital that the outgoing owner makes sure you fully understand these workplace instruments. Contractual terms, awards, bonuses, flexible working arrangements and guaranteed earnings are all examples of the employee benefits you must honour. In some cases, the existing owner may only have verbal agreements in place, but the Fair Work Act still expects you to honour any such terms.
Clients and suppliers
Some supplier contracts include strict terms about the transfer of business ownership, so it's important that a business handover carefully considers how you will manage these relationships. For example, you may decide that you and the former owner will meet suppliers together to discuss terms, or you may prefer to make separate arrangements.
Similarly, the outgoing owner may have complex relationships with key clients, which aren't always part of any contract. This situation is particularly risky with new customers, where the outgoing owner may have started to build a new relationship without sealing the deal. It's very important to consider what this means to you as the new owner. Should the existing owner help you finalise the deal? What clauses will you include that stops the outgoing owner working with a competitor, particularly where this includes private information about your new business? Your lawyer or business broker can help you explore the different options available.
Utilities and other key services
Your new business will almost certainly have multiple agreements with service suppliers and utilities, including electricity, telephone, broadband and gas suppliers. Organisations like the postal service, insurer and industry association will also need to know that your business has a new owner.
Within the contract, the handover clause should clearly outline who will contact these suppliers and organisations. In some cases, the supplier will need a new contract and will not allow existing terms to transfer across, and it can take a long time to change or set up these terms. In many cases, it will need both parties to help speed up the process, and your contract should commit the outgoing owner to supporting this work as effectively as possible.
Data security
Australian companies report one data security breach every week, and, as businesses in Australia don't legally have to report these breaches, the real number is almost certainly higher. Data security remains a key risk for many organisations, and it's important to make sure you consider this issue as part of your handover.
You should already have a clear idea about how the outgoing owner protects and manages data. In some cases, you may want better protection installed, so the handover clause should confirm who will manage and pay for this work. Similarly, if you want to use the same outsourced suppliers, you must make sure the agreements meet data security requirements.
Facilities and accommodation
If the current owner leases his or her business premises, you need to make sure the agreement legally passes into your name. As part of this, you may also want to negotiate new terms, so it's worth outlining this in the handover clause in your contract. Similarly, you will also need to decide who will pay for any necessary repairs or maintenance work that is overdue.
It's also vital that the contract considers the basics. For example, you probably need to change all locks and security codes. When will this work happen and who will pay the costs? In larger premises, you may face a sizable bill to update every aspect of security, so make sure unexpected costs don't eat into your profits. For the handover period, the existing owner will probably still need access to the premises, so timing is important too.
When you buy somebody else's business, you need to make sure the contract covers every relevant aspect of the handover process. Talk to a lawyer or business broker for more advice, or you may face unwanted costs and lengthy legal hurdles.
Share3 March 2015
