Many people see a small business as the way to secure their financial independence and lifestyle. Running your own business can be very satisfying. However, it can be fraught with pitfalls for the unwary. Only a quarter of small businesspeople seek professional advice before starting their own business. This may explain why three-quarters of small businesses fail within the first five years.

Choice of business structure

There are four main business structures for a small business: sole trader, partnership, company or trust. Choosing the right operating structure before you start a business is critical. Get professional advice on which structure best suits your needs. Each business structure has its own advantages and disadvantages which will affect your taxation position, personal legal liability, the life of your business, the availability of capital and the flexibility of your business operations. Similarly, there may be specific legislation relating to the type of business you wish to start that restricts the choice of structure to use. Your solicitor will consider the type of business you’re starting together with your individual circumstances to help you weigh up factors such as the required capital, how much expertise you need and your business planning strategy.

Documentation

If you intend buying an existing business, you should receive the following documents from the seller:

·  a form 19 Estate Agents Act 1990 (Vic) giving details of the financial position of the business;

·  a s51 statement indicating whether or not the agent is going to help you find finance;

·  a contract;

·  a transfer of the
registered business name
(if applicable);

·  a transfer of any permits or licences
(if applicable); and

·  a transfer of the lease of the premises and/
or any equipment.

Do not sign any documentation without first consulting your solicitor and only pay money to a solicitor or licensed real estate agent.

The contract

Do not sign a contract without first having it checked by your solicitor. Your solicitor will ensure the contract reflects your expectations and all legal requirements are met.

The contract should include:

·  a full description of the business;

·  the business name and whether or not it’s registered;

·  allocation of the sale price - how the price has been determined between goodwill, stock, plant and equipment and possibly restraint of trade requirements;

·  provisions for the purchase of all the stock or the stock up to an agreed value. It is common practice to employ a professional valuer to fix a value;

·  warranties regarding the sales performance of the business; and

·  a provision that the sale is subject to you obtaining the necessary finance and assignment of any applicable lease.

It may be necessary to have special conditions inserted into the contract to assist your new business during the transition between owners. These can include:

·  a restraint on the vendor to prevent him from opening a similar business in competition after finalisation of the sale to you;

·  a requirement for the vendor to work in the business for a set period of time after settlement, to introduce you to suppliers and customers and assist in the day to day running of the business; and

·  the method of adjusting the pay entitlements of continuing employees.