Insights by Scott McKenzie
Scott McKenzie (Director at Velocity Legal) is the Chairperson of the Fitness Australia Industry Council. The following article was published on the Fitness Australia website on 25 June 2018. Here is the link to the original post original post.
SELLING A FITNESS BUSINESS: WHAT YOU NEED TO KNOW
When you’re selling a fitness business, the ideal scenario is a stress-free transaction that allows you to close that chapter of your life and move on, without having to think about the business ever again. Whether or not that plays out comes down to how well-informed you are about the sales process. “Depending on how the contract is prepared, the seller can still be on the hook for a lot of potential risks, or they can be completely off the hook from that moment onwards,” says Scott McKenzie, director of Velocity Legal. Here’s what you need to know to ensure you have a smooth sale.
- Get clarity on the existing employee entitlement balances
If the business you’re selling has employees, there will typically be an adjustment to the purchase price once worker entitlement balances, such as annual leave and long service leave, are taken into account. “Basically what happens is that liability is sitting with the vendor at the date of settlement and then it passes across to the buyer, which means the purchase price has to reduce,” says McKenzie. “Sellers may think they’ll just get their money and that’s it, but often these adjustments catch them out.
- Unshackle yourself from the lease
“Sometimes a technical non-compliance with legal requirements can result in a vendor remaining on the hook for obligations under the lease after settlement,” says McKenzie. What can then happen is if your buyer runs the business into the ground and it goes insolvent, the landlord can potentially pursue you for the unpaid rent. “You want to unshackle yourself from liability under the lease with effect from settlement, and make sure that the legal documentation fully releases you,” says McKenzie.
- Detach yourself from the future performance of the business
You’ve worked hard to create a profitable business, but once you step away, it’s up to the new owner to build on your success. It seems common sense, but it’s easy for a buyer to get swept up in the excitement of healthy business financials, assuming it will automatically continue to perform at the same level once they take over. If it doesn’t, they can be quick to then claim they were given false promises. “You want the contract to have some sort of acknowledgment that you’re not in any way guaranteeing the future performance of the business,” advises McKenzie.
Not selling? Check out Buying a Fitness Business: What you need to know