Building a Resalable Business

gearsPeople sell their businesses all the time. Usually they do this because they’re ready to retire or perhaps want to relocate elsewhere, maybe do something else or just want to cash in, whatever the reason may be. Other times, and this happens more often than you think, a sweet offer comes out of nowhere and you begin to contemplate that age old proverbial question—to sell or not to sell (or is it, to be or not to be?)?

As a commercial law firm, we have seen plenty of regret among business owners who could not clinch a lucrative sale of their business when a ready to buy entrepreneur knocked on their door with cash in hand only because their business wasn’t as good “under the hood” as it appeared to the outside world.

Even if you’re not thinking of selling right now, as a business owner you should be prepared for all kinds of eventualities and a sale of your business is one of them. If you want to be ready when the time comes to sell, consider these few points we recommend.

Always Ready

Successful business owners are good at what they do—running their business. Selling it, however, is an entirely different undertaking. To be in a position to sell, keep in mind the idea of selling your business at all times because it will impact all areas of your business and decision making.

Business Structure

Decide the legal structure of your business before you start operating it. Is it going to be a sole trader operation, a partnership, a company or something else? This is where legal and accounting advise can make or, in the absence of it, break your business.

Different business structures have different legal and tax implications. Get it wrong off the bat and you could be up for unexpected tax and legal liabilities or a restructure. Neither of these are fun and you’ll do yourself a favour to get it right from the start.

Business Plan

We’re not going to give a lecture on how to create a competent business plan. We’ll say this though—it’s imperative you have one. In it, outline your marketing strategy; know how you’re going to attract and retain your customers; devise steps to create or improve your brand; set realistic financial goals and funding sources if necessary.

A functioning business plan is not something you make in the beginning, get your business going and then forget about. It should be adjusted from time to time to reflect changed circumstances and growth of your business. An updated business plan is a powerful bargaining chip in negotiations.

Business Records

Make every effort to keep your financial records accurate. This is where a buyer will look to see if your business is a fair dinkum or a pair of window dressings with a financial mess behind it.

Business Infrastructure

The value of your business will increase if you’ll be able to demonstrate an independent enough infrastructure that can function without you. A system with robust processes in place will help a buyer to have confidence in their ability to run your business without major dramas once they step in to replace you.

Business Contracts and Obligations

Review your contracts to ensure everything is in good order at all times: leases, client and supplier contracts, hire, licence or purchase agreements. A pitfall to look out for is whether or not any of the contracts your business is a party to can be re-assigned to a third party, which is why we mentioned above to keep the sale of your business in mind at all times—think twice before binding your business to a contract you won’t be able to get out of when needed.

On the other hand, if a buyer can see that they’re getting a good, long term contract(s) with your business, all of a sudden you may feel like you can ask a better price.

If you employ staff, review their employment contracts to ensure you will not breach any statutory laws or obligations by selling your business. As always, if you’re not sure where you stand, seek legal advice. And even if you think you know what you’re doing, double check with an experienced solicitor anyway.

Intellectual Property

Make sure you have a clear understanding of what is and what is not intellectual property. Knowing this will have a direct impact on the sale price of your business since intellectual property, like any other property, varies in price. Although an exact figure is not easy to determine, you should at least know what it is you own so that you can negotiate armed with proper knowledge.

For example, a business name isn’t worth much since it’s not protected by law and is not a property while a trade mark is both protected and a property. Knowing these kinds of nuances can be a game changer when it comes to selling your business. As before, a legal advice will provide you with information necessary for a good business decision in this area of law.

Conclusion

Take the steps to prepare your business for sale regardless of the stage it is at right now. Whether you’re already thinking of selling or simply want to be ready should the opportunity come along, speak to a lawyer you can trust about your plans.

Due to the impact of specific facts on any given case please treat this information as a general guide and not as legal advice. If you require advice on how to adequately protect your security rights please contact Adam Robinson on 07 3123 5700.

Name Game: Why Registering a Trade Mark is Smart

ABCLAWYERSIf you’re a business owner, imagine this for a moment: you operate a business in the same area for many years; you work hard to build your reputation as a reliable and trustworthy business; although competition is hot, you have nothing to worry about­­­—your name is well established and you’re ahead of the game because of your strong credentials in the community. Years go by until one Monday morning (bad things always happen on Monday mornings) you receive a letter from a law firm you have never heard of before. Thinking that perhaps this is a cheque from your American uncle who mentioned you in his will, you discover that this is a “cease and desist” demand from someone represented by a solicitor, who, you’re informed, had registered a trade mark exactly like your business name. He now operates a business similar to yours and wants you to change your business name or shut down your business altogether—whichever you prefer.

If you think this is a far–fetched scenario, think again—according to section 21(1) of the Trade Marks Act, a “registered trade mark is personal property.” It follows then that trade marks, a type of intellectual property, in a legal sense are the same type of property as cars, household goods, business inventory, shares and many other kinds of tangible and intangible property. Once a trade mark is owned by someone, its ownership is protected by law and you can do nothing about it unless the law was breached to claim the trade mark’s ownership in the first place.

Compare this to a business or company name. Australian Securities and Investments Commission (ASIC) tells us that a “business name is simply a name or title under which a person or entity conducts a business.” Just like your personal name is not your property, your business or company name is not your property either, in a legal sense that is. IP Australia, the Australian Government agency that administers intellectual property in this country, further informs us that “business names do not provide proprietary rights for the use of the trading name.” To put it another way, registering a business or company name will not give you the ownership of that name.

In practice, what it all means is that the same word or combination of words can be registered as a business name, company name, domain name or a trade mark by four different persons and the trade mark owner will have the stronger footing in court if a dispute arises. Please note the word “owner”—in law, only property can be owned and trade mark is the only property here.

From our experience dealing with business owners, it appears many do not understand the true purpose of business name registration which is not much more than the means for the consumers and other traders to identify a particular business entity by a convenient name rather than an ABN. Registering a business name does not give you exclusive rights to it nor, and this is just as important, immunity from infringement of others’ rights to it. Since the registering process only involves a check against exact or similar match of other business names, registering a “wrong” name might infringe on someone else’s property, such as a trade mark, without you even realising it. It doesn’t automatically mean that you’ll be liable for a monetary compensation if this happens, but what it does mean is that, most likely, you’ll have to change your business name and bear all the financial and other costs usually associated with such a serious rearrangement (think of new stationary, signage, website and other expenses).

Similar to business names, a company name is nothing more than a legal identity of a company and does not confer any rights to it. To register one, it must not be identical to any other company or business name registered with ASIC. One key difference with company names is you’re not required to specify a field of business activity a company is going to trade in when you register it because there could be many. Which is why it’s difficult for business name applicants to know for sure if there is any potential conflict they are not aware of when they apply for a business name.

Enter a trade mark. A trade mark is a sign used to distinguish goods or services provided by one person from goods or services provided by any other person (section 17 of the Trade Marks Act). The sign, of course, can and often does include words. A trade mark owner has the exclusive right to use, licence or sell the trade mark in Australia and this right is protected by both legislative and common law.

A very important feature of trade marking a business—it gives immediate protection of ownership even before the commencement of business activity. Which is why hijacking your well established business is a real possibility if it’s not protected by a trade mark, that is, by law.

If you believe your business is worth protecting, we at Hollingworth & Spencer Lawyers will be happy to advise you on how this protection can be achieved in the most effective way.

Due to the impact of specific facts on any given case please treat this information as a general guide and not as legal advice. If you require advice on how to adequately protect your security rights please contact Adam Robinson on 07 3123 5700.

Small business owners – plan now or pay later!

How you get into your business now can have drastic financial implications for everything from the day to day running to how you get out of it later.  The earlier you start planning the greater your ability to take advantage of the array of concessions and exemptions offered for tax, duty and superannuation.

small business planningGetting into small business – plan ahead!

Business restructures can involve capital gains tax and stamp duty implications, which will increase with the value of a business. It follows from this the best time to plan an effective structure of your business is before it begins trading or otherwise as early as possible. The longer you leave a restructure the greater the tax liabilities to be incurred as your business continues to (hopefully) grow in value.

Getting out – more than just a for sale contract!

When planning your business structure it needs to take into account more than just your current circumstances and tax needs. Are you married? How long do you plan on staying in business? How big will it grow? What is to happen in the unfortunate event of illness or death to a key member? What will happen in the event of bankruptcy?

These are just some of the factors which will impact upon which structure is best for your future needs.

Business acquisition of its rented premises?

Does your business rent premises which you may be able to purchase in the future? The ability to purchase may be easier than you think but you should always receive advice before signing on the dotted line.

Changes in the last few years have opened up the ability of Self-managed Superannuation Funds (SMSF) to borrow in order to acquire real property. This can enable your own SMSF to acquire the whole or part of your business premises but not where you already own it! Your business will then lease the premises from your SMSF. The main benefits of using a SMSF to acquire your premises are:

  1. Asset protection – generally your superannuation fund and property held by it will be safe from creditors in the event of bankruptcy.
  2. Less tax – income for a SMSF is taxed at a lower rate than for a company and generally lower than a trustee of a trust or individual. Your SMSF can also claim a deduction for the interest on loan repayments.
  3. Tax deductions – Your business will still be able to claim a tax deduction for rent paid to your SMSF. If your business purchases the property itself would only be able to claim interest on repayments as a deduction.

Due to the impact of specific facts on any given case please treat this information as a general guide and not as legal advice. If you are small business owner and curious about how we can help achieve your goals please contact Adam Robinson.