UPDATED: February 15, 2019
An Agency Agreement is a legal contract whereby the Business Broker acts on behalf of the Business Broking Agency to enter into an agreement to sell a business on behalf of the Business Owner.
Agency Agreement - Exclusive
An Agency Agreement that is exclusive appoints the Business Broker as the mandatory agent to receipt any commission if the business is sold. This means that the Business Owner is liable to pay a commission to the Business Broker even if the Buyer is not referred by the Broker.
Agency Agreement - Non Exclusive
An Agency Agreement that is non-exclusive allows the Business Owner to source Buyers other than those referred by the Business Broker without a fee or penalty.
Business Valuation refers to the various methodologies used to calculate the economic value the Business Owner has within the business. In Business Broking, the most useful methodology is the one that aligns closest to what Buyers will pay in the current market condition.
Remuneration paid to Business Broker for the sales of the business. The structure of the remuneration can vary between Business Broking agencies. A typical example is 10% of the sales price, or a minimum of $15,000 whichever is the greater.
Confidentiality Agreement / Disclosure Statement
An agreement typically between the Buyer, the Business Brokerage Agency and/or the Vendor which stipulates that any information or material provided and disclosed shall remain between the parties.
An amount paid by the prospective Buyer (typically to a Trust Account of the Business Brokerage Agency) as a gesture of good faith to proceed further with the Sale. The deposit is usually refundable up until the Sales Contract is exchanged. Thereafter, the deposit is only refundable if the conditions of the sale are not met.
Due Diligence are the steps the Buyers take to scrutinise the business so as to validate and satisfy themselves of the decision to proceed with the sale.
Exchange of Contract
Exchange of Contract occurs when each party has signed the contract. Once signed, the parties thereby agree to the terms of the contract and is legally binding. Settlement can occur any time after, or typically a few weeks after exchange.
A term to describe documents prepared by the Accountant such as the Profit & Loss Statement, The Balance Sheet, The Business Activity Statements etc. This may also include any documents that can be used to ascertain the financial health of the business.
The fee charged to engage the services of the Business Broker, regardless of the outcome. This means that this fee is payable even if your business is not sold.
The day when the transfer of the ownership of the business is completed. This occurs when each party fulfils their respective conditions on the Sales Contract and nominates a day for the transfer of the business.
The assessed value of inventory in a business for the ultimate purpose of resale, at a given point in time. In a sale of business, this is usually conducted prior to settlement.
The process whereby the Vendor is undertaking to impart knowledge and know-how to the Buyer so that that Buyer can operate the business independently and successfully.
A trial is loosely used to mean an opportunity for a prospective Buyer to work in the business prior to the purchase. In practice, a trial occurs after the exchange of Sales Contract whereby the Buyer is legally obliged to purchase the business if during the trial period, the turnover amount meet the agreed target stipulated on the Sales Contract.
The entity that are the legal owners of the business. They have the authority to sign on an Agency Agreement with the business brokerage agency so that the agency has the authority to act on its behalf to sell the business.
Walk-In, Walk-Out (WIWO)
A Walk-In, Walk-Out (WIWO) sale of business refers to the sale price inclusive of all the stock on hand on settlement day. In fact, the Vendor (Business Owner) is not required to leave any stock at the settlement date. Colloquially, WIWO could sometimes incorrectly refer to a sale of business without any financial documents or required due diligence.
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