When selling a fitness business, the ideal scenario is a stress-free transaction that allows the seller to close that chapter of their 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 the seller is 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. Here are three brief tips on what you need to know to ensure you have a smooth sale.
- Get clarity on the existing employee entitlement balances:
- If the business you are selling has employees, there will typically be an adjustment to the purchase price once worker entitlement balances, such as annual leave and any long service leave, are taken into account.
- In essence this liability is sitting with the seller at the date of settlement and then passes across to the buyer, which means the purchase price may have to reduce.
- Sellers may think they will just get their money and that is it, but often these adjustments can often catch them out.
- Unshackle yourself from the lease:
- Sometimes a technical non-compliance with legal requirements can result in a seller remaining on the hook for obligations under the lease after settlement.
- For example, if the buyer runs the business into the ground and it goes insolvent, the landlord can potentially pursue the seller for the unpaid rent.
- It is important for the seller to ‘unshackle’ themselves from liability under the lease with effect from settlement, and ensure that the legal documentation fully releases the seller.
- Detach yourself from the future performance of the business:
- Sellers work hard to create a profitable business, but once they step away, it is up to the buyer (as the new owner) to build on the sellers success.
- It seems common sense, but it is easy for a buyer to get swept up in the excitement of healthy business financials – and consequently assuming the business will automatically continue to perform at the same level once they take over.
- If the business does not perform, a buyer could be quick to claim they were given false promises.
- Sellers want the contract to have some sort of acknowledgement that they are not in any way guaranteeing the future performance of the business.
It is also important to inform potential buyers of other issues such as gym equipment and social media/websites. As with buying a fitness business, due diligence is important.