Buying an existing café? Let me help you make it happen!

I love helping clients realise their dream of owning a cafe. But, you need more than a love of food and coffee to run a successful cafe – it is a business governed by many different types of laws.

Often the original plan is to start something from scratch but after thinking about it, they realise the commercial benefits of buying an existing business. You don’t get to create something from nothing, but you do get the existing goodwill and cash flow from day one and you can shape the business.

Here are some of legal issues I help clients with when buying an existing cafe.

Are you purchasing with the right business structure?

I work with accountants to make sure my clients are established properly from the get go. It can be a headache to swap structures down the track – the last thing you need to be doing on top of hospitality hours.

The right business structure for you will turn on who you are working with, your plans for the future and your income projections.

The most common business structures are:

  • Sole trader – you control the whole business, take all the profits and are responsible for all debts
  • Partnership – you and your business partner share the profits and act on behalf of each other for the business
  • Company – you create and register a separate corporate entity. Companies have higher start-up costs and fees but the liability of the company’s shareholders can be reduced to share capital. Plus you only pay the company tax rate and it can be easier to bring other people on in the future
  • Trust – one individual (a trustee) operates the business for the benefit of others (called beneficiaries).

You will need to register the business and get an Australian Business Number. If you decide to go down the partnership or company path, I can sort you out with the partnership or shareholders’ agreement and company registration. Then we can start looking at the contract…

Due diligence

The contract should be ‘subject to due diligence’, giving you some time to investigate the business and then walk away or negotiate if you discover something isn’t what you were expecting.

Some of the things I can help you investigate during due diligence:

  • Do you want to carry on the business under the same name? Does the seller own this intellectual property and is it transferable upon sale?
  • Which permits or licences will you require and are these transferable from the seller? Will these allow you to operate a similar business under a different name?
  • The lease – how long is left on it? Is that enough? Can it be assigned to you? Can the business lawfully operate from the site? How will the rent go up? Have you received the necessary disclosures?
  • Planning permission – can you operate as of right under the planning scheme or are you relying on existing use rights? Can the planning permission be varied?
  • Can you keep the key employees? What will happen with their employment contracts? Who is paying for their leave?
  • Can the contracts with the main suppliers be transferred to you? What about other contracts like rubbish removal or hire purchase agreements?
  • What plant and equipment will come with the business? Are these clearly identified in the contract? Are there security interests registered? Imagine if you didn’t know the coffee machine was leased and the seller was in arrears under the agreement…
  • Are the financials as good as the seller claims?
  • Will the seller consent to release of a food safety inspection report?

Negotiating the contract

The seller should provide you with the contract of sale Section 52 statement (also known as the Vendor’s Statement).

We can negotiate special conditions to be inserted into the contract which cover:

  • the transfer of important existing supply contracts;
  • a minimum takings of the business in the period up to settlement;
  • the right for you to work in the business prior to settlement, so you can check out how it runs; or
  • a restraint of trade clause restricting the previous owner from operating a similar business within a certain distance for a number of years.

This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation. 

Published July 29, 2016

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