If you’re thinking of buying or selling a cafe, restaurant or foodservice business in Australia, there are many legal and financial issues to consider.
It’s important to get good advice from an accountant, a lawyer and a business broker who understand hospitality – there are many thousands of dollars at stake. If you’re selling a business, you want the transaction to happen as quickly as possible and get the best possible price – proper exit planning is essential. If you’re buying a business, you want to know exactly what you are receiving. If you're pioneering (starting from scratch with an empty shop), you need to have all the necessary approvals.
Due Diligence – check everything
This is a big issue for people purchasing a business, and one that should be looked at objectively by vendors. Most purchasers have a team of people looking out for their interests, and concerned about the viability of the project – a lawyer, accountant, maybe a consultant and definitely family members, all of whom will be asking questions.
Buyers should research the area, local competition and the type of development taking place. Is the area growing or declining? Check the leases of tenants in nearby premises or floors (eg foyer cafe in an office building) – these can usually be obtained for a small fee from the relevant State government department. Are any of them planning to move out? This could make a big difference to your future trade.
Ask to see Profit & Loss statements, BAS, rosters and payroll records. Check social media activity, online reviews and online order history.
Legal Issues – Contracts, Leases & Regulations
Contract for Sale of a Business
Buying a business? Check…
- Price of the business, and how this is split between goodwill, equipment and stock - there can be tax implications.
- Restraint of trade on the vendor, so they can’t open another business nearby for a certain period.
- Is a trial period offered to help you confirm the value of the business?
- What advice and assistance is available from the vendor after the sale is completed eg information on suppliers and services.
- Transfer of digital assets eg domain names, social media pages, website, passwords, service agreements (eg POS, delivery services) etc. If the social media or website look stale, this can be a warning sign for a potential purchaser.
Selling a business?
Have the contract and lease ready to go the minute a purchaser asks to see it, and be ready for negotiation. They are usually represented by a lawyer, and you will have a lawyer and possibly a broker. Check the taxation implications of your sale – capital gains tax and personal tax liabilities.
Handle the sale yourself, or use a broker?
It’s not like selling a car – a good broker knows what most customers are interested in, and will help you package your business to look attractive. They should also give you honest advice about how well your business is presented, and will handle negotiation to get the deal over the line. They’re experienced at filtering out tyre-kickers – people who waste your time and don’t have the interest or money to go ahead with a sale.
Lease of Premises
A good long lease is a very important assets – it adds (or subtracts) value to your business.
- Length of lease, options for renewal and annual rent increases. Is the landlord ready to give you a longer lease, making the business easier to sell?
- Outgoings that are to be paid by the tenant eg water, land tax, insurance
- Demolition clause – does the landlord have the right to evict you before the lease finishes, if they want to demolish the business
- Business experience needed by the new tenant - how can you overcome this problem if the potential purchaser is new to the industry?
Local Government Approvals – check the zoning of the premises you are taking over. Does the usage match what has been approved? If not, how can this be rectified?
Australian Taxation Office – ATO handles your registration as a business and obtaining an Australian Business Number, plus registration as a group employer so you can handle employee tax and superannuation payments. If you’re selling a business, the ATO have a good list of the issues to handle.
Liquor License for the sale or consumption of alcohol - there are strict rules, regulated by State governments. Check local liquor license conditions - transfer or obtaining a new license can be time consuming, and professional assistance is recommended.
Licenses to Play Music or Entertainment at your venue: see OneMusic Australia. This is not optional.
Water and Waste Water - look for the relevant authority in your area, that handles trade waste and sewage. Consult them about whether you need a grease trap or not - it's usually a requirement, and expensive if it needs to be installed. Check our Guide to water-saving for a cafe or food business.
Business Name Registration is nationally administered – register a new name or prepare to transfer it to the purchaser through the ASIC website. If you're planning to change the name, do it with care .
Transfer your SilverChef agreement - we make it easy to transfer your agreement to a new business owner. Contact us directly to get the process started.
Employment, Wages, Work Visas & Workers Compensation
Wages and Award Information: if you are operating a cafe or restaurant you are covered by a National Award - information and links on our Employment Information Page. Fair Work has good resources to guide you on requirements for a new business. For ongoing assistance, Restaurant & Catering Australia is the employer organisation that represents you – well worth joining.
Workers Compensation is a State or Territory matter - see relevant links on the employment page. Department of Immigration has information related to work visas for staff - see the Employment Information Page .
The new business owners will want a smooth transfer of staff information – roster and payroll system, staff contracts and job descriptions. They will be concerned about key staff leaving – it's inevitable that some will go, but when you have strong operational systems, it's something they don’t need to be too anxious about.
Kitchen & Front of House Equipment
When selling a business, buyers expect the equipment to be in good working order, and you can help them by having the manuals & warranty information available (PDF or printed), plus clear instructions. Maintenance is sometimes overlooked when someone is planning to sell, so the equipment may not be in great condition.
Buyers should be ready to replace equipment, especially if you improve a business that's been quiet or run down eg the 2-group coffee machine can't cope with busy mornings, or there's not enough refrigeration. Talk to SilverChef to line up your credit so you can approach dealers and move quickly to upgrade or re-equip. Check the options in the Certified Used range for some great savings.
If the business you're buying has equipment under a SilverChef agreement, this can be assigned to you, saving a capital outlay. Contact us directly to get the process started.
Gas and Electricity Supply – check the supply contracts and whether the supply lines and pipes are adequate for your cooking and air conditioning needs. Check our Guide to Cutting Electricity & Gas Costs.
Upgrade table & counter ordering with a quality POS system, integrated with web and app ordering - check the Guide to apps & ordering systems for takeaway & food delivery . Customer expectations have changed enormously in 2020, and old fashioned systems don't cut it anymore.
Prepare for surprises - there can be unexpected pre-opening expenses, and even some annoying expenses after you open. it's important to have working capital available to handle these.
Promoting your business and gathering support
Research who lives or works in your area or postcode, see Australian Bureau of Statistics for census details by postcode.
Setup Facebook and Instagram accounts for the new business, and claim the Google My Business listing to make sure you show up on Google searches.
Setup a website if the business is new, or refresh the contents of the existing site. Start gathering customer contact details so you can communicate and keep in touch regularly - it's not difficult.
Join an online forum of like-minded business owners, where you can ask questions and get feedback. There are some excellent Facebook groups in Australia such as the Australian Cafe Owners Network , the Growth, Strategy & Exit Planning for Cafe Owners and local area Facebook groups.
Join your local Chamber of Commerce - they vary in style and activity, but as a cafe or restaurant owner you will always be someone of interest, so take your business cards!