Table of Contents
- Engage a Business Broker
- Term Sheet
- Your Business Sale Agreement
- Restraint of Trade Clause
- Your Equipment
- Assigning Your Lease
- Selling Your Unique Menu
- Food Business Licences
- Terminating the Contracts of Your Suppliers
- Employees
- Training the New Owner
- Tying Up Any Other Loose Ends
- Key Takeaways
- Frequently Asked Questions
Running a cafe can be an exciting and rewarding venture. However, after a while, all that coffee and customer service might wear you out. Are you looking to sell your cafe? Or perhaps a buyer has approached you with an attractive offer? This article will guide you through the steps you should take to ensure selling your cafe is a piece of cake.
Engage a Business Broker
If you do not know where to start, do not have a buyer and are completely new to this process, it could be worth talking to a business broker.
If you have a buyer lined up, you can skip this step.
Term Sheet
The first step is generally to agree on key terms with the buyer, like the purchase price, the assets included in the business, or the timing of the transaction. The Term Sheet serves as a check that you are both on the same page and that it is time to engage lawyers. Before signing the Term Sheet, always make sure you speak to a lawyer first to ensure the document is legally accurate.
If you have a serious buyer lined up who would like to move faster and puts an agreement in front of you or asks for one, you can also skip this step.
Continue reading this article below the formYour Business Sale Agreement
To sell your cafe, you will need a business sale agreement. A well-drafted sale agreement is your opportunity to articulate how you and the buyer wish to proceed with the sale. This agreement will outline the specifics of the sale of your business, including essential terms around transferring your intellectual property (like business name and trade marks), employees, telephone numbers, supply agreements and equipment you might have.
Your business sale agreement will also incorporate standard terms such as:
- transferring any property owned by the business;
- disclosing any client or customer information; and
- how the settlement of the sale will take place.
Restraint of Trade Clause
Your buyer will likely want to restrain you from setting up another cafe nearby. As such, your business sale agreement will include a restraint of trade clause or restrictive covenant.
A restraint of trade clause is only enforceable if it is “reasonable”. This means it cannot impose an unreasonable geographic or time-based burden on you as the previous business owner. The idea is that you should be allowed to earn a living through your trade, just not in a way that damages the business you just sold. For example, a restraint of trade might be unreasonable if it applies to the whole of New South Wales for an indefinite period.
Your Equipment
Your cafe is likely to have acquired many valuable items, such as one or two high-quality coffee machines, mixers and a unique furniture fit-out that works perfectly with the space. A buyer will also be drawn to these items, viewing them as assets and part of the business sale. Accordingly, it is very common that your business sale agreement incorporates these items as chattels.
Before negotiating the terms of the sale, you must consider what equipment you will take with you and what you will include as part of the sale. Your business sale agreement will include what equipment and assets are to be transferred over at the settlement of the sale.
Assigning Your Lease
Most cafes will not own but be renting the space or building they are located in. Where applicable, you will need to transfer your lease and incorporate this into your business sale agreement. If you have a retail lease, each state and territory in Australia will have specific laws governing retail leases you will need to comply with. Generally, you will require consent from your landlord before transferring the lease to the new owner.
Selling Your Unique Menu
Do you have an espresso pannacotta or 68-degree egg dish on your menu that attracts customers to your cafe? You might need to consider whether you want to transfer your menu or the recipes to the buyer.
The laws of copyright in Australia do not protect mere listings or descriptions of ingredients on the menu. However, the original expression of a recipe might be considered copyrighted material. Your unique menu can add value to your sale if you assign or licence the intellectual property to the buyer. You can draft this assignment of your intellectual property into the clauses of the agreement.
Food Business Licences
During trading, you would have met the regulations governing food handling and licensing. Upon the sale of your café, be sure to cancel your food business licence, as your buyer will need to apply for a food licence themselves.
Terminating the Contracts of Your Suppliers
Your cafe most likely receives weekly or monthly supplies of milk, coffee beans, food items, takeaway cups and utensils, among others. You will, therefore, need to revisit any written contracts or unwritten agreements you may have with your suppliers.
Consequently, you will need to consider whether to terminate your contracts and any termination provisions. Contracts without express termination provisions are usually terminable on reasonable notice. If you are unsure about the conditions for termination set out in your supply contracts, you should speak with a contract lawyer. You should also discuss with the buyer whether they will want to continue with the supply of the products and brands you have chosen.
Employees
Employees are an asset to any business. You should take some time to consider how you will manage them post-business sale. You need to ask yourself whether you ensure the buyer continues their employment or gives them adequate notice of termination.
It may be advantageous for the buyer to retain staff, as they might be trained food safety supervisors or have good relationships with customers. They might have invaluable expertise regarding the management and operation of the business or know customers’ favourite coffee orders—a huge benefit when a customer’s standard coffee order is a macadamia milk latte with a dash of brown sugar.
Otherwise, if you are planning on opening a new business elsewhere and wish to take key employees with you, you should incorporate this into your business sale agreement. You should also be mindful of whether restraint provisions apply to your existing employees too.
Training the New Owner
After you sell your cafe, you may agree to stay back and train the new owner of the business. The coffee industry is increasingly competitive in Australia. It can add value to the buyer for you to stay on and train them in what made your cafe successful. This also ensures that you seamlessly pass on your brand and reputation.
Tying Up Any Other Loose Ends
When you cease operating a business, you will need to make sure you have met all the lodgement, reporting and payment obligations. For example, you may have outstanding tax obligations, which can include lodging activity statements and PAYG withholding reports, repaying refunds of GST credits and other outstanding debts to the Australian Taxation Office. You will also need to cancel your Australian Business Number with the ATO.
Before buying a business, it is important to undertake due diligence, to verify the information supplied by the seller. This guide will walk you through the due diligence process.
Key Takeaways
Are you looking to sell your cafe? For any successful sale, be sure to have a well-drafted business sale agreement. You can tailor this agreement to your cafe’s specifics, including clauses relating to your equipment, unique menu, and employees, among other elements.
If you have any questions about selling your business, our experienced sale of business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A sale of business agreement is an essential legal document between you and the potential buyer of your business. A well-drafted sale of business agreement allows you to articulate how you both wish to proceed with the sale. This agreement will outline the specifics of the sale, including details about your equipment, unique menu and employees.
When selling a business, it is common for the potential buyer to include a restraint of trade clause within your sale of business agreement. A restraint of trade clause will restrict you from setting up a competitive business geographically nearby. For example, after you sell your cafe, a restraint of trade clause may stop you from opening up a competitive cafe across the road. This clause must be reasonable, however, and cannot impose a harsh geographic or time-based burden on you.
When selling your entire cafe business to a new buyer, they have the option to either retain staff or not. They choose to hire their own team. Accordingly, you (as the previous owner) must terminate and conclude the employment agreement with each of your old staff members. The new buyer can also keep key staff members, as this has the added benefit of starting the business with trained employees who understand the business and its customers.
You may want to advertise the sale of your business directly or if this may drive away customers, there are numerous business brokerages with their own channels of advertising through communities, websites or private listings.
You will need to speak or contact a private equity firm that is interested in your business. Not all private equity firms or buyers may be interested in the hospitality industry, including cafes.
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