Running a cafe can be exciting and rewarding, but after a while, all that coffee and customer service might wear you out. But what should you do when you’re ready to sell your cafe, or a buyer has approached you with an attractive offer? We guide you through the steps you should take to ensure selling your cafe is a piece of cake.
Your Business Sale Agreement
To sell your cafe, you will need a well-drafted Business Sale Agreement. Your Agreement is your opportunity to articulate clearly how you and the buyer wish to proceed with any essential items, including your intellectual property, employees, confidentiality, telephone numbers, supply agreements and equipment you might have.
Your sale of business agreement will also incorporate standard terms such as:
- Transferring your business name;
- Transferring any property the business owned; and
- Disclosing any client information.
Restraint of Trade Clause
Your buyer will likely want to restrain you from setting up another cafe nearby. As such, your sale of business agreement will include a restraint of trade clause or restrictive covenant. A restraint of trade clause is only enforceable if it is “reasonable”. The restraint cannot impose too harsh a geographic or time-based burden on the previous business owner. For example, a restraint of trade might be unreasonable if it applies to Sydney CBD and for an indefinite period.
Over the course of running your cafe, it’s possible that you have acquired many valuable items. You probably have one or two coffee machines, mixers and a unique furniture fit-out that works perfectly with the space you have. A purchaser will be drawn to these items too. Accordingly, it is very common that your sale of business agreement incorporates these items. You must consider what equipment you will take with you and what you will transfer.
Selling Your Unique Menu
Do you have a secret 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 purchaser. Copyright does not protect mere listings or descriptions of ingredients on the menu. 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 purchaser.
Assigning Your Retail Lease
Where applicable, you will need to transfer your retail lease and incorporate this into your sale of business agreement. Importantly, each state and territory in Australia have specific laws governing retail leases which you will need to comply with. Generally, you will require consent from your landlord before assigning the lease.
Food Business Licences
During trading, you would have met the regulations governing food licensing and handling food. Upon sale, you will be required to cancel your food business licence, and your purchaser 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.
Australian common law gives priority to the principle, freedom of contract. By extension, parties to a contract have rights to terminate under its terms. Contracts without express termination provisions are usually terminable on reasonable notice.
Consequently, you will need to consider whether to terminate your contracts and any termination provisions. If you’re 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 purchaser whether they will want to continue with the supply of the products and brands you have chosen.
Employees are an asset to any business. You will want to take some time to consider how you will manage them post business sale. You need to ask yourself whether you ensure the purchaser 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 a good relationship 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 complicated macadamia milk latte with a dash of brown sugar.
Otherwise, if you are concentrating on opening a new business elsewhere and wish to take key employees with you, this should be incorporated into your business sale agreement.
Training the New Owner
Staying back and working with your purchaser can add value to your sale. The coffee industry is increasingly competitive in Australia, and it would be sensible to stay on and train the buyer 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 lodgment, 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.
Selling your cafe can be a daunting and exciting new chapter. If you have any questions, get you touch with our business lawyers (and coffee aficionado) on 1300 544 755.
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