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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? 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 sale agreement is your opportunity to articulate clearly 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 sale of business agreement will also incorporate standard terms such as:

  • transferring any property owned by the business;
  • disclosing any client 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 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”. 

Likewise, the restraint clause cannot be too harsh. This means it cannot impose an unreasonable geographic or time-based burden on you, as the previous business owner. For example, a restraint of trade might be unreasonable if it applies to the whole of Sydney CBD and for an indefinite period.

Your Equipment

Throughout running your cafe, you may 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. Before negotiating the terms of the sale, you must consider what equipment you will take with you and what you will transfer. Your sale of business agreement will include what equipment and assets are to be transferred over at the settlement of the sale. 

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. 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. You can draft this assignment of your intellectual property into the clauses of the agreement. 

Assigning Your Lease

Where applicable, you will need to transfer your lease and incorporate this into your sale of business agreement. If you have a retail lease, each state and territory in Australia 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. 

Food Business Licences

During trading, you would have met the regulations governing food handling and licensing. Upon the sale of your café, 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 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 purchaser 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 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, you should incorporate this into your business sale agreement.

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, and it can add value to the purchaser 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.

Key Takeaways

Are you looking to sell your cafe?  For any successful sale, be sure to have a well-drafted sale of business agreement. You can tailor this agreement to the specifics of your cafe, including clauses relating to your equipment, unique menu and employees, among other elements. If you have any questions about selling your business, contact LegalVision’s sale of business lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is a sale of business agreement?

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.

What is a restraint of trade clause?

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.

What happens to employees in a sale of business?

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.

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