Nearly 1/3 of first-generation immigrants in Australia are operating small business reported by CGU Report 2017.
Interestingly immigrants are likely to buy or sell a business within the first 2 years from the date of their arrival in Australia.
Buy or sell business by immigrant
Why immigrants are vulnerable in business?
When it comes to business, we have found that immigrants are particularly vulnerable because of the following reasons:
- 70% of immigrants entrepreneurs do not have a wealth business experience back to their original country, but is inspired by the possibility of financial success.
- Many immigrants take on a business because it is the best opportunity to be employed by business.
- Lack of local business knowledge.
- Unfamiliar with local market.
- Have difficulty in culture and language adaption.
- Hindered by the hidden social code of Australia.
- Unaware the legal requirement and responsibility as business owner
- May be Financially fragile.
- Rely solely on family support.
The list is going on…
Crucial Points in Business Transactions
Negotiating with the business for sale
The points of negotiating with a business for sale, you must carefully consider:
- the sale price (why it worth the price?)
- the deposit amount (usually 10% of the sale price, could be less?)
- the settlement period (whether longer settlement period suit you?)
- handover training for the buyer (if you need it, what is the costs?)
- arrangements for existing staff (whether experienced staff is needed?)
What is transferred from an existing business?
Some of the more important elements in transferring a business which includes:
- the business name;
- any plant and equipment that the business uses;
- any property owned by the business;
- any agreements the business is a party too (including leases, distribution agreement, customer contracts etc.);
- the contact details of the business;
- information relating to clients;
- any shares in the company that operates the business;
- anything else, whether tangible or intangible, that can be of assistance in operating the business.
How is the price of the business to be apportioned?
It is necessary to apportion the selling price to plant, equipment or goodwill, because the tax consequences of selling a business will differ depending on how the purchase price is apportioned.
A rightly structured business price proportion will aviod a long term tax obligation.
Whether selling business impose a Restraints?
A restraint is basically an agreement between the seller and purchaser of a business that the seller will not operate a similar business after the sale.
A restraint will generally be geographic and/or time based, it needs to be specifically addressed in order to have the right protection.
Business Training Periods required?
It is very important to impose a training period for the buyers, so the seller needs to stay on business for 28 days training the new buyer even after the completion of the business.
Alternatively, the seller could be a paid employee to train the buyer.
Employees in the business
Generally, the buyer needs to take both business and employer when buying or selling business.
If the buyer wants to employ their family member instead of the existing employee in the seller’s business, there will need to work it out legally.
Tax consequences are related to the structure of the sale. The tax issues of GST and CGE need to be addressed before signing the contract of sale since the highest tax on CGT could be 46.5% of the capital gain from sale of business.
The vulnerability of immigrant often leads to the failure of the business. To avoid such a failure, immigrants tend to buy or sell an existing business with careful negotiation and special terms in the contract of sale.