Date: 12 April 2018
All three components have separate values attached to them in the sale agreement. The Fixtures and Fittings and Goodwill components are largely fixed, with the Stock component subject to a stocktake undertaken on the day (give or take) of settlement.
When settlement takes place, the new owner is only responsible for debts incurred from that day forward. Any customer debtors, PBS amounts outstanding, BAS refunds, creditor invoices, GST, PAYG Withholding, Superannuation or equipment leases that existed prior to that date are the responsibility of the previous owner.
I am quite sure most people feel comfortable with that concept. Partnerships though can be a bit different, depending on how the parties want to arrange the transaction.
There are two different options here:
Purchase price = stock + fixtures and fitting + goodwill
Plus = PBS debtors + customer accounts + GST refunds + cash at bank
Less = Trade Creditors + PAYG Withholding owing + Superannuation owing + employee liabilities (annual leave, long service leave, sick leave etc)
Of course, every situation is different, so make sure you get the right advice.
Quite often the amount the incoming partner pays in this situation is less than what it would be in Option 1. But it is important the incoming partner knows exactly what they are acquiring. If the continuing partners want the new partnership to be responsible for prior debts, trade creditors and employee liabilities, then it is only fair the price the incoming partner pays is reduced accordingly.
With regards to employment of staff and employee entitlements, the new employer has the right to determine which (if any) staff they will provide employment to going forward. It is at this point that the employee entitlements must be calculated and included in calculations for the sale of the business or passed on to a terminating or transmitting employee.
It is very important for those of you buying or selling a pharmacy business, or those who are buying or selling a partnership interest that you are aware of the purchase price and how that price is determined. You also need to be careful of the terms of the sale agreement, particularly around the debts of the business prior to settlement and who is responsible for those. Also make sure you are aware of employee liabilities and what is happening to them on the day of settlement.
Make sure you are well advised here from your own accountants and lawyers.
Written by John Thornett FCA CTA, Director, Peak Strategies Pty Ltd.
Every effort has been made to ensure that the information and/or advice contained in these pages are free from error and/or omission. You should seek your own advice prior to acting on any information contained within these pages. No responsibility can be accepted by the Pharmacy Guild of Australia or its employees involved in the preparation of these pages for any claim which may arise from a person acting on information and/or advice contained herein.
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