The Stages of a Business Sale in NSW

Buying or selling a business is a structured process that typically unfolds in several stages. Each stage has its own purpose and legal considerations, and the timing can be particularly affected if the business is franchised or subject to third-party agreements such as leases or licences. Below we set out the key stages of a business sale in New South Wales.

1. Heads of Agreement or Memorandum of Understanding

The process often starts with a Heads of Agreement (HOA) or Memorandum of Understanding (MOU). This is usually a short, non-binding document that records the essential terms agreed in principle — for example, the purchase price, deposit, settlement date, and whether stock, equipment or goodwill is included. While not intended to be the final contract, it provides a roadmap for the lawyers to draft the formal business sale agreement. Importantly, it can also include binding provisions around confidentiality and exclusivity, giving both parties comfort to proceed with negotiations.

2. Due Diligence

Before exchanging contracts, the purchaser will normally conduct due diligence. This means reviewing the financial, legal, and operational aspects of the business — accounts, tax compliance, customer contracts, supplier arrangements, intellectual property, and employee entitlements. In a franchised business, this extends to reviewing the franchise agreement, manuals, and disclosure document. Due diligence allows the purchaser to verify the business is sound and that they are not buying unexpected liabilities.

3. Exchange of Contracts

Once due diligence is satisfactory, the parties move to exchange of contracts. This is the point at which the business sale agreement is signed and becomes legally binding (subject to any conditions, such as finance approval or landlord consent). A deposit is usually paid into the solicitor’s trust account at this stage. The period between exchange and completion allows time for consents, financing, and pre-completion steps to be organised.

4. Third Party Consents

A critical stage — and often a cause of delay — is obtaining third party consents. These can include:

  • Franchisor consent: In most franchise systems, the franchisor must approve the purchaser and often requires the purchaser to enter into the current form of franchise agreement, not the outgoing franchisee’s agreement. This can significantly affect timing, because franchisors must also provide a disclosure document and allow a mandatory 14-day cooling-off/consideration period under the Franchising Code of Conduct before a new franchise agreement can be signed.

  • Lessor consent: Where the business operates from leased premises, the landlord’s consent is usually required for the lease to be assigned or a new lease granted. Landlords may impose conditions or take time to process applications.

  • Licensor consent: If the business relies on licences (for example, IP licences, software agreements, or distribution rights), the relevant licensor may also need to approve the transfer.

Because of these requirements, obtaining third party consents can materially affect the settlement timeline, and sale agreements often include conditions precedent or completion date flexibility to account for delays.

5. Pre-Completion Checks and Stocktake

In the lead-up to settlement, several practical steps occur:

  • Stocktake: If stock is part of the sale, it is usually valued at or near settlement to adjust the purchase price accordingly.

  • Business handover checks: This includes ensuring employees are offered new contracts (where they transfer under the Fair Work Act), finalising release of any security interests on the PPSR, and confirming the purchaser has finance in place.

  • Training arrangements: In franchise sales, franchisor training programs must also be completed before handover.

6. Completion

Completion (or settlement) is the formal transfer of the business. On this day:

  • The purchaser pays the balance of the purchase price, adjusted for deposits and settlement adjustments (such as rent, outgoings, staff entitlements and utilities).

  • The vendor hands over keys, records, intellectual property, and other business assets.

  • Assignments of leases, franchise agreements, licences, and contracts are executed.

  • Release of secured interests is confirmed.

From this point, the purchaser officially takes control of the business.

7. Post-Completion Obligations

After settlement, certain obligations often continue. These can include:

  • Restraint of trade: The vendor may be restrained from competing within a set area and timeframe, to protect the purchaser’s goodwill.

  • Training and assistance: The vendor may agree to provide a handover period of training, in addition to any franchisor-mandated training, to help the purchaser run the business smoothly.

  • Final adjustments: Sometimes further financial reconciliations (e.g., for stock discrepancies) occur shortly after settlement.

Final Word

The sale of a business in NSW involves a series of structured stages, each of which requires careful legal and commercial consideration. For franchised businesses, the process can take longer due to mandatory franchisor requirements and third-party consents. Understanding these stages helps both vendors and purchasers plan ahead, manage timing, and avoid surprises.

At Magnolia Legal, we guide our clients through every step — from heads of agreement to post-completion — ensuring the transaction proceeds smoothly and with full transparency.

Disclaimer: This article contains general information only and does not constitute legal advice. Magnolia Legal disclaims any liability arising from reliance on this article. Our terms of use apply

More Articles