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A warning to newsagents considering deleting business data prior to settlement when selling the business

Mark Fletcher
March 27th, 2021 · 9 Comments

It concerns me when I hear of a newsagent wanting to delete data from their computer system prior to settlement, prior to a new owner taking over the business.

In one instance recently, everything was deleted except for bare bones stock information. All sales history, supplier details and more was obliterated, everything a new owner would need to make good business decisions.

It’s a key point I make to prospective new owners. I suggest they have it written into the purchase contract that business data is not to be deleted without their written permission, and that as part of due diligence, yes that is a thing in buying any business, they scrutinise the data available and ensure it is what they expect and need.

I can’t think of any reason to delete data from the POS software prior to the sale of a business. I appreciate that for some in our channel this is not a popular view. However, I am looking it in terms of the future and not in terms of protecting a newsagent who is selling.

Imagine taking over a business on an agreed set of performance numbers, being in there a few months and needing to compare how you are going and realising that the data you need for the comparison has been deleted. If this happened to me I’d wonder why, I’d wonder what the deletion of data was hiding. This is why I recommend that requirements as to data are covered in any purchase agreement.

6 likes

Category: Ethics

9 responses so far ↓

  • 1 Graeme Day // Mar 27, 2021 at 7:55 AM

    Mark, I believe this to be essential in the hand over.
    The data representents the business purchased. depending upon the software , it not only shows Department Sales it shows individual sales, percentages increase -hourly turnovers. I could go on. This data is crucial for the new business owner. The new business often has the stock depleted eothe because the previous owner wanted it so, or it was that way, or the purchaser (as they oftem and mistakenly do) request for the stock to be a minimum.
    NSW Lotteries wipe the slate clean for the new owner -new Franchise.These reccords are not as relevant as the Business itself as no stock is involved however it is still a disadvantage re Cash Flow assessment (although largely affected by Jackpots) which can be critical for account payments -weekly-monthly or as they fall due.

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  • 2 Eric // Mar 30, 2021 at 6:23 PM

    Duncan V IBEB Pty Ltd should be required reading on this subject.

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  • 3 Grame Day // Mar 30, 2021 at 7:23 PM

    Why? The point is the purchaser has bought the sales records. they have bought the past sustainable history of the business’s performance.
    Those records are not personal they are the business records and belong to the business that is being sold.
    THAT is why the Vendor gets whatever price they settle on.
    The buyer in anything sets the price.
    The seller does not have to agree with the offerbut once the do they should comply with what they sold. Otherwise the ew owner may find differences and goe to court for false figures and I have seen this challenged and the seller had to pay back 7- to 100% of te purchase price for the lack of opacity or transparity or whatever. The courts favour the buyer.
    Is it worth it?

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  • 4 Graeme Day // Mar 30, 2021 at 7:44 PM

    Eiric,
    I didn’t realise the case in question. yet the principle is the same.I have known the family in question for over 40 years. Honest to a tee however their honesty let them down as they put to market the store’s performance nothing hidden and it was bought buy Accountants.
    I guess everyone should read the case for it does support transparency yet in this case nothing was hiden.
    They had to refund the purchase price of around $600k because the Judge did not undertsand the business and ruled accordingly because the expectancies of the buyer wasn’t there blamed it on OPACITY.
    yet if you read it they faliled (the buyer) to understand the content of labour distribution between hethe other store they owned which clowded te issue.
    This is differen to what Mark is talking about but releveant however to to being sure that the purchaser gets exactly what they believe they are getting.

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  • 5 Steve // Mar 31, 2021 at 7:49 AM

    Yes good reading Eric for all involved in the sale of a business. Agents, accountants and vendors alike. In this case they were all defendants and found to be jointly liable for the awarded damages of $671k not to mention their own legal costs and time.

    Deleting sales records clearly leaves vendors exposed to such damages claims. In any event both the Corporations Act and the Tax Act require such business records to be retained by a vendor for a minimum period of 5 years. Business sale is not a defence.

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  • 6 Mark Fletcher // Mar 31, 2021 at 7:51 AM

    And here we are this week, more data being deleted. We warn vendors about the risk and they proceed with the deletion request in writing.

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  • 7 PJ // Mar 31, 2021 at 1:41 PM

    If part of a franchise/marketing group you might have to purge certain information before handover if the buyer isn’t staying with the same group. Also a new owner shouldn’t be using the same POS data, the old data should be archived and new database started. Any POS provider wanting to keep the new owner should do this at no cost.

    The old owners better be keeping a copy of the old data as it forms part of their tax records.

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  • 8 Mark Fletcher // Mar 31, 2021 at 1:44 PM

    PJ, I disagree.

    While for sure confidential information may need to be removed, historic data as to sales volume and revenue should not need to be removed.

    If the new owner is running the business along the same lines, they will need the data.

    As to you raising the issue of who pays if the work has to be done, it’s not a topic for this thread.

    Deleting chunks of historic data prior to settlement on the sale of a business speaks to secrecy, a desire to hide something from the incoming owner.

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  • 9 Graeme Day // Mar 31, 2021 at 3:10 PM

    There are a few misconceptions stated here.
    on the sale of a business the reciords must be kept for 6 years.and from tge date of the sale changeover, not the Financial Year.
    It is the responsibility of the Vendor to keepthe sales figures. The computer P.O.S. figures are just that they are not taxation figures. The owner of the business is responsible for their own ATO declarations ask any Acct. Steve as one will verify this.
    it is no the onus of the software cxompany to keep any businesses records for any purpose. only their iown business dealings as such.
    Ishould imagine the ongoing cost would be the same cost as the previous customer was paying for the sanme service. No reason to pay more or less….unless?

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