Published on 01/12/2020 by Joanna’s

The Real 'To Do' List for Buying a Business

There are endless pages of top tips and best practices for almost everything these days, so we were determined not to make this just another one of those itemised 'to do' lists for buying a business.

Instead, we wanted our list to add real value, to provide informative and educated guidance to anyone and everyone about to take their own journey into business ownership, whether they are looking to buy their first, last or next venture.

We sat down with commercial law expert Joanna Oakey of Aspect Legal Commercial Lawyers, who helped us identify the 4 essential 'Ps' to adhere to when taking the plunge and choosing to buy a business.

Preparation

Jo explains that being ready to acquire is the key to ensuring you are looking for the right business, and that you are ready to go when you find it.

According to Jo, this is a step that is most often forgotten, but is likely to be the highest predictor of the ultimate success of your new business.

"Ultimately the biggest problems that come along in the acquisition of a business are directly related to lack of preparation and the understanding of why you are buying a business to begin with," she said.

"It's important not to launch into it on pure emotion. Do you have an understanding of the practices and processes of obtaining a business and the applicable timelines? Do you have finance ready? Do you have an understanding of the industry you are buying into? Do you know what it takes to achieve success in this industry?

"These are all questions you need answers to before you move on buying a business."

Perceived Value

This step is about identifying the core value in the business and ensuring that value is transferred.

This seems obvious, but so often buyers (and their lawyers) become so caught up in the detail of the transaction, they can't see the wood for the trees, according to Jo.

"You need to stand back and assess. What is the value that I am really looking for in this acquisition? It can be different for different businesses. Is the main value in the clients? Is it in the staff? Is it the location? Is it the brand?

"Once you are clear on this, you need to ensure that the value is being transferred effectively. Is there risk that this value might not transfer?

"It's critical that you work through the above points and make sure they are properly transferred. From a legal perspective we make sure that the contracts line up with what you're getting, because the perception of value is not always the reality."

Protection

What sort of protection do you need when buying or owning a business?

Well, the answer is two-fold according to Jo:

  1. You need protection against risk in the business
  2. You need protection in the transaction

"We've looked at the importance of how value must transfer from the current owner to the new one, the other major component here is risk and the need to be protected from it - risk in the business itself and in the transaction and how it is handled," she explains.

"Risk in the business is identified by due diligence and ensuring the right indemnities and warranties are included in the contract. Risk in the transaction centres around what you're walking into such as any issues with current employees. Minimising your risk in business at anytime is a good idea but doing it during the purchase of a business is essential."

Process

According to Joanna, there are a couple of ways to look at the process of buying a business:

  1. A checklist of things that need to happen for the acquisition to go through eg: signing of contracts, agreement on leases, job offers for employees etc.
  2. The process itself, of moving a buyer and seller through the essentials of business acquisition

"When people enter into a business acquisition they are not necessarily across the actual process that needs to take place to make sure that acquisition happens," she said.

"Often this unknowing can drag out the process and results in arguments over small things that really don't have any commercial basis to them.

"When you work with a deal team, they ensure all parties are informed and driven from start to finish to resolve the purchase/sale.

"Aspect Legal has created a rapid contracting process that eliminates unnecessary issues, creates a strong communication loop from beginning to end and ultimately results in a smooth exchange and completion."

Joanna added that now that the country was coming out of Covid, it was imperative that those looking to buy a business had their ducks in a row.

"We are on the cusp of one of the biggest business buying opportunities seen in a decade. Now more than ever is it important to be ready to act quickly in what is going to be a highly competitive market."

  • Joanna Oakey is the Managing Director of Aspect Legal. With close to 2 decades in the industry, Jo has extensive experience working with a large and diverse portfolio of organisations in the areas of mergers and acquisitions, contract law, procurement, commercial law, and branding. She is the host of two of the top business law podcasts in Australia: Talking Law (providing smart legal tips for business), and The Deal Room (Australia's first mergers and acquisitions podcast).

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Joanna’s

Curtis is a leading expert in the business-for-sale industry, serving as a senior content creator at anybusiness.com.au.

With a career spanning over fifteen years, Curtis has accumulated extensive knowledge in the domain of business sales, acquisitions, and valuations. His deep understanding of market dynamics and his ability to translate complex industry jargon into accessible insights make him a trusted resource for entrepreneurs and business owners looking to buy or sell businesses.

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