Published on 26/01/2016 by Punchmedia

What You Must Know About Buying a Business

Buying an existing business can make a lot of sense. It has an established client base, a proven history, possibly a strong brand recognition and even existing staff and processes. There is a benchmark to start with and it is then up to you the direction it will take – all without the stress of the start-up phase.

When buying a business there is a lot to investigate and the checklist is long; it also varies depending on the type of industry and business you are looking at, however there are a number of items anyone considering owning a business must consider.

6 essential things you need to know before starting out.

  1. Financial Records - 

    This is one of the biggest steps in undertaking the due diligence on the business you are planning to buy. You need to understand if the business is financially viable for you. These details, as well as learning how the business is structured and managed, will help you understand how you may run the business in the future.You should look at, understand and access all of the business’s financial records, including:
    • Sales - patterns, trends, customer base, current suppliers
    • Costs - fixed and variable costs, staff costs
    • Profits - analyse financial records, future cash flow and profitability
    • Assets - identify and check all assets, including intellectual property and leasing arrangements
    • Liabilities - outstanding debts, refunds and warranties
    • Purchase agreement - review carefully
    • Tax - GST, Capital Gains Tax, stamp duty implications
    • Legal issues - leases, business structure
    This information will also provide imperative information required for applying for a business loan.

  2. Obtaining a Business Loan - 

    There are various ways you can find and compare business loan options. These will depend on the amount of money you need to borrow, the type of loan you will need, the length of the loan, the repayments and security you can offer the lender.To get the right type of finance and advice, you’ll have to develop a solid business plan and be able to provide detailed information on the proposed business you want to buy. The good news is that purchasing an existing business with a good financial history and evidence of stability and growth can increase the likelihood of a successful operation and in turn make finance easier to obtain. One good resource is a Business Loan Comparison Calculator to start looking at your options and indicate which banking institution to start talking to. For more information on applying for a business loan, click here.

  3. Staff and Staff Obligations - 

    Staff can be your biggest asset and also the bane of your existence as a business owner. Existing staff will be a huge blessing if they are positive and motivated to help in the transition period of taking over a business.Staff salaries and obligations are a large part of any business and can vary greatly depending on the industry you’re considering. Whilst investigating any potential business, ensure this area is carefully considered, including any current salary arrangements, penalty rates, superannuation contributions, staff attrition rates and the costs associated with these and any longstanding leave entitlements – all of which can add to your liabilities from the outset.

  4. Tax Considerations - 

    There are different taxation and duties implications in purchasing and running a business depending on the type of business, the current set up of the business and how you plan to structure and run the business.When you buy a business you may need to pay stamp duty and other taxes. Some of the areas that you’ll need to address for the ongoing business operations include Tax File Numbers (TFN), ABN, Goods & Services Tax (GST), Capital Gains Tax (CGT) and Tax Concessions for small business. This is only touching the surface; tax is a very complex area and it is recommended that you consult a legal/tax advisor to seek assistance to fully understand how tax will affect you in buying and running your new business. The Australian Tax Office website is also worth visiting for information, checklists and forms relating to starting, running, growing and even selling your business.

  5. Licensing and Government Documentation Requirements - 

    Depending on the industry, location and nature of the business you’re looking to buy there may be a number of government licenses, permits, approvals, registrations, codes of practice, standards and guidelines that may apply to your business.A café will require quite different licenses than a plumping company so it is important to be aware of which relate to the business you are considering. As part of your investigations, you should understand what is required and the current licensing status of your business. The Australian Business License and Information Service will be able to help with this search.

  6. Legal documents - 

    The nature and structure of your business will determine most of the legal documents and obligations required for your business. For many businesses there are important legally binding documents that you should consider including leases, insurance policies, employment contracts and contracts with customers and suppliers. It is important to understand these documents so that they don’t have any restrictions that could hinder your ability to do business and succeed.

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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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