- Going into business involves a lot of research and paperwork. While there are advantages of buying an existing business, there are some key things you need to consider.
- Assessing profit and sales, variable and fixed costs and looking at the business's history are just a few things you'll need to tick off the list.
- Keep reading to learn the 7 key things you need to know when buying a business, and get some additional tips to help you.
When one thinks of buying a business that is already up and running, there are certain points to take into account. There are advantages, as well as, disadvantages in buying a business that is already in operation.
Starting and operating a business is not just about working for yourself, it is about having the necessary skills to manage it, and the knowledge about the industry and market conditions that one wishes to get into.
Things to Consider Before Buying a Small Business in Australia
When buying a small business in Australia, it's important to consider the following things:
- Seller or vendor
- Profit and sales
- Variable and fixed costs
- Assets and liabilities
- Legal matters
- History and past owners of the business
1. Seller or vendor
Find out why the business is for sale. It could be due to any number of reasons, from lack of profitability to the owner getting tired of running it.
2. Profit and sales
Find out if there is a proven record of sales -- if the business is busy and profitable. The owner should be willing to show the interested party records of profits. It is important to find out what the customer base is and also the suppliers.
It would be a show of good faith if the seller introduces the interested buyer to the supplier or other companies that have connected with the business.
3. Variable and fixed costs
Staff costs. It is important to know what kind of employees if any are in the business.
4. Assets and liabilities
Find out if the business is in debt, at the same time, find out what assets belong to the business and what their financial value is.
Find out what kind of taxes the business is expected to be paid. It could be value-added tax and other taxes as well for example GST, Capital gains Tax and Stamp duty.
6. Legal matters
There will be a need for lawyers to draft the sale agreements. Know your rights and obligations. Establish what kind of lease and legal agreements are drawn.
7. History and past owners of the business
It is good to know how long the business has been in operation and what is the history behind it. Know how it all started and what handicaps if any the original owners had to overcome in order to succeed.
Franchising: Another Option to Buy a Business
Franchising is using the name of a business that is already established and successful. If you're looking to buy a small business and decide to go down the franchising route, it is important to know that the goals of the mother company must be realized.
You can't use their own name. Franchising is subject to the Franchising code of conduct. It is advisable to get advice and protection from an accountant, a solicitor or a business adviser before making a decision to buy into a franchise.
Business Enterprise Centre Australia is a good place to visit in order to get advice on legal requirements and possibilities that are available.
Other Tips for Buying a Business
Here are some additional tips and pointers to help you along the business sales process:
- Get professional advice
- Understand valuation methods
- Consult a financial adviser
1. Get professional advice
The professional will help determine the value of the business, value of profit and the value of goodwill.
2. Understand valuation methods
Look at the current marketplace value and the industry. Businesses usually respond to prevailing market conditions, so it’s good to have a survey of similar businesses and get a feel of the market situation.
Return on Investment (ROI) is another way of valuation. This method uses the net profit to work out the value of the business.
3. Consult a financial adviser
With the help of a financial adviser or an accountant, the prospect business owner will get information on matters such as insurance for the business, employment of staff or retention of existing staff.
Be prepared to do a lot of research before coming up with a final decision about buying a small business in Australia. There are financial, legal implications that need to be taken care of.
Every business person needs to operate within the acceptable legal framework, a lawyer’s input is necessary, not just for drawing the agreements, but for crucial advice before one acquires a new business.
You must also consider buying a business that will be fairly easy to manage and which will ensure a return on investment.
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