Purchase of Business
Check to see if you’re business ready
Running a business is hard work and requires a lot of discipline. Before taking on a business consider the following to see if you are business ready:
Do you have the right skill set to start a business?
How much time will you need to invest in a business for the business to be successful?
Are you physically and emotionally ready to deal with unusual work hours and time pressure?
What are your personal goals and will starting a business help you achieve them?
Do you have the capital to invest in a business for it to be successful?
It's important to consider the costs of running a business before you look at buying. Use our template to work out the costs.
CALCULATE THE START UP COSTS OF YOUR BUSINESS
Identify the right business
Finding the right business to buy can be time-consuming and challenging. Take time to consider your interests and background experience when deciding what type of business you are looking for. This may help you narrow your search to an industry and marketplace that’s right for you.
Once you’ve found a business that you’re interested in buying you may want to consider:
- Does the business have the potential to be successful?
- What value can you bring to the business?
- Is it in a good location?
- Do you want a business that is established with a customer base?
Do your research
Before you consider buying a business make sure you have done all your research first. Researching the business that you want to purchase can offer valuable insight into its reputation and potential for growth.
Conducting market research involves evaluating current and potential markets, the industry the business operates in and the number of similar businesses in the area. Look into the following when conducting your market research:
Why is the business for sale?
Are there any risks associated with the business?
What kind of industry does the business operate in?
How many businesses are doing similar things?
Does the business have a competitive advantage?
Does the business have loyal customers?
What does your market want and what are they buying?
How is the competition in market changing?
You may also want to talk to existing customers, employees and neighbouring business owners to get a view on how the business is doing.
WHAT IS MARKET RESEARCH
Value the business
You should determine the current value of the business you’re looking to purchase and its potential future growth before committing to buying. You may want to get a professional valuation of all the assets and liabilities that belong to the business.
Find out how to value a business.
HOW TO VALUE A BUSINESS
Conduct due diligence
Gather as much information you can on the business you’re interested in before you sign the contract. It’s essential that you review all:
- financial records
- business operations
- legal documents
These documents help you identify and manage any risks associated when looking at buying the business. You will want to know what you’re buying and what obligations you’re taking on.
To conduct due diligence you'll need to review items such as the business’s:
- Licences and permits – Are all the correct licences and permits required to run the business available and up to date?
- Contracts and leases – Will the landlord agree to the transfer of the lease agreement or will you have to negotiate a new lease?
- Agreements – Are there any outstanding agreements between the seller and suppliers?
- Status of plant, equipment and fixtures – What kind of equipment and machinery does the business own? Are they in good working order and licenced?
- Assets – What assets does the business have? Does it have any intellectual property?
- Inventory – Is the inventory on-hand being included in the purchase? How is the inventory managed, stored and distributed currently? What is the current state of the inventory?
- Liabilities – Does the business have any outstanding debts? What refunds and warranties still exist for the business? Are there debts owing on assets that are registered on the Personal Property Securities Register?
Financial due diligence
You need to independently collect and check the financial information about the business. Make sure you examine the past three to five years of financials including:
- tax returns
- business activity statements (BAS)
- records of accounts receivable and payable
- balance sheets
- profit and loss records
- cash flow statements
- sales records
Make an offer
Once you have valued the business and conducted due diligence on it, you'll need to make a final decision about whether to make an offer to buy. You may need to negotiate the purchase price with the seller before you reach an agreement.
After you and the seller have agreed on a price you'll need a contract to give legal force to your agreement. The written contract ensures that both you and the seller clearly understand what each agrees to, for what cost and what method of payment.
Consider any insurance requirements for your business, such as run-off cover (where you are insured for any legal claims that are made after you sell your business).