What you need to know before you buy a business
Much like buying a house, buying a business is a big decision, and you’ll need to thoroughly inspect the foundations before finalising the deal.
Here’s what you need to know before you make your final decision to buy a business.
Why is the business being sold?
Getting to the bottom of the reasons behind why a business is for sale may be an important factor. Is it because the company is losing money, because a new competitor is opening up nearby, or simply because the owner is moving away?
Understanding the motivations behind the sale of a business can go a long way in helping you first decide if you want to buy the business, and then determine what you need to be prepared for once it’s in your name.
The current staff situation
When you purchase a business, you will likely inherit the existing staff. Even if it’s an online business for sale, there are usually at least some staff behind the scenes. These employees are often vital to keep the company running smoothly during the transition, and will help you learn the ropes. However, disgruntled staff upset about the sale can cause issues down the track, particularly if they aren’t given the opportunity to provide guidance and feedback to the new business owner. For this reason, it’s best to get in touch with a number of employees who currently work at the company to ask them about the challenges and opportunities the business faces. These sessions should be chance for them to let you know about their fears and concerns, and also a valuable opportunity for you to learn more about what may be coming your way if you take over the business.
The purchase agreement
Whether you’re buying a small business or a large one, the purchase agreement covers all of the assets you’re buying, including any liabilities. It includes the exact date and time of the takeover, and should also have escape clauses such as record inspections and finance. A lawyer can help you go through this agreement to ensure it is watertight on both sides and doesn’t omit important details.
Being aware of all the taxes involved in the sale – and the future sale if you decide to sell – is important going into the transaction to ensure you are prepared for these additional costs. This could include a capital gains tax, or a transfer (stamp) duty on the business. Talk to an accountant to go over these details with you.
Make yourself familiar with the legal agreements you’re signing on to. What are your obligations and rights? Are there any current legal proceedings against the business? Again, this is an area that will be easier to understand and work through with a professional lawyer.
Business Legal Structures
All businesses have their own Business Legal Structures, and deciding how to set up yours will be one of the first decisions you’ll need to make. It can involve an Australian Business Number, trademark registration, business name registration, and other requirements. Some of the most common structures are sole trader, partnership, company, and trust. You’ll need to speak to your lawyer or accountant to ensure you make the right decision for you.
Spend time investigating the financial records of the company, and make sure to look at different time frames. This will help you get a feel for whether or not the company is profitable, if it has high and lows throughout the year, and overall profit trends.
Author: Hayley Clark
SEO Content Specialist
Hayley Clark is a content writer born and bred in New Zealand. She has been writing, editing, and working in SEO for over five years, for a myriad of companies, including Virgin Money, Thrifty, Destination New South Wales and Michael Page.