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Buying an existing business can make a lot of sense. It has an established client base, a proven history, possibly 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.
Before looking at businesses for sale, 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.
Know the industry
Once you've done your preliminary research, it's time to dig deeper. You've chosen an industry to work in, but if you're going to buy a business, you want to know everything about that industry before you throw yourself head first into it.
Is it retail, management, industrial? All niches are going to have different strategies.
There are a few things you want to ask about your industry before you buy.
- Who will your main competitors be?
- What does the future of the industry look like?
- What future risks are associated with the industry?
- What is the current demand for your product or service? And how will it fare in the future?
- Are the prices rising or falling?
- A sure-fire way to get quick responses is to contact the professional industry association or body
Market research radically increases your chances of success. It is the process of gathering and analysing information to help identify and define market opportunities and problems.
This information will help you find out if the small business for sale you're looking at still has potential for growth.
It will not only help you decide whether it's worth buying the business you're interested in, it will also help you consider how the business can be improved once you take over.
Get an insider's perspective
One of the biggest challenges of buying an existing business for sale is the risk associated with a bad bargain.
It is always a wise decision to evaluate the risks associated with buying the business. Visiting the business a few times unannounced might help get a firsthand understanding of how it is faring; it is also a good way to get an understanding of the challenges you may encounter in the future.
It would also help if you could try and manage a week working within the business or with the business owner to assess if you are making a right decision in the long run.
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.
Determine what is included in the asking price
It is important to clarify what you will be obtaining as a part of the deal, especially when it comes to investigating franchises for sale. Tangible and intangible assets should be taken into consideration.
Sellers often include information about the assets that are being included and usually offer an estimate of their value. Getting details about the valuation of the assets goes a long way. Similarly, the intangible assets cannot be ignored.
To ensure the business is sold, sellers often tend to inflate the value of assets such as goodwill, reputation, customer loyalty etc.
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 adviser to seek assistance to fully understand how tax will affect you in buying and running your new business.
The Australian Taxation Office website is also worth visiting for information, checklists and forms relating to starting, running, growing and even selling your business.
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.
While 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.
Seek professional advice
It is always recommended that you seek professional advice before buying a business for sale.
With proper guidance you are able to assess the current and future demands of the business. People associated with the buying and selling of a business, such as business brokers, can help you determine the margin of prices.
It will also be beneficial to get in touch with the concerned industry association for a stronger insight into the business.
Similarly, before making the purchase, uncovering any associated legal issues is best done by a lawyer.
To start searching for your dream business, go to www.anybusiness.com.au