The small business specialists
Phone: 13 12 49
Buying an established business is a big commitment. The following points will help you to research and assess the business opportunity, and assist you to make an informed decision.
If you are considering buying a business, your first consideration should be whether that type of business is suitable for you and your lifestyle.
Your second consideration is to obtain all the relevant information available to enable you to assess the business. Will the business continue to generate the level of profits that the business is said to be earning?
Is the goodwill component of the purchase price realistic? Goodwill generally relates to profitability.
A diligent buyer will carry out a thorough check of the business and in so doing will identify whether it is likely to succeed in the future.
A SWOT (strengths, weaknesses, opportunities and threats) analysis of the business will help you assess the proposed purchase. Strengths could include contracts that will be sold with the business, ownership of intellectual property, an exceptional location and a secure client base with little or no competition. Threats could include a new or potential competitor.
A feasibility study or business plan should be prepared for the proposed business. The financial projections should include adequate allowance for the purchase of the business, costs of acquisition such as legal fees and stamp duty, any additional expenditure required, borrowing costs and working capital requirements. Make sure you use current costings and quotes, especially for insurance and labour costs.
Not all businesses for sale are good businesses. Some are run down, some badly managed, others poorly located or perhaps suffering from recently introduced competition.
A well run, established business with a solid client base, suitably equipped premises and a good lease, with a good turnover and net profit may provide a safe income. Such businesses are often placed in the hands of a broker or accountant who has a list of clients waiting for good businesses, and they may not be advertised.
To evaluate a business you need at least the following information:
Ask the vendor to certify that the financial statements provided are:
Figures provided under a disclaimer indicate that the vendor or the person preparing them is either unwilling or unable to vouch for their accuracy.
Do not assume equipment is in good condition, as it can be very costly if you have to make major repairs, or even worse, replace an essential piece of equipment. Check that vehicles are licensed, and when licences expire.
Encumbrances on motor vehicles, motorbikes, boats and farm machinery are kept on the Register of Encumbered Vehicles (REVS) at the Department of Commerce. Check that no money is owing by calling 1300 30 40 24.
An independent valuation on plant and equipment may be advisable. For some businesses a stocktaker may also be advisable.
The stocktaker can advise what is or is not of merchantable quality and on the value of any item where the sale price has not been agreed.
If staff will be transferred with the business, visit the Department of Commerce website for information on buying and selling a business. If the business is a company you will be covered under the Federal Government "Fair Work" system, check out their website or phone 13 13 94.
Make sure that GST on the sale has been properly considered. GST will generally be payable unless the business is sold as a going concern and the Australian Taxation Office (ATO) criteria are met.