The small business specialists
Phone: 13 12 49
After you've found a business to buy you need to make sure that you are getting what you pay for. You will need to:
A diligent buyer will carry out a thorough check of the business and identify whether it is likely to succeed in the future. This process is called due diligence.
To evaluate a business you will need at least the following information:
Do not sign any offers or pay any monies until you have been provided with all of the above, you have assessed the business and taken independent professional advice.
Check the following things to reduce the risk in buying a business
Here are three methods used to value a business:
This method measures the return on investment (profit before owners salary) received from an investment (the purchase price) and is calculated using the following formula:
ROI = net profit x100
This technique adds the assets of the business (for example stock, plant and equipment) to a goodwill figure to arrive at the price of the business.
This method is based on multiplying the turnover of the business by an industry multiple. This technique is mainly used for professional practices such as legal, accountancy and medical practices. It is rarely used for retail businesses.
If staff will transfer with the business, you will need information on the many issues and legal responsibilities associated with employing staff. Go to the Employing People section for more information.
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. Requirements include an agreement in writing that the supply is of a going concern. Professional advice is recommended on this issue.
Your accountant will be able to advise you on the vendor's financial statements, the market value of the business, the GST, Capital Gains Tax and other tax issues, and appropriate business structure options, and to assist with the budgets, cashflow forecasts, and projected financial statements for your feasibility study.
For more information visit the Australian Tax Office website.