6 Essential things you must know …
Investing in an existing business makes a lot of sense; it most often has a loyal or regular client base, a proven recorded history, perhaps a great reputation amongst locals as well as existing experienced staff and established systems and processes – all without the stress of the usual trial and error involved in starting from scratch.
When buying a business you will, or should always be advised by your Broker to conduct you due diligence. This involves a long checklist and is varied 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.
- Financial RecordsThis 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 best to run your 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 essential information which will be required when applying for a business loan.
- Obtaining a Business LoanThere are various ways you can find and compare business loan options. Fortunately, we have an in-house finance expert who can assist our clients in preparing and applying for Business Loans and has expert inside knowledge of the loans currently on offer in the market. As with all loans, success will depend on the amount of money you need to borrow, the type of loan you will need, the length of the loan, the repayments and security you can offer the lender.To get the right type of finance and advice, you’ll have to develop a solid business plan and be able to provide detailed information on the proposed business you want to buy.The good news is that purchasing an existing business with a good financial history and evidence of stability and growth can increase the likelihood of a successful operation and in turn make finance easier to obtain.
- Staff and Staff ObligationsStaff 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. Whilst 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.
- Tax ConsiderationsThere 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 advisor to seek assistance to fully understand how tax will affect you in buying and running your new business.The Australian Tax Office website is also worth visiting for information, checklists and forms relating to starting, running, growing and even selling your business.
- Licensing and Government Documentation RequirementsDepending on the industry, location and nature of the business you’re looking to buy there may be a number of government licenses, permits, approvals, registrations, codes of practice, standards and guidelines that may apply to your business.A café will require quite different licenses to a manufacturing or processing company so it is important to be aware of which relate to the business you are considering. As part of your investigations, you should understand what is required and the current licensing status of your business.The Australian Business License and Information Service will be able to help with this search.
- Legal documentsThe nature and structure of your business will determine most of the legal documents and obligations required for your business. For many businesses there are important legally binding documents that you should consider such as : leases, insurance policies, employment contracts and contracts with customers and suppliers. It is important to understand these documents so that they don’t have any restrictions that could hinder your ability to conduct the business in the manner which you choose.