fbpx
X

5 things I wish I knew before buying a business!

1. Is buying a business actually what you want?

Many potential business owners forget to realise that buying a business is a huge commitment of time, energy and resources. So if your goal is to have more time for your family or take overseas holiday trips more frequently, buying a business that requires your full-time attention may not achieve your objectives and you may need to re-think your strategy!

2. Make sure you know what you are buying!

The first step is to work out exactly what you are buying.  Here, we are actually talking about whether for example, your company is going to buy the business assets out of the current business owner’s company or whether you are going to buy the shares of that company from the current owner.There is a very important difference – if you buy the business assets then it is usually pretty clear what you are buying eg goodwill, stock, equipment etc.If you buy the shares in their company then you become responsible for the whole company including all of its assets but also all of its debts and liabilities.  You need to make sure there are no undisclosed liabilities such as supplier bills, warranty claims or tax liabilities.  But the advantage of buying the shares is that you don’t have to change bank accounts, ABNs, lease & finance agreements and customer/supplier contracts etc.

3. Get the business professionally valued.

Once you’ve worked what’s included and what’s not, you can work out how much you are prepared to pay for the business. Price is not the same as value! The price is what you are prepared to pay while the value is very subjective.  There are five common methods to value a business and it’s important to work out which method is most appropriate for that type of business. Get the business professionally valued to ensure you are not paying too much.

4. Dig a bit deeper

If all that stacks up right then you get to dig a bit deeper to make sure everything is as you expect. Due diligence involves reviewing both the tangible assets like making sure the equipment is identified and in the right condition; as well as the paperwork like supplier, customer and employee contracts.  You are trying to make sure you get what you paid for with no surprises!

5. Use the right business structure.

Whether you should be trading as a sole trader, through a company or trust structure or as a partnership depends on a variety of circumstances, such as size of the business, growth and future plans and whether or not you intend to take on business partners or intend for your staff to have a share in the business in the future. You should ensure you seek professional advice on what business structure is right for you i.e. which ones will accommodate your goals and future plans as well as being tax effective and flexible.

We have assisted many clients buying a business and avoiding the pitfalls – we can help you too

GET IN TOUCH

You might also be interested in...

How good is your marketing? – Your accountant can help you to find out!

How successful the marketing of your product or service is, has a great deal to do with how your business operates and what it stands for, and your numbers can tell you a lot about it.

How good is your marketing?

Why you need a business budget!

A good business budget allows you to plan for business events that will affect your business’s performance over the forecast period.

Why you need a business budget

Which business structure is right for my business?

When setting up or buying a business there are a number of business structures you can use to operate the business in. Here are some of the most common structures used in Australia.

Why discounting is a dirty word!

Planning your next Sale – discounting might not be your best strategy to boost revenue! – here is why

Why discounting is a dirty word