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!
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.
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.
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!
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.
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