You are ready to buy a business. Whether you are a first time buyer or are back for another shot, there are lot of traps and pitfalls. There is so much to consider. This is a big investment, will you be happy and successful?
Some business owners are very up front with their business when it is time to sell. However, others can be hiding a possible nightmare. When buying a business, everything is not as it seems on the surface. There is so much that can be hidden that you will only find out once you own the business and are running it. You need to learn as much as possible to ensure you can see behind any smoke and mirrors.
Everything You Need To Know Before Buying A Business In Australia
What Type Of Business Should I Buy?
Ask yourself this question: What am I good at and what am I passionate about?
You only needed to see Richard Branson with his inter-space project Virgin Galatica to understand that passion and experience can take you all the way to the moon or further and back. These two personal ingredients will be the cornerstone of your success. Once you have established what you are good at and what gets you up each day, then start looking for a business that fits these two characteristics.
Some people may not know which industry they want so I suggest for those buyers you start looking at everything that is in your price range and you will be pleasantly surprised about what little treasures that are out there. You can check out our current list of businesses for sale and while you are at it, make sure you register in the form at the top of the page to be notified of all new business listings.
Research and Research
Doing your homework is the greatest short cut to success known and the furthest you can get from a possible failure.
By researching the market, the industry, other businesses for sale on this website and growth prospects will help you make a really well qualified decision. This will also establish if you a paying a fair price. You can get to see the range of prices for different industries. This may help you eliminate industries that are outside your budget.
Ask people in that industry what they think is going on and what has made them successful. What are pitfalls to this type of business? What should I be looking for?
The amount of information that is available online these days is enormous and a few well directed searches in google will help you understand the pros and cons of the business opportunity that you are currently considering.
Financials – “Check it twice”
Santa Claus rarely makes a mistake when delivering the Christmas presents and that’s because he made a list and he is checking it twice.
Go over the financial data yourself and then get your accountant to check it. You should only be looking at reliable source documents such as tax lodged figures. If they are not tax related figures they will probably prove unreliable very shortly after you take control. If this is your first business, I would suggest that you not buy a business unless it has at least 3 years of proper tax returns that have been lodged with the Australian Tax Office.
If this isn’t your first business and you know what you are doing you may be able to pick up a bargain where a business doesn’t have the full data, because without the financials they will find it extremely difficult to sell.
The seller might suggest with a “wink and a nod” that he is taking cash under the counter. That’s fine but you should never pay for this in the purchase price which is calculated on a multiplier of the profit. If the cash happens to be there happy days, but only pay for what you can see on the books.
Legal Saves Legal
This is a transaction which has significant risks which can be mitigated by using a well-qualified lawyer in the field of business sales.
- Does the contract have any clauses that may cause problems?
- If I require finance does the contract have “subject to finance” as a clause?
- Do I have my finance approved in the time allowed?
- Has the landlord approved me as the new tenant?
- Is the lease a secure tenancy?
- Does the contract include having the staff paid their entitlements by the previous owner?
- Will I get my training from the owner?
- What is the real role the owner plays in the business and what would it cost you to replace them?
Why Are They Selling?
Try to get a good understanding of why the business owner is selling. It’s crucial to know the motivations of the seller so that you can do the best possible deal.
You need to understand:
- Is there time pressure, do they have to sell quickly
- Maybe an illness is forcing the sale
- They may have bought another business and want to move on
- They just be sick of the business and just want to get out at any price
- A partnership or marriage may have broken down so they the owners can no longer work together
- The owners may be getting older and just want to retire and don’t have anyone to leave the business
Or, the business just may be an amazing buy where the owners have built it up and it is worth its price.
Professional Advice Is a Must
Gone are the days when businesses are sold on limited information. Today, one of the biggest problems buyers and sellers have during the business sales process is overconfidence. The self-righteous belief that they are correct and that buyers and sellers will believe what they are told.
Now all stakeholders have become more sophisticated and will review all information, perform a market analysis and take professional advice.
It is important to find a professional adviser who you can trust and whose approach matches your ambitions.
Check out our article with more information on “Getting Professional Advice”