Buying/Selling A Business

Apart from purchasing your own home, purchasing a business is often the most expensive investment we will make and involves an element of risk. By obtaing relevant professional advice you can greatly reduce the risk. Here are some important factors to consider when contemplating the acquisition of a business…

Am I suited and committed to running a business?

Many people are eager to take on a business, but do not realise how much dedication and time is required to run one successfully.

Which industry am I best suited to?

Consider which industry your skills, background and personality are suited to - eg do you have good "people skills", do you prefer to be indoors or outdoors, how much flexibility do you require?

Does the business have sufficient growth potential?

Does the industry sector you are contemplating entering have good prospects over the long-term? Are there external factors that are likely to impact on the industry and therefore the ongoing profitability of your business?

Will the business produce sufficient profit to:

• enable you to maintain your lifestyle
• facilitate ongoing business growth?
• repay any loans required for its purchase; and

Could the business be easily re-sold?

Find out why the existing owner is selling and ensure they cannot set up as a competitor in the local area.

How much should I pay for the business?

Often buyers do not do sufficient homework in relation to the business they are contemplating purchasing. They do not carefully review lease documents, option terms and any restrictions placed on the business. In many cases they accept the vendor’s information as true and correct. This could lead to costly mistakes and could be disastrous in the long term. Prior to making any final decisions it is recommended that a full and thorough due diligence of the business is conducted.

What structure should I purchase the business in?

It is imperative that you seek professional advice prior to placing an offer, to purchase a business. If the business is purchased in the incorrect structure (sole trader, partnership, company, trust) it could have dire tax consequences, expose the purchaser to unreasonable liability and limit flexibility considerably.

What are the GST implications of the purchase?

If the business is not being purchased as a going concern GST issues will need to be considered.

Selling a business…

Selling a business is often sensitive and can be daunting at the best of times. In most cases the business has been the owner’s “baby” for a considerable period of time and consumed much of their passion, time and effort. In many instances it has provided the sole income for the business owner and their family. It is therefore important that you obtain sound advice in relation to the worth of your most valuable asset as well as investigate options that will allow you to maximise your return.

As is the case when buying a business the vendors need to do their homework. It is important to know what the buyers demand for your type of business, as well as consider other factors that may influence the sale price of your business.

Some questions you need to ask…

• Does my business have any goodwill?
• Are my accounts in order and can they verify the performance of my business?
• Can I sell my business as an ongoing concern?
• What GST and other tax consequences should be considered?
• Do we tell our staff and customers? If so When?
• Who will sell the business?
• How do we apportion the sale price?
• When should we sell the business?