So you think you’ve got what it takes to be your own boss? Buying a business is a very serious decision and can be one of the biggest investments you make in your lifetime. This article looks at the steps involved in buying a business. It provides a good starting point to ensure you’ve considered all areas before making the big commitment.
We've broken down the process of buying a business into -
Evaluate yourself
Owning a business is certainly not for everyone. It’s up to you to ensure you’ve considered all the options before making the decision to be your own boss.
You have to identify and accept your strengths and weaknesses. It’s always a good idea to put these down on paper. List not only your professional strengths, achievements and skills but also your personal characteristics, as these will play a crucial part to your suitability and success.
SEEK offers a free self-assessment tool, SEEK Direction, to help understand your strengths, weaknesses, likes and dislikes. This can be a good starting point. If still in doubt, or you would like a more thorough analysis, there are vocational counsellors that specialise in providing a more formal assessment.
Are you personable? A leader? Good with numbers? Comfortable giving presentations? Some of the important qualities of a business owner include:
- perseverance
- dedication
- entrepreneurship
- leadership
- self-belief and
- confidence
If you’re not a natural decision-maker or lack in confidence, then you may need to reconsider owning your own business.
Business structure
In conjunction with your accountant and lawyer you should consider your business structure prior to buying a business. There are asset protection issues and taxation considerations that need to be addressed. Some of the possible structures which can be adopted include:
- sole trader
- company
- partnership
- trust
- or a combination of a company and trust structure
You should bear in mind that each of type of structure described attracts different setup costs, ongoing compliance costs, tax rates and personal risk. You should also be aware that adopting a company structure, for example, imposes numerous duties on the directors of that company. You should discuss those responsibilities with your lawyer.
Due diligence
You should do your homework and undertake extensive research before investing in a business. Research should include obtaining information about:
- the business owner's reputation in the market place;
- any current or threatened legal proceedings against the business owner;
- historical trading information and financial reports in respect of the business;
- the lease for the premises you may be occupying and the lease needs to be assessed by your advisors. You also need to ensure that any local government council permits or licences are obtained as required.
- we have included a checklist for buying a business which is in the next section.
Evaluate the location
The location may be critical if you intend to be reliant on passing trade. If the location of the business is within a shopping centre you may request from the owner or the centre management traffic management information. This can provide helpful information about the area near the location of the business.
Sale of business contract You need to ensure that the owners of the business, if a company, personally warrant that various matters relating to the business are in order.
For example, there may well be a warranty that the employee salaries are as detailed in the Schedule to the Contract. The warranties should be given by the directors of the vendor, if the vendor is a company. A further warranty may be that there have been no WorkCover claims in respect of any employee or that the financial accounts as annexed are true and correct. There are numerous warranty issues and a good business lawyer will identify those issues for you on a case by case basis depending upon the particular business.
Cooling off rights
Some Sale of Business Contracts provide for a three day cooling off period. It is also possible for a purchaser to avoid a contract. These circumstances include where the purchase price does not exceed $200,000 and the vendor has failed to provide a disclosure statement. In this instance the purchaser may avoid the contract at any time prior to completion.
Employment issues
You should be aware in acquiring a business to give careful consideration to all potential employment issues which may arise. This includes, but is not limited to:
- statutory entitlements
- the terms and conditions of employment
- applicable industrial instruments
- termination of employment
- equal opportunity and
- occupational health and safety obligations.
These issues should be discussed in detail with an experienced legal advisor prior to signing any Sale of Business Contract. It is critical that a prospective purchaser is aware of the range of employment issues as there is various legislation imposing obligations on a business owner of or incidental to their employees.
For example, the recently amended Workplace Relations Act 1996 (Cth) not only sets out minimum terms and conditions of employment for employees but also imposes onerous notification requirements on purchasers of businesses. Breaches of these provisions in the Workplace Relations Act 1996 may result in penalties of up to $33,000 for corporations.
Buying a business is a serious undertaking and careful planning in terms of due diligence, financial budgeting and a detailed business plan, including an exit strategy, are critical in ensuring that you make the right decision.
Review the checklist for buying a business.