What to consider before purchasing a business
Buying a business is a complex process that requires a significant amount of attention. It is important to understand the reasons surrounding the sale and whether you as the purchaser have the necessary skills and knowledge of the industry to successfully run the business.
When purchasing a business, it is essential that you are provided with all the relevant documentation to complete your due diligence. Depending on the nature of the business you are buying, this may include a Section 52 Statement, Contract of Sale, Transfer of Lease and/or Franchise Agreement. Your lawyer and accountant can help your review such documents. However, having all the right documentation is only one part of the process.
Conducting thorough due diligence when purchasing a business is essential. You will need to consider what assets and inclusions you are purchasing. Some relevant matters that you should consider are:
Does the sale include the equipment, fixtures and fittings and databases?
Does the sale include any stock and is there a monetary limit on the value of the stock?
Will there be any transfer of license or intellectual property (such as business name, trade names, product names, trademarks, patents, copyrights or websites etc)?
Will there be a transfer of employees and what are the implications surrounding their leave entitlements?
Are there any tax implications related to your purchase and have you set up the right business structures for your purchase?
What are the intangible aspects of the business that you will need? For example, will you be provided client lists, suppliers, trained staff and operational systems?
What certifications are required to operate the business? For example, do you need to obtain a food handling certificate?
Are you buying a franchise? If so, does the franchisor have requirements you need to meet?
The above items are often an essential part of the business's worth and help give a fair indication as to what you should be paying for the business.
You should always ensure that you complete your due diligence before making your final decision. Ensure you check the books and business records and obtain financial and taxation advice. If the business is currently in debt and making little profit, you’ll need to ask yourself if you are prepared to take that on. If you are prepared, you’ll need to gain an understanding of why the business is not as successful as you would have hoped. Learning about any reputations that the business holds in the area is a good way to gain an understanding of what you are buying into and to understand the demographic of the area.
Purchasing a business and completing your due diligence can be a stressful time. With the right professional team around you and the proper checks and balances in place, you give yourself the best chance possible for success.
ASAP Lawyers regularly accept instructions in the purchase and sale of businesses. Contact us on 03 9450 9400 to speak with one of our lawyers.