If you plan to buy an existing business, carefully analyse both the advantages and disadvantages, including the history, which is likely to impact the future of the business. One advantage is that a good business history can increase the likelihood of a successful operation and ensure that finance is easier to obtain. Potential disadvantages can be overestimating the goodwill figure and a poor public image inherited from the previous owner.
Things to consider when buying an existing business
As a prospective business owner you should determine the current worth of the business and its future prospects.
When buying a business and considering its worth, you'll think about:
Vendor - Why and what are the reasons the business being sold?
Sales - Can you see any patterns or trends? What is the business' customer base? Who are the current suppliers?
Costs - What are the fixed and variable costs? Are there any staff costs?
Profits - Have you looked at previous financial records? Is the business profitable?
Assets - What assets does the business have? Does it have any intellectual property or leasing arrangements?
Inventory - Is the inventory on-hand being included in the purchase? How is the inventory managed, stored and distributed currently? Are there systems in place and what is the calculating turnover rate?
Liabilities - Does the business have any outstanding debts? What refunds and warranties still exist for the business? Are there debts owing on assets that are registered on the Personal Property Securities Register?
Purchase agreement - Have you reviewed the purchase agreement carefully?
Tax - What kinds of tax will apply? Consider GST, Capital Gains Tax, and stamp duty implications.
Legal issues - What are the legal agreements on leases?
Business structure - What is the business structure? Do you need or want to change the business structure to suit your business needs? Do you know the different legal, tax and record keeping requirements of your current business structure, or the one you want to change to?
Partnerships - Are you buying a business with a business partner? Do you have a partnership agreement in place before you purchase?
History - What has and hasn't worked in the business for the previous owner?
Expectations - Do you have an idea of what expectations you’ll need to manage as a franchisee or business owner?
Planning - Have you written your Business plan and Marketing plan to help you document your business objectives and identify how this business will meet your goals?
Franchising is another option you can consider if you're looking to buy an established business.
Franchising allows a business to operate under the name and brand of an existing business, and sell their products or services. If you think franchising could be for you, read our Franchising business topic.
For advice and protection in buying a business we suggest that you seek the services of a solicitor, accountant or business adviser.
How much will it cost to buy an existing business?
There many considerations that are taken into account when estimating a business' worth including sales, costs, profits, assets, liabilities, tax and legal issues. Read our Valuing a business page to help determine methods of valuation before purchasing an established business.
To help you determine a fair price, seek advice from a solicitor, accountant or business advisor.