The Growth in Business Buying and Selling Industry
Before embarking on the purchase or sale of any business in Australia, it would be prudent to consider the advantages and disadvantages of such a move. Consider the history or background of the business carefully to ascertain its viability and future. A business with good history has a much higher chance of producing the desired results. Obtaining finance to support the purchase of such a business is also much easier. A business with good history eliminates the worries concerning any poor publicity it might have which could hamper its growth locally. If the business enjoys goodwill among the public, it has a much higher chance of success.
Understand the Importance of Due Diligence
Do not be in a rush to buy an existing business before undertaking due diligence. Checking the money the business would cost to buy or sell is very important, but is not the only due diligence worth performing before proceeding with the transaction. Finding the reasons behind the sale of the business is a good practice. Ask the seller to explain the reasons behind his decision to put the business up for sale. Next, evaluate the current customer base that the business has. Ask for the list of the current suppliers. Check for patterns and trends regarding the kind of sales that the business has been making prior to this date.
Evaluate the financial cost of the sale or purchase
After the discussion with the vendor regarding his reasons for selling the business and checking the prevailing trends regarding sales, the next issue worth evaluating is the cost. Check the staff costs carefully, if there are any. Check fixed costs. Do not forget to go through the variable costs carefully. A buyer should never ignore the previous financial records. The profitability of the business is a very important consideration. If the business has a lot of potential, which the current or previous owner has not maximized in the past, it might be worth buying. Ask for a list of assets and liabilities, before reviewing and signing the purchase agreement.
Consult Relevant Government Departments
Do not forget to go through the list of information available at the IP Australia website. The local Business Enterprise Center has helpful information regarding the cost of buying or selling an existing business in Australia, thus the importance of visiting its nearest offices. The transaction should never continue without the input of a solicitor, accountant and business advisor. The three professionals possess all the required information regarding the purchase and sale of a brand new or existing business within Australia.
Buyers must be Credible
After handling all the aforementioned details, the buyer now needs to work on establishing his credibility. Here, he has to formalize his interest in purchasing the business. In Australia, most business owners prefer making the sale through an accountant, lawyer or broker, who acts as business advisors. Therefore, the buyer formalizes his interest with the appropriate business advisor. Despite his need for selling the business, the current owner would check the buyer’s integrity and future plans regarding the business. For that reason, never go into any of these types of transactions thinking that the seller is desperate to make a sale.
Understand the reasons for Selling the Business
As previously stated, understanding the seller’s reasons for putting the business up for sale is crucial to successful negotiations. Check if the seller is operating under any time restriction. The seller might or might not want to state if he is under time restrictions. Therefore, the buyer has to carry out his own research to ascertain if this is the case. Understanding if the owner is making the sale purely for financial reasons is crucial to successful negotiations. At this time, it would be prudent to appreciate if the business is experiencing underlying problems that the seller might not be too willing to share.
Examine the Strengths and Weaknesses of the Business
Remember that it is in the interest of the seller to keep the weakness of the business to himself. On the other hand, it is in the best interest of the prospective buyer to highlight the weaknesses that the business has. If the seller succeeds in restricting the sale to the strengths of the business, he has a very high chance of attracting the best and highest paying buyers. For his part, if the buyer restricts the negotiations to the weaknesses that the business has, he has a very high chance of convincing the current owner to sell at a low price. The buyer needs to take time and check the following before proceeding with the purchase:
a) the market and prevailing competitors
b) evaluate the business’ risks and benefits
c) consult with customers and suppliers alike
d) obtain as much information about the business as possible
e) check the traffic in and out of the business on a typical day
Evaluate Accounting Policies
The accounting policies are worth evaluating. It is not strange to find owners who embrace new accounting policies with the sole aim of showing that the business is performing wonderfully, when it is not. The efficiency of the accounting system that the owner has put in place should not fail to undergo a thorough examination. The date in which the last audit took place is critical to the successful negotiations for the sale or purchase of an existing business. If the last complete audit took place more than half-a-year ago, do not hesitate to ask for a new one. If the seller has nothing to hide, he would not hesitate acceding to such a request.
Auditing All Employees
Finally, an audit of all employees is a requirement worth fulfilling prior to buying or selling an existing business. None of the legal issues affecting the business should remain hidden. Identify the legal owner of all main assets. The buyer should make his initial offer after understanding his exposure or level of risk. The buyer and seller should negotiate the appropriate goodwill for the business, which is a common practice in Australia. Depending on the agreement between the seller and buyer, they might settle on an arrangement that allows the latter to purchase the business now and pay later. Some owners prefer arrangements where buyers pay lump sum.