Buying an existing business is a major financial decision that should not be taken lightly. There are a range of things you need to know and do before you decide to purchase a business.
What you need to do before you buy
It is crucial that you do your due diligence from an accounting and financial perspective before you make any acquisition You should seek independent, professional advice to help you assess any financial information provided to you or claimed by the current business owner.
Key accounting and financial information to assess and confirm includes:
- business profitability and cash flow.
- the current value and age of existing business assets.
- the existing debt level (if any) of the business.
- revenue and expense budgets and forecasts.
- the details of any existing supplier or customer contracts.
What to look out for
Buying a business is a important financial decision. Be especially wary of the following situations:
- when a seller is reluctant to provide full disclosure of key information in writing;
- the business is in a declining industry; and
- the business relies only on a few large customers who have other options.
The team you need to buy a business
Buying a business requires business, financial and legal expertise. Specialists that you may need on your due diligence team during the business research and buying process include:
- an experienced business advisor/broker and accountant for your industry
These specialists will understand key financial and other metrics for your industry and will be able to analyse the current performance and value of the business you intend to buy. They will also be able to help you identify any potential risks of buying the business before you make your decision.
- a legal specialist
A lawyer who is experienced in helping clients to buy and sell businesses will be able to help you understand your rights and obligations under any legal documents associated with your purchase before you sign them. For example, the business contract of sale and any lease agreement that may be applicable. They can also assist you in the due diligence process.
- a business finance specialist
A business finance specialist or broker will help you determine your finance needs and help you to identify lenders offering the most favourable terms and conditions.
Benefits of buying a business
Firstly, let’s look at the potential benefits of buying an existing business. They include:
- Potentially easier access to finance
Lenders are more likely to lend for the purchase of an existing operation with a proven revenue stream rather than to a startup business.
- buying into an existing customer base, revenue stream and supply chain
If you start a new business, you will not have this foundation.
- access to existing staff and business systems
This can save you the time and money in terms of staff training and setting up all your operating procedures from scratch.
- an increased likelihood of success
It is important to understand that the failure rate of start-up businesses in Australia is high. According to the latest figures, nearly half of all new businesses fail within the first four years. If you buy an existing business that has survived the test of time, then you may avoid this potentially risky time.
How we can help
Our business professionals at Wilson Pateras can help you analyse the performance and value of the business you intend to buy, answer any questions regarding the process of buying a business, and assist you with the next steps forward regarding the purchase.
This content has been prepared by Wilson Pateras to further our commitment to proactive services and advice for our clients, by providing current information and events. Any advice is of a general nature only and does not take into account your personal objectives or financial situation. Before making any decision, you should consider your particular circumstances and whether the information is suitable to your needs including by seeking professional advice. You should also read any relevant disclosure documents. Whilst every effort has been made to verify the accuracy of this information, Wilson Pateras, its officers, employees and agents disclaim all liability, to the extent permissible by law, for any error, inaccuracy in, or omission from, the information contained above including any loss or damage suffered by any person directly or indirectly through relying on this information. Liability limited by a scheme approved under Professional Standards Legislation.