Buying or Selling a Business? Check Out These Key Tips

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If you’ve made the decision to buy or sell an existing business you must now sit down and work out the what, why, when and how.

There’s a multitude of items to investigate before you put pen to paper for each transaction, here leading online businesses for sale portal AnyBusiness.com.au runs you through both scenarios.

3 Essential Tips for Buying an Existing Business

1: Ask Yourself a Lot of Questions

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 need to 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?
  • History – What has and hasn’t worked in the business for the previous owner?

2: Make Sure You Are Paying the Right Price

  • There are many considerations that are taken into account when estimating a business’ worth including sales, costs, profits, assets, liabilities, tax and legal issues.
  • It’s important to get a real valuation of the business you’re planning to purchase
  • To help you determine a fair price, seek advice from a solicitor, accountant or business advisor

3: Consider a Franchise

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.

For advice and protection in buying a business we suggest that you seek the services of a solicitor, accountant or business adviser

3 Essential Tips for Selling an Existing Business

1. Make Sure Selling is the Right Decision

If you’re thinking of selling because of financial problems or because you find it hard to comply with government regulations, consider whether getting help or advice might put your business back on track.

You’ll also need to consider how selling your business will affect your personal and financial circumstances.

Consider using a reputable business broker or other professionals to help you sell your business, because the process can be time consuming and complicated.

Business brokers are professionals who specialise in buying and selling businesses. They can help you understand legal and government requirements and assist in establishing the right sale price.

The services of a broker may also not be as expensive as you think.

2. Finding Buyers for Your Business

You can advertise the sale of your business to potential buyers through a number of methods, including:

  • business brokers or real estate agents
  • advertising online
  • your existing networks (e.g. family, friends, or employees)
  • advertising in the newspaper
  • advertising in trade publications or using your industry contacts
  • word of mouth
  • notifying customers of your sale (as long as you’re confident it won’t harm your business if your customers know you’re looking to sell).

The way you advertise will depend on your business type, industry and contacts.

Check whether there are any requirements in your state or territory about what information you need to give potential buyers.

For example, if your business is in Victoria and is being sold for less than $350,000, you must provide a Vendor’s Statement (or Section 52 Statement) to all potential buyers. This statement gives recent financial information about the business and should be provided by your accountant.

3. Negotiating the Sale

When negotiating the sale, make sure the information you give about your business is accurate and true. If you say anything or provide information that is later found to be untrue, it may be considered misleading or deceptive behaviour.

You’ll need to agree with the buyer on a range of things, including:

  • the sale price
  • the deposit amount (usually 10% of the sale price)
  • the settlement period
  • handover training (if any) for the buyer
  • arrangements for existing staff

You may need to compromise on some things to get the best outcome. For example, if you’re keen to settle quickly, you could encourage the buyer to agree to this by offering a lower sale price.