Buy or Sell a Business

Are you considering buying an established business? A Franchise? You may be thinking its time to hang up the boots and sell your business. There are many things to consider while you weigh up the advantages and disadvantages of your decision.

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Buying an Established Business 

If you plan to buy an existing business, carefully analyse both the advantages and disadvantages. 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. As a prospective business owner you should determine the current worth of the business and its future prospects. Some important considerations are:

  • Vendor - reason for sale of business
  • Sales - patterns, trends, customer base, current suppliers
  • Costs - fixed and variable costs, staff costs
  • Profits - analyse financial records, future cash flow and profitability
  • Assets - identify and check all assets, including intellectual property and leasing arrangements
  • Liabilities - outstanding debts, refunds and warranties
  • Purchase agreement - review carefully
  • Tax - GST, Capital Gains Tax, stamp duty implications

There are many legal issues to consider starting with leases and business structure, right through to draft purchase agreements. Other legal issues to consider: 

  • Investigate employment agreements in relation to staff you may wish to employ.
  • Check licences, patents and trademarks.
  • Investigate the WorkCover claim record of the business.
  • Inspect contracts for current and future work with customers.
  • Check for any outstanding litigation.
  • Restraint of trade clauses.

Remember agreements are legally binding and documentation should be checked by your solicitor. You should also seek accounting advice in relation to all the records for assets and liabilities, taxes and financial elements. Our Business Directory may assist you in finding these professionals.

Buying a Franchise

Buying a franchise gives you the right to run an established business and sell its products and/or services for a specified period. Before you buy a franchise, consider the same issues as when purchasing or starting any other business, along with issues specific to franchising such as what happens if the franchise or franchisor fails.

It's important that you understand that once you have entered into a franchise agreement you are legally committed to run the business according to the requirements set out in the franchise agreement and the franchise operating manuals. You’ll also be bound by the mandatory Franchising Code of Conduct

Selling A Business

Selling your business is one of the most important decisions you'll have to make. Deciding how much your business is worth is one of the main issues you'll need to consider. Other factors to consider when selling your business include when is the best time to sell and whether you should make use of a broker or other professional to maximise selling opportunities.

Unsure how to Value your business?  There are a number of methods for valuing a business, including valuing the goodwill component. To realistically value a business you need a good understanding of the marketplace. Over a period of time an industry usually develops its own rules of thumb by which a business is to be valued. There are also formulas that can be used to arrive at the approximate value of a business. One of the most important factors to consider when calculating the value of a business is its future earning profitability.

Where to next?

If you are considering Buying or Selling your business, it is best to consult with the experts. Contact a Solicitor, Accountant and contact our team to book in with one of our business advisors at The Business Centre.

Looking for local a small business mentor? Check out the programs available for Start Ups and Growth Business.

View our Tips Tools and Templates page for a selling your business checklist.

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