Are you considering buying a business in Australia? Whether you have been in the game for a while or just starting out, buying a business that is already in operation can be a fantastic way to step into the world of entrepreneurship. Let’s take a look at the process, help you understand the steps involved, and make informed decisions.
Should You Buy A Business?
Before we get started on the process of buying a business, it’s worth understanding why you might want to actually buy one. Let’s say you’re an experienced chef with a passion for baking. You’ve been working in various bakeries and have always dreamed of owning your own. Buying an existing bakery could be a great way to realize your dream without starting from scratch.
You could take over a bakery that’s already equipped with all the necessary equipment, has a loyal customer base, and a proven business model. You could then bring in your unique recipes and ideas to further grow the business.
At this early stage it’s a good idea to speak to friends, family and even a professional business advisor who can help you evaluate your idea of buying a business before you go down a rabbit hole.
Understanding How Buying A Business Works
So, you’ve decided that buying a business is the right move for you. But how does it work?
When you buy a business, you’re purchasing the ownership of an existing organisation. This includes its assets, such as property, equipment, and inventory, as well as its liabilities, such as debts and legal issues.
For example, if you’re buying a bakery, you’ll take over the ownership of the bakery’s equipment, inventory, and premises. You’ll also assume any existing debts or legal issues the bakery might have. The current owner might have purchased the oven on finance and might still have a few months left on the payment plan.
Types Of Businesses To Buy
There are many types of businesses you can consider buying, from retail stores and restaurants to service-based businesses and online companies. The type of business you choose to buy will depend on your skills, interests, and financial capabilities.
Continuing with our bakery example, if you’re a skilled baker and enjoy interacting and serving customers face to face, buying a retail bakery might be a great fit for you. On the other hand, if you’re tech-savvy and prefer working behind the scenes, buying an online bakery business might be a better fit.
Steps To Buying A Business
1. Identify The Right Business
The first step in buying a business is identifying the right one for you. This involves researching various businesses for sale, evaluating their potential, and considering how well they align with your skills and interests.
2. Conduct Due Diligence
Once you’ve identified a potential business to buy, the next step in buying a business is to conduct due diligence. This involves thoroughly investigating the business to verify the information provided by the seller and identify any potential issues.
A due diligence checklist can be a handy tool during this process. It should cover various aspects of the business, including its financial performance, legal issues, customer base, and market position.
For example, you might review the bakery’s financial statements to assess its profitability, check for any legal issues such as pending lawsuits, and evaluate its reputation among customers.
Conducting thorough due diligence takes some financial savvy. You need to be able to analyse a trial balance and interpret the numbers. Working with a business accountant can help you through this process. Note, it’s important that you leave emotion at the door at this step and look at the information objectively. Avoid buying a bad business because you were led by your emotions and not facts.
3. Negotiate The Purchase Price
After conducting due diligence, if you’re still interested in buying the business, the next step is to negotiate the purchase price with the seller. This involves discussing the price based on your assessment of the business’s value and your financial capabilities.
For instance, if your due diligence reveals that the bakery has a strong customer base and high profitability, but needs significant investment in equipment upgrades, you might negotiate a lower price to account for these necessary investments.
4. Finalising The Purchase
Once you’ve agreed on a price with the seller, the final step in buying a business is to finalise the purchase. This involves signing a purchase agreement, making the payment, and transferring the ownership of the business.
It’s a good idea to have a purchase agreement that outlines the terms of the sale very clearly. You could make the payment through a secure method or third party (like a lawyer) while the transfer goes through, and you’ll need to register the change of ownership with the relevant authorities.
Once the purchase has been concluded there are still a number of things you’ll need to do, depending on the business. This can include notifying suppliers and clients of the change, speaking with staff and a handover period.
Once you have taken ownership of the business, try and look for ways to optimise your business operations, this might be by outsourcing things like bookkeeping services, marketing, payroll or upgrading software to help you save time on tasks that could be automated.
Next Steps
Buying a business is a significant decision that requires careful planning and due diligence. However, with the right approach, it can be a rewarding venture that allows you to step into the world of entrepreneurship with a running start.
If you need more personalized advice on buying a business, don’t hesitate to reach out to us at Allevi8HQ. Our team of experienced business advisors can provide you with the guidance and support on how to buy a business.
FAQs
How much can I borrow to buy a business?
The amount you can borrow to buy a business varies greatly and depends on several factors, including the lender’s policies, the value of the business you’re buying, your credit history, and your financial situation. Read more on how to get a business loan here.
What are the risks involved in buying a business?
Buying a business comes with several risks. These include overestimating the business’s profitability, inheriting unknown debts or legal issues, and potential difficulties in integrating the business into your existing operations. It’s crucial to conduct thorough due diligence to mitigate these risks.
How long does the process of buying a business take?
The process of buying a business can take anywhere from a few weeks to several months, depending on the complexity of the business and the negotiations. This includes time for initial research, due diligence, negotiations, and finalising the purchase. It’s important to be patient and thorough during this process to ensure a successful purchase.
