Buying a Business

A easy to read summar of how to buy a business and the basic things to look out for

INTRODUCTION Buying a business can be a daunting task with many issues to consider. As well as understanding your legal and statutory position, you need to satisfy yourself that you understand the risks and responsibilities.

WHERE TO START Initially you need to assess the business. Buying a business will be required you to know its value. To attract you to purchase, you will more than likely be advised of some financial figures of the business. Be cautious of this and have the financial figures checked by your accountant. Your objective is to make a living and not to make your life more difficult.

Issues to address include any fixtures or fittings included in the value. Will there be stock involved in the valuation. What is the condition of the stock that you intend to buy. Also you need to consider the outstanding contracts that exist with the business, there could be phone lines, eftpos hardware or advertising contracts. There will also be outstanding obligations including invoices owing, details of change of business names and copyright or trademark of the business to update.

LOCATION Just as in real estate, the value of the business is dependant on location. Compare the difference between a coffee shop next to a train station and a coffee shop in a back street with little passing traffic. When looking to buy, always check the surrounding area. You will need to assess how clean the area is including neighbouring shops and logistics of how customers will come to your business. Businesses with high volume passing traffic tend to be more successful however you do have to realize the increased costs that may result of having a more prominent location.

Having assessed the business, it can give you an understanding of some of the risks and also provide you a reason as to why the vendor is selling.

DOCUMENTS The next stage is to obtain the documentation. A lawyer is important in many respects not only advise you of your obligations but to obtain the required documentation. This includes searches and reports. They entail additional costs but are essential to allow the transaction to be a smooth process and to point out any potential error that could affect your purchase. This includes details title searches, company searches of the vendor and whether there are any outstanding obligations imposed by the local council.

The details are important for you to budget for your overheads and gain some understanding of the risks involved in owning a business.

PREMISES The premises of the business will be either purchased or you will lease a premises from a landlord.

The benefit of owning the premises is the security that in the event your business should fail, you still have the premises that can be leased to another person.

If you are going to lease there are a number of factors that you should address including: • Term of the lease • Rent • Increase in rent • Outgoings • Insurance • Access to the premises

Term of the lease The term of the lease is important to know how long you will be able to operate from the premises. Be aware that you may want to have options to extent the lease. This will provide yourself more time to ability to build up the business.

Rent A major issue is knowing how much rent you will be required to pay. If you are unsure of what you should pay then ask a real estate agent and obtain their opinion.

Increase in rent Knowing how the rent will increase is also important. There are a number of ways it can increase including a fixed percentage, the consumer price index or market rate.

Outgoings These include rates, land tax and a proportion of body corporate fees where the location of the business is inside shopping centres.

Insurance Its vital to obtain insurance and more importantly the correct insurance. Often in the purchase of a business, a certain level of insurance must be obtain and available to be presented on demand.

Access to the premises Be aware of when you have access to the property. This is especially if the business is operated from a shopping centre or complex. Your trading hours maybe dictated by the body corporate and force your business to conform to their requirements.

CONCLUSION Buying your own business can be a rewarding opportunity however it is important to understand your obligations and risks.



Author Credits:

We at Lovegrove & Lord are able to assist in all aspects of owning your own business and recommend that you contact either Andrew or Antony if you require any assistance.

Phone: (03) 9600 3522 Fax: (03) 9600 3544 Email: antonyc@llcc.com.au andrewl@llcc.com.au

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