Buying a business | 4 min read
Knowing where to start when buying a business or franchise can be tricky. So we’ve created this business buying checklist to help.
- Confirm business fit – do some soul searching and decide if, at face value, this business suits you. Consider the industry, income, flexibility and any other factors that are important to you as the potential business owner.
- Conduct online research – do some thorough internet searches to see what you can uncover and learn as much as you can about the business.
- Verify the seller – get the name and details of the seller, and their personal references. Check everything. You should also review the ownership documentation of the business to verify the vendor. Find out why they’re selling and ask as many questions as possible.
- Check the business’s reputation – check with customers, suppliers and credit reference associations.
- Analyse competitors – look at local competitors and where this business fits in. Who are they, where are they, what do they offer and how do they compare?
- Identify opportunities – find any growth opportunities for the business and think about how it might be successful in the future. Will you be able to increase sales with current resources? What is the viability of the business in the future?
- Gather a team – get the help of business professionals like a lawyer, accountant or business advisor. They will be able to guide you on the buying process and help you perform due diligence.
- Examine the assets – get a comprehensive list of the assets being sold and verify their condition. Check they comply with all the relevant regulations including occupational health and safety. If any of the assets are leased, are the terms reasonable and can you take over the existing leases or will they be paid out by the vendor?
- Review intellectual property – obtain a list of intellectual property including all trademarks, patents, brand names, logos, etc. and verify ownership of these.
- Study the business finances – get the businesses financial accounts for the previous three years (at least). Study them and get your accountant to take a look. Figure out if this business fits your budget.
- Inspect the premises – obtain copies of any leases for buildings relevant to the business and visit them if you can. Determine if you’ll be able to continue to operate the business at these premises and that the terms of the lease are in accordance with market conditions. Will any new or planned developments nearby affect your trade?
- Review stock – does existing stock include old, unsaleable goods or items that are no longer fashionable? Have existing stock levels been run down? If so, you may need additional cash flow to build up to a reasonable trading level.
- Investigate insurance details – check that all the taxes, insurances and WorkCover premiums are up to date. Are the assets adequately insured? Are you able to obtain similar insurance?
- Check permits, licences and contracts – have you checked with the relevant authorities in relation to permits or licensing obligations in respect of the business and the premises? Are the permits and licences transferable?
- Understand contract transfer –review material contracts and determine whether those contracts can be transferred to you.
- Get employee details – obtain a list of employees including full salary and entitlements so that you can verify the employment costs against the financial accounts. Will key staff continue employment with you? What if they don’t? How long will it take to recruit new staff if the current ones leave and will this affect the business?
- Review customers – look at customer lists to determine the strength of the relationship between the customers and the business.
- Secure finance – when you’re ready to firm up your interest in a particular business you’ll need to prove that you can pay for it. If you’re applying for a bank loan, you’ll need to provide evidence of the business’s success and be prepared with information like a business plan, and finance history.
- Get legal advice – get a qualified practitioner to manage the Contract of Sale, leases and any documents that relate to the employees.
- Check the contract – the draft Contract of Sale needs to include comprehensive warranties, such as when the deposit is due, when settlement will take place and other important obligations. These guarantees need to be thoroughly checked before you sign anything.
- Understand the non-competition clause – does the Contract of Sale include a restraint of trade clause binding the vendor and its directors to not compete for a period of time and within a certain distance of the business?
- Review approvals – if the purchase is subject to approval of finance by your financier, a relevant condition should be incorporated into the Contract of Sale.
Wondering what else you should consider when purchasing a business? Check out our ultimate guide on how to buy a business.