Buying a business basics

Author: Youth 2 Youth

Ask the tricky question

Why is the business being sold?

Sellers will offer any number of apparently legitimate reasons to explain the sale of their business. Don't be afraid to explore this issue - it could be that they're selling an absolute lemon!

Get some advice

Speak to both an accountant and a lawyer before you buy a business. You'll want to make sure the business is in a good state, so having experts check the figures is always a good idea. Plus your lawyer can help draw up contracts that ensure the old owners don't set up shop next door!

Whilst your accountant can tell you both the state of the business books and whether you are in a position to buy the business, your lawyer should be able to help you with issues such as business structure, the terms of the purchase agreement, trial periods, leasing agreements, zoning regulations and the legal requirements of the seller.

The price is right

Usually when you purchase a business you are buying the 'goodwill' associated with it, that is, it's reputation with current clients and suppliers. Take time to explore that it is good goodwill, and that the business does in fact have regular or repeat customers, and a good name.

You can determine whether you're getting a good deal by the state of the business sales figures, the pattern of spending that customers engage in, the current relationships with suppliers and by the true value of the stock. Will the business generate the profit needed to maintain or improve your current lifestyle?

Make sure you understand what assets are included in the sale price. Are they accurately valued and what are the depreciation costs. Are there leasing costs? What is the cashflow?

Contacts

• Business Buyers Guide www.businessbuyersguide.com.au
• Business Club Australia www.businessclubaustralia.com.au
• Buy/Sell A Business Australia www.bsab.com.au/BuyerInfo.HTM

'Copyright 2003 Youth 2 Youth'

Disclaimer: This article is for your information, but it may not apply to or be suitable for your situation, so seek professional advice. Youth 2 Youth cannot be held liable for anything resulting from how you use the information provided in this article.