Planning to Purchase A Business? Here’s Your Step-by-Step Guide
With technological advancements and easy access to information and resources, venturing into entrepreneurial endeavours has become easier than ever. However, establishing a business from scratch can also be a challenging task.
So, if you want to become a part of the expanding entrepreneurial realm, buying an existing and successful business can be a great choice. This is because purchasing an already existing business saves significant cost and effort required to establish, nurture and grow a new business.
It is a common misconception that purchasing an existing business can involve exorbitant upfront costs. In reality, establishing and running a business also involves significant financial expenditure.
With proper research and professional advice from a qualified business lawyer, you can make the right decision to purchase a business and get valuable returns from your investment.
5 Practical Steps to Buying A Business
1. Check your readiness for purchasing a business
Running a business can require many complex tasks, requiring the implementation of various strategies to ensure your success. Additionally, you will need to maintain a high level of discipline to ensure seamless operation of the business.
Before purchasing a business, it is recommended that you consider the following elements to evaluate if you are ready to own a business:
- Do you have the correct skill set to start a business?
- What amount of time will you need to invest in a business to make it successful and thriving? Do you have the liberty to invest the required time?
- Are you physically and mentally prepared to manage unusual work hours and time demands?
- What are your personal goals for starting a business?
- Do you have the required finances to invest in a business and to make it successful?
- What are the tax implications and legal outcomes of purchasing a particular business?
- A business plan to manage the cash flow to ensure you have clear goals, those goals are achievable and you monitor them and ensure you reach them.
A corporate lawyer in Australia can help you identify the legal and tax implications associated with purchasing a business.
2. Identify and Select the Right Industry
The next step in purchasing a business is discovering and selecting the industry which aligns with your skill set, experience, and educational qualifications.
Here’s a list of questions that can help you identify and select the correct industry:
- Do you have experience working in a particular industry?
- Do your skill set, expertise, and educational qualification give you a competitive advantage in a particular industry?
- Do your skill sets, and know-how give you a competitive advantage in this industry?
- Is the industry you are planning to invest in expanding or shrinking?
- Do you have the necessary financial arrangements to acquire a business in the industry?
- Have you explored cash flow and done cash flow projections to ensure viability of the business?
Once you find the answers to these questions, you will have a precise idea of whether the industry in which you plan to buy a business is a good fit for you. Moreover, hiring lawyers from the best law firms in Australia can help you to identify the best industry for your venture.
3. Do extensive research
Doing your research is critical for making any significant investment, and buying a business is no exception. We suggest taking the following steps:
- Understanding the business’s market reputation and the growth potential you are planning to purchase
- Getting in-depth information about legal liabilities and frameworks connected with that particular business; you can hire a commercial lawyer for this purpose
- Performing market research to help you identify the customers and the particular market it operates
- Interacting with existing customers (this is applicable to B2B companies), employees, and management executives to get an idea about the company’s performance
4. Conduct Due Diligence
Here are a few components to focus on when you shortlist a company/business:
- The correct and detailed legal identity of the seller
- Assets of the business and confirmation of the asset ownership
- Financial records, balance sheets, tax returns, etc. to assess liabilities and cash flow
- Whether any guarantors will be required during the transaction process
- Who will function as covenantors on elements such as warranties
- The detailed business operation and revenue plan
- Legal documents
- The profitability of the business
- Business liabilities
- Company perception within the marketplace
- A comprehensive and data-driven review of historical and forecasted sales figures
- The operational costs of the business
- The employees of the business
- Key contracts and leases with suppliers and/or clients.
- Licenses and permits
- Status of business-owned infrastructure
- Inventory of stock in trade and/or fittings and fixtures
- Tax benefits
- Are you taking over the company operating the business or simply buying the business?
A business lawyer can also help you make the best decision in your research stage.
5. Make an Offer
Once you have correctly valued the business and performed the required due diligence, it’s time to make an offer. Before reaching an agreement, it is recommended that you negotiate the final purchase price with the seller.
A corporate lawyer in Australia can help you draft the correct documents for negotiations and the final offer.
After you and the seller agree on a particular price, it is necessary to create a contract to make the agreement legally binding. The written contract ensures that both parties understand and agree to each and every contract term.
Moreover, the contract you draft should also document the final cost and the mode of payment, the time frame for completion, what exactly is to be provided on completion and any ancillary or conditional agreements or conditions precedent (such as a Lease). Working with the best law firms in Australia will help to make sure that your contract is correctly prepared with the least loopholes.
Although the process of purchasing a business can be quite overwhelming, there are steps you can take to make it less stressful. Above all, it is very important to be aware of all the potential issues to protect yourself and your investment.
Therefore, hiring a corporate lawyer to streamline your business acquisition process can be the optimal way to ensure the success of your venture.