Buying a business
It’s generally less risky to buy an existing business than to start one from scratch. However, buying a business can be complex and is best done with the help of professional advisers, such as an accountant, solicitor and/or business adviser.
Buying a business with a proven track record means you have a better chance of succeeding and can make it easier for you to obtain finance.
The possible disadvantages of buying a business can include inheriting a poor public image, being misled about the success of the business or outstanding debts and other liabilities.
Find out more about things you should consider when buying an established business.
Steps to buying a business
1. Assess the business
- Determine the financial health of the business by going through financial statements, income tax returns and assessments, and asset and liability valuations.
- Evaluate the current and future condition of the resources, including availability of products, lease arrangements, condition of the premises, and the skills and capabilities of any employees.
- Understand the market by researching competitor influence, customers and whether the industry is growing.
- Get an accountant or business adviser to undertake an independent evaluation.
- Obtain a copy of the vendor's statement, which should capture any matters currently or prospectively affecting the business being offered for sale. It must include:
- purchaser's cooling-off rights
- trading statement for the past three financial years
- information about any land being purchased
- if land is not being purchased, information about the lease or tenancy agreement relating to the business premises
- the business structure – eg company or sole trader
- information on plant, equipment and stock related to the business and current staffing requirements.
2. Evaluate the business
- The evaluation should indicate the potential of the business and enable you to make sales, profit and cash-flow projections for at least the next 12 months.
- At each stage in the process, seek appropriate professional advice from accountants and solicitors, as well as from bankers, insurance brokers, trade associations and neighbouring business people.
- Many complex commercial, legal and taxation issues will arise during the course of a purchase. Beware of a vendor who does provide the required information.
3. Negotiate to buy the business
- Don’t accept the vendor’s representation on face value – ensure sales and other data are verified.
- Consider the likelihood of overcoming any problems the business may have and the impact making changes may have on customers and employees.
- Use as many sources as possible to determine the correct reason for the business being on the market and for how long.
- Enter into a confidentiality agreement for all information provided by the vendor and for the terms of the sale.
- Ensure you have enough cash in reserve for working capital and contingencies.
- Work with the vendor to establish the price and terms for purchasing the business to ensure you achieve a fair outcome.
- Don’t be afraid to seek concessions on price or terms and be sure to purchase based on objective rather than emotional terms.
Buying into a franchise gives you the right to run a business and sell its products/services for a specified period.
If you already have a business and are looking for ways to move into a new market, franchising your business can help extend your reach.
Find out more about franchising.
On external sites
- Starting your business – Department of State Development