When buying a business,ideally you will undertake a number of tasks to ensure due diligence is properly conducted. Consider the below as a starting point to assist you in assessing the options that will best suit your circumstances and requirements.
Know yourself.Conduct a self-assessment upon yourself and others that you’re professionally associated with. What are your strengths, weaknesses and passions? What motivates you most about owning a business? Completing this task enables you to identify on paper any obvious synergies or red flags that will save you time when investigating businesses and assist to define yourself as an entrepreneur. For example, if you’re an expert in social media, purchasing a business that relies on sales conversions via these platforms makes sense as you’ll be able to maintain and hopefully grow this client base.
Check the paperwork. Although standard contracts of sale exist that are specific to each state in Australia, there is no obligation for them to be used. Therefore, take the time to read contracts thoroughly, or delegate someone to do so on your behalf; it’s an important exercise! Aspects of a contract such as restraint clauses and warranties can vary depending on the industry you are seeking to operate in, so be aware of what standards exist in your line of work.
Know your timelines. Contracts will contain a number of important dates. Look out for clauses that detail the specifics of any cooling off periods which are exercised should you wish to not go through with the purchase. Also keep an eye out for your settlement date, when you actually become the owner.Will there be a handover period where the previous owner will train you in their current procedures and accounts?
Check the lease. Remember to determine whether a transfer or renegotiation of the premises you wish to operate out is in order, or will be included as a part of your sale.
How will you pay? A common way to structure the purchase of a business is to pay in instalments. You may even wish to have a portion of the sale price held in trust and released after certain contractual milestones have been met.
Look in the books. Purchasing debt is not always unhealthy, but knowing the difference between the good and bad will potentially help you avoid a dud operation that requires substantial investment to be redeemed. Also be aware of any business loans or other costs that you may be required to pay when taking over. Also reviewing financial records, such as revenue, is vital!
Review roadblocks. Whether it be a complex risk assessment or competitor analysis, a sound method for identifying the potential of a business for sale is a crucial step. Knowing where you can improve will help you get off to a successful start when you take over ownership and give you a frank picture of what to expect if things don’t go according to your initial business strategy.