Compare Loans To Buy a Business in Australia

Get the business independently valued by an accountant or business broker to ensure it’s a worthwhile investment. This will give you a clear picture of the business’ current market value and its growth potential. Getting a valuation may also give you an advantage in the negotiation process and when deciding what you’re willing to pay for it.

Do your financial due diligence by examining the business finances from the past three to five years. You’ll need the help of an accountant or auditor in interpreting the financials. Lenders will specifically look for proof of profitability, cashflow, sales forecasts and future revenue projections.

Conduct some research on the business and the market it operates in. This will give you an idea of how well the business is positioned, its reputation and potential within that market. Here’s what your market research could involve:

• Find out how strong the demand is for the business’ products or services. What are the competitors doing? Are there any strong new competitors or disruptive alternative products coming onto the market? How will the business be able to leverage new technology like AI, or will it be disrupted by it? Is there likely to be a need for their services in the future? If not, what could you do to keep the business fresh and relevant?
• If it’s a retail business you’re buying, with a physical store, check out the foot traffic. Drop by on different days and at different times to see how busy it really is.
• Check out the closest competitors and see how their traffic and profits compare to the business you’re thinking of buying.
• Speak to the people at the heart of the business — the customers. Ask them what they like and what they don’t like. Do they use any of the competitors and if so, why? Will they still be willing to support the business if you take over? If they’re unsure, what would it take to secure their business?
• Chat to suppliers and find out whether the business pays on time. How does dealing with them compare to their competitors?
• Talk to some employees to find out what it’s like working for the company and how receptive they are to the idea of new management.

Use the Australian Securities and Investments Commission (ASIC) business name register to verify the seller's ownership of the business and that they have full rights to transfer ownership to you. Business partnerships and joint ventures will require all parties to agree to a sale agreement and that’s when things can get messy. Also, be aware of potential intellectual property rights held by other businesses.

Always confirm the seller's intent and enquire about their reasons for selling the business. Some key questions to ask include:

• Is the owner in a hurry to sell the business within a certain period? If so, they might be willing to accept a lower price if you can meet their timeline.

• Is money the prime motivation for selling or do they have to sell for specific reasons? If so, what are they? The owner could be ready to retire or switch careers. Or there could be other undisclosed reasons like competitors taking more market share or an expected downturn in the industry.
• How much of the company is the seller selling? The whole entity, or just some or all of the trading parts? Will the current owner maintain an interest in its ongoing success.

After you’ve checked valuation, financial due diligence, and market research off your list, you can think about making an offer if you still want to go ahead with the purchase. You’ll enter into negotiations with the seller, and once both parties have agreed on a price, you can proceed with a contract to legally seal the deal.

The contract will outline the final price, financial terms and conditions of the sale. Make sure there’s a provision that clearly confirms your legal ownership of all key assets and that states that all existing contracts with suppliers, leases and land titles are to be transferred to you. If you will be borrowing to finance the purchase, ensure your legal representative makes the contract conditional on your finance being approved.

Once you’ve signed the contract, you can lodge your application for transfer of the registered business name with ASIC. Don’t forget to transfer any relevant permits, licences, registrations and certificates. Check the Australian Business Licence and Information Service (ABLIS) to see which licences you need to transfer.