TACKLING THE PROCESS OF BUYING AND SELLING BUSINESSES - WHAT QUESTIONS GET ASKED THE MOST!

As experienced brokers we hear questions from business owners and potential buyers on a daily basis. Often it is the first time someone has bought or sold a business so it’s natural they want to understand what is involved. Here are the most common questions we get asked at SOT Business Brokers.

WHY BUY A BUSINESS THAT ALREADY EXISTS INSTEAD OF STARTING ONE FROM SCRATCH?

What you are buying is a proven track record. An existing business has infrastructure, financial history, brand power, assets, staff and more. Some estimates say that one in three new small businesses in Australia fail in their first year of operation and two out of four by the end of the second year. By understanding the history of an established business, you are mitigating the risk of starting from scratch.

THE BUSINESS SOUNDS GREAT, SO… WHY ARE THEY SELLING?

The reasons for sale differ from business to business but don’t be afraid to ask us why the seller has decided that now is the right time to sell. Some owners wish to retire in the near future, others are relocating out of Perth. Some sellers simply had an end goal to sell after they had built a successful business – allowing them to move on to another venture. Sure, some owners wish to sell when their business when it is in financial decline, however potential buyers will be made aware of this. We operate with full transparency and in order to sell a business, we require a seller to provide full financial information which is available to potential buyers after they have been vetted and signed a NDA.

IS BUYING A FRANCHISE A GOOD IDEA?

There has been a boom in franchising in recent years – you can find a franchise for sale in almost every industry. Unlike setting up your own business, when you buy a franchise the franchisor owns the brand, intellectual property and associated operating systems. You will benefit from a wellknown brand, typically with a long history and a good reputation. The business model is established, so you will get access to refined procedures, operating manuals, stock control systems, financial systems and more. Franchises also tend to have good initial training, ongoing support and assist with marketing/advertising. There are many benefits and disadvantages of buying a franchise.

WHEN CAN I SEE THE FINANCIALS?

The majority of sales with SOT Business Brokers Perth are confidential sales and as such potential buyers are vetted to ensure they are serious and then they will be asked to sign an NDA (non-disclosure agreement). Once signed, you can review the business summary with headline financials. If you’d like to see the full P&Ls and financial picture, simply get in touch to arrange a meeting with one of our business brokers.

HOW TO VALUE YOUR BUSINESS – WHAT IS YOUR CALCULATION METHOD?

SOT Business Brokers Perth has a highly experienced team with strong financial backgrounds. The discounted cash flow valuation is still the most common methodology used when determining how to value a business and we review in detail the P&Ls (profit and loss statements), cash flow, asset and equipment value. We also take into account industry trends and competitor influences.

HOW DO I MAKE A FORMAL OFFER TO BUY A BUSINESS?

An offer is formalised with an ‘expression of interest’ form which we will supply you with. This is a non-legally binding document but ensures everyone is on the same page. This outlines what an offer will be, along with any terms and conditions that would be included/ excluded with the sale.

WHAT HAPPENS IF MY OFFER IS ACCEPTED?

If an offer is accepted a deposit is payable and a settlement date is set. Due diligence is completed subject to the buyer’s satisfaction. Depending on the business this could be very simple or more complex for larger businesses.

WHAT IS DUE DILIGENCE AND WHO IS RESPONSIBLE FOR IT?

The buyer can ask any questions they would like to understand the full business picture and get the confidence they need to continue the business. For example; can the claimed revenue and profit be verified? You may also wish to see legal agreements such as licences, permits, insurance policies, lease agreements, employee contracts, supplier contracts and more. The seller is responsible for collating any additional information that the buyer requires. A solicitor and accountant can be engaged at this point for any professional advice. How long the due diligence process takes really depends on the business but you should allow roughly 15-30 days minimum.

WHAT OTHER COSTS NEED TO BE CONSIDERED APART FROM THE PURCHASE PRICE?

Does the purchase price include SAV (stock at valuation)? Note that the calculation uses the wholesale value. Other costs to be aware of include; stamp duty, fees for any third parties you engage such as an Accountant or Lawyer, assignment charges (lease application fee, assignment fee, rental bond, franchise application fee, training fee), loan establishment fees, initial working capital and more.

CAN SOT BUSINESS BROKERS HELP WITH FINANCING?

We can put you in touch with people who may be able to help, just let us know if you’d like some recommendations.

CAN SOT BUSINESS BROKERS SUPPORT WITH TAXATION AND SUCCESSION PLANNING?

Yes, SOT are partnered with Forrest Private Wealth who are a highly experienced team of financial planners who can advise in taxation and succession planning. Many businesses wait until a crisis occurs before success planning is considered. You may be in a great partnership now but what if things change down the track? Start the important conversation while everyone is happy and on the same page.

Got any questions? Contact SOT Business Brokers Perth today.