Karen Quagliata Northern Tax & Financial Services
A healthy approach to that business acquisition. Do your due diligence!
The purchase of an already established business can have many advantages, but it can also have pitfalls if you are not aware.
THE first step in this decision is about you, and working out what is your best fit. You do not want to be putting yourself in a 7-day trading business if you are the type to sleep in everyday and laze around most weekends. You need to have the energy and get-up-and-go for any business, and a 7-day trader even more so. Once you find that business that is truly what your heart desires, the next thing is, can you afford it? Do you have some financial backing that is certain, and do you know your budget? These two variables are key to avoid time wasting. Once you know what you want and how much you can spend you can start shopping around for a business. Much like it’s wise to not go grocery shopping when you’re hungry, it’s also wise to not buy reactively or on emotion. Feelings can very quickly cloud your judgement so be sure to bring along a support person (or that colleague who’s your sound voice of reason), to pull you back if needed and help you see the bigger picture. However, you do need to listen to your gut instinct which plays a key role at this stage. When it comes to outlaying any amount of money... if it doesn’t sit well with you there may be a good reason why, so do your research. If you find the right business and the right price (or close there to) then you must do your due diligence. This helps you decide the business’ worth and prospects for the future. You need to ask why the business is being sold, any trends in sales, who are the customers and how loyal they are, who are your competitors? All businesses have operating costs, so what are fixed and what are variable?
Obtain a copy of the financial records, for as far back as you can. These numbers may not say too much to some people, but providing this information to your accountant can give you a lot of insight into the business by way of simply analysing the figures. What assets, plant and equipment make up the sale, are they listed at a reasonable price? Your accountant can also explain what taxes will be involved (Duties, GST, Capital Gains Tax), and should be involved in working with your legal team regarding leases/purchase agreements etc. The next step is to ensure you buy with the most appropriate structure (sole trader, partnership, company, trust) and if you do have a partner, make sure you do your due diligence on them as a separate exercise, to ensure they are the right person for you to be in partnership with! The most critical thing you must do, from the beginning, is plan. You need a well written plan, to give you every chance of success. This is the time you do the research. How you will invest and run the business? What you need to do as well as determine what your short, medium and long-term goals are. And even consider your exit strategy. Having a well written and executed plan is by far, the healthiest approach.
The information provided is general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of a qualified advisor before you make any decision regarding any products mentioned. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly Northern Tax & Financial Services Pty Ltd employees or agents shall not be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.
DUOMagazine August 2017