How to Buy a Business in Australia
So now its time to take that big plunge and be your own boss. Where will I start? What do I look for? And for that matter what business will I buy? Will I relocate? Can I get finance? Who do I go to for the right advise?
These are just a few of the concerns when you decide on buying a business and believe me its not an easy road ahead, but with the right advise and the right business for you there are rewards unlimited to help you on the way to building a bank and a good quality of life. This article will help you all the way.
Important Points when Buying a Business
Every day I receive emails from purchasers and business owners needing assistance in selling or buying. I use my many years of experience in business sales and running a chain of shops to assist them in the right decision for them. It’s a bit like a psychologist really. Its just not a sale for me, it’s a dedication.
The first thing to remember is you must get it right the first time because the business you buy you should be in for at least 4 to 7 years. I advise my vendors and purchasers to give yourself a 4 year plan. You may love the business so much you want to stay longer but the majority of people are burnt out after 4 years and are looking for a change, especially if it’s a café or restaurant, and if you feel it’s wearing you down the business will suffer if you don’t sell then and of course you won’t achieve a good price if the business is run down.
Finding a Business!
I find in my business newspaper advertising brings me very little sales. My statistics tell me a genuine purchaser will go to the search engines to find a broker and scan the listings. We do use the papers to get our website name out there and this works to our advantage far more than a long expensive add that lasts one day. Our site http://www.bestbusinessbuyes.com.au is the most valuable tool we have and our journal Best Business Buys gives you months of good reading to give a purchaser information on how to buy and where. So scan the net under search engines business brokers, if you can not find a business on our site there are other brokers listed that may be of assistance to you. Or better still tell us what you want and we will go find it for you!
Anywhere in Australia.
Problems with Newspaper Adverts
You will often see a private add in the paper and you may think this is great, we will cut out the agent and get the business cheaper.
DON’T BE FOOLED!
Now I am not saying all private adds are no good, some may work out, but in my experience those people who try to do it themselves do it because they have either been burnt by an agent not servicing their business, so they think they will do it alone, or the profit is low in the business and they need a quick sale, or of course the common one the agents fee offends the owner and he thinks he can do it better himself. Or he may think the advertising costs to sell his business is less if he dose it himself.
When you are dealing with a private sale you feel uncomfortable saying what you really think, and uncomfortable asking certain questions so as not to offend the owner. With a broker you can be open and tell us all your concerns. We will work them out with the owner and rectify them if possible. We as the agents should now the business as well as the owners, that’s our job. I look at a business when I list it as my own and sell it as if it was my own. A good broker should be there to help you with that sale to the end. Too many owners who try to sell themselves end up in conflict with their buyers.
And after a few months of failures TRYING to qualify buyers he finds out it’s not that easy & worst of it he has given out his figures all over town for all the clients to see, so the business you are looking at has been exposed to untold people who may be using that information to start down the road.
The poor owner ends up coming to us anyway. Remember if you stay with the broker handling the sale of the business he should be the one to assist you all the way, and if that business does not work out the best for you he most often then not will find you another.
You Have Found the Business you Want to Buy!
The first thing you will need is finance. Are you already cashed up? Or do you need finance. Are you on a redundancy package? These are all the questions your broker should ask before you plunge into a sale.
We are financiers and finance most of the businesses we sell without supplying figures to obtain the loan. Remember the majority of businesses do not always show the true figures of the business but if you look back at the ad backs of that business the business may be a very viable business. Most accountants will reduce the net profits for a business, so the tax implications are not so high for that business. If the adjusted profits are good the business is saleable and your broker will advise you of this at the time. But never, ever buy a business on hearsay of the takings, if its not in BALACK AND WHITE in the accountants formatted profit and loss statement then its not considered saleable. Never buy unseen profits.
For finance to buy the business you will need to complete an application. This way you will know how much you can afford to borrow on the business you are looking at. Not all Brokers are financiers! We are and sell businesses because of it. We use a financier who lends without looking at the figures of the business you are about to buy. But with other institutions such as banks or private lenders you will need the following.
We will arrange finance for you without an up front fee. Most finance brokers charge a fee of between $3,000 &$ 6,000 to get you your finance. We at Arwon Realty do this FREE because we are paid on settlement to sell the business by our vendors (owners). It is in our best interest to get the finance for our buyers so we in turn can get the business sold, and therefore offer a better service to our vendors when listing their business. We finance 90% of all business sold!
What will I need to supply to my Finance Broker?
– Profit and loss statements of the business you are purchasing
– Bank statements for your own personal accounts.
– Pay slips of your current employment or if self employed a profit and loss statement for the past three years of trading
– Mortgage documents for your existing home or properties
or sales contracts for freehold you hold in your and your partner’s name.
– Personal information, date of birth or passport (photo copy of drivers license)
– CRA credit check (you can do this yourself for a cost of $29.00)
– The rates notice of the homes in your name
– Liability and asset declaration.
– The amount you needed to borrow (You must include the cost of solicitors for advise and contracts.)
Accountants advise: Do it! That way you know you are covered. I have lost many sales from Accountants advising their clients not to buy and seen many unhappy buyers losing out on a sale because an account has breezed over the figures and said no don’t buy! But at least if you do take the plunge and buy anyway after you have had that advise you are assured you did get advice if something does go wrong. After all your accountant is paid to look after you and professional accountants will ring us or the vendor’s accountant to get the full story of the business!
There are good and bad accountants just like there are good and bad brokers. It’s important to check the licenses of all your professional people. Find out how long they have been in the profession and their experience in that field before engaging them.
We work with both the accountants while selling the business and are more than happy to answer all questions relating to the business in question. We will also arrange appointments for your accountant to speech with the vendor’s accountant if required.
It’s always wise to stay with the accountant who handles the business you are purchasing, that’s if he is a helpful accountant, if he knows that business well. It’s a big plus to continue on with him, after all he is the one that will advise you when you are ready to sell.
Many people use more than one accountant today. I find a good accountant who knows a business well is a must to stick with it till the end. I have dealt will some excellent accountants. Two that come to mind are in my local town and are as good as any on this planet they are dedicated to their clients and have help me evenly throughout my last two sales (MCW Accounting Tumut, Paisley’s Accounting Tumut and Steven Walker & C.O Tumut) These accountants are totally dedicated to their client’s businesses and have enhanced the sale of two of the best businesses in town by showing truthful and accurate accounting.
Your Business Broker
As Brokers we will supply your accountant a profile on the business so its easy for him to understand. Always insist on a profile when looking at a business. This will give you all the information you need to convince you this is the right business for you. It will include all the statistics of the business and a good breakdown of the figures the reasons for the sale price, etc.
Your broker may ask you to sign a confidentiality agreement. This is essential to protect the vendor under the confidentiality act. Sign it and send it back ASAP. It does not commit you to buying the business. It is a mandatory requirement before you look over the figures. You will find your broker will not send you figures if you don’t sign.
If you have made your decision to buy the business be sure you are proceeding before you commit! Put in an offer only when you are ready to proceed. Is this is the business for you can you see yourself in for the next few years? Is the family happy with the move and the change, and most of all is the business viable for you?
I sold a produce store in Tumut recently to a buyer from Magnet Island who owned a bed and breakfast (would you believe), and they are just loving it and doing very well, so don’t be scared to take the plunge and move on. Most of our buyers are relocating and the stories I have to tell are just amazing!
Look around be sure the area is where you see yourself for the next 5 years. If you are relocating ask your broker to give you the statistics on that area, home prices schools etc.
As Brokers and licensed Business agents we pride ourselves on relocating people and finding them the best business for them, but it’s a big plus if the buyer has some idea of what he feels comfortable working in, and after we produce the information to him and his accountant we expect if all is OK he will proceed. If you have doubts tell your broker. Its unfair to hold up the sale for another interested party.
You will then need to sign an offer to purchase the business. We have a standard offer to purchase, this will give you the rights to proceed. The time normally for the option is one week from agreeing to proceed and this also takes the business off the market. It includes a deposit normally of 1% of the purchase price. This deposit is not refundable should you decide to pull out of the sale, unless it specifies subject to the reasons why you have pulled out.
So do your homework first! Be sure your accountant is happy with the figures. Your finance is approved and you are confident you are 100% proceeding before you signed on the dotted line.
Your broker will then issue sales advice to the Vendors Solicitors with all the conditions included that you require, such as the lease terms and training requirements. After they have looked over the advice and done their investigations for the sale they will prepare the contracts and send them to your Solicitor for exchange of contracts. You will need then to pay a 10% deposit on the business. This is normally arranged by the finance broker, if you have applied for finance, and can be done in a deposit bond or cheque. This is deposited into your agent’s trust account until settlement.
You should have a Solicitor picked out before you decide to look around so you are confident with him when you are ready to proceed.
At Arwon Realty we stick tight with the Solicitors through out the sale keeping in contact with them throughout the progress all the way for a smooth settlement.
The contracts should take no longer than 2 weeks to prepare and when the exchange of contract takes place this means you now are totally committed to purchase this business. Any problems should be sorted out between the two solicitors in this time.
The contracts are exchanged between the two solicitors and settlement should take place in the next 2 – 4 weeks. Business sales are always longer than the normal residential sales as the solicitors are responsible to see you have a new or exchanged lease for the business. If the property is included in the sale a 149 certificate (zoning and compliance certificate) must be sort by the council to check out the compliances with council this take longer than normal.
Before settlement you have 2 weeks prior and 2 weeks after settlement for training. Your vendor must give you this time to help you understand the running of the business. We advise the training is done after settlement so both parties are not showing their nervousness while running the business. This could cause the customers to feel a little uneasy.
We advise our vendors not to inform the staff of the sale until exchange of contract for the same reasons. Your finance must be in the solicitor’s office 48 hours before settlement for a smooth transaction. Your agent will hold the deposit of the business 10% on exchange of contract and this will be in her trust account until she receives an order on the agent from the solicitors on both sides.
We will be there with you for the stocktake. Now some businesses advertise their business WIWO. That means whatever the stock is in the business when you take over is yours and we don’t count the costs of the stock on settlement. If the add states + stock then we have to stocktake before settlement and this is done before mostly the evening before, after close of the till, with both present and an independent person to help with the stocktake.
So now you are the proud owner of a business that should if your broker has worked for you be the best asset you now have and we wish you all the very best of luck and look forward to the day we can asset you in selling for a higher profit!