The established infrastructure and ongoing cash flow is the main reason why most people buy small businesses rather than starting a new one. However, setting up a brand new small business is equally risky. Buying a reputable small business in Australia is complicated, thus; a buyer must administer proper assessment before finalising the buying decision of an established small business.
Let’s take a look at few points that must be considered before buying a small business in Australia:
Is it right to buy an existing small business in Australia or start a new one?
Buying an existing business is always better than starting a new business right from scratch. Studies show that buying a well-settled business is better than starting a new one, however; there are pros and cons of both the scenarios.
When you buy an existing small business, various things are already attached to the business. While on the other hand if you start a new business, you have all the authority to make decisions and do things according to you. However, both the businesses have their own risks but buying the one which is already established has better rewards.
Things to examine before buying an established small business
Buying an existing business is a big decision to make. Hence checking various things becomes imperative. The most important thing you need to remember is that when you a buy an existing business you also buy the attached capacities and concerns. And you may also need to assess the business restructuring and revamping needs. Also, being the buyer, you must jot down the necessary elements that should be considered before taking the final step. There can be various things you would want to consider such as location, employees and other staff, terms and conditions of the business etc.
Establish your reliability
The owner of the business that you are buying must be sure of your reliability. Formally registering yourself in buying the business will help in increasing your credibility in the market. Get in touch with the business advisers, lawyers and brokers that the owner has to register your interest.
Analyse the seller’s objectives
You need to understand your seller before buying his business. Let’s take a look at few questions that you must seek to know your seller better:
- What is the prime motivation for selling the business- money or any other reason?
- Is the owner of time pressure for selling his business?
- Is the owner selling a company that holds both the trading part and the building or just the trading part of the business?
The biggest advantage you will get is in the negotiating process if you will be able to cover the seller’s motivations.
List down all the advantages and disadvantages
You must go through a critical analysis of the existing business and look at all the advantages and disadvantages for the same. This may include pricing, employees and staff, inventory, location, Business image, Consumer base, suppliers and distributors, financial arrangements, equipment, marketing strategies etc.
Proper assessment of the current and future value of the business
The main aspect that the probable buyer should know in detail is the current and the expected value of the small business he is buying. The buyer needs to consider things like work in progress, assets, cash flows, liabilities, opportunity costs, commercial life of the business and other financial aspects to get the financial worth of the small business for sale.
Conducting customer analysis is as crucial as other aspects. Generally, it is seen that small business sales rely on a minimal base of customers, and the customers have one to one relationship with the small business owner. Such businesses have a high risk of losing the customers once the business is sold to new owners, hence directly dropping the sales. Therefore, it is important to evaluate the current customer base loyalty and commitment to the product and service the small business is offering.
You need to check the tax history thoroughly as a small business Australia is also required to pay tax under the Australian law. Different governmental organisations will help the potential buyer to understand the existing small business tax requirements.
If you are planning to buy an existing small business, cautiously evaluate these factors which are likely to impact the future of the business.