The Ultimate Guide to Buying a Business in 2022
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Buying an existing business is an excellent way for Australians to start running successful enterprises and turning a profit.
When you buy an existing business, you can assess everything about the business to get a good idea of what exactly it is you're facing. In many ways, it can take some of the risk out of being a business owner.
However, for the uninitiated, purchasing a business in Australia can be a complex process that includes multiple time-consuming steps.
Is Buying a Business Right For You?
Before taking any further steps, you need to consider whether purchasing an existing business is the right decision for you. Running a business is a lot of work, even when you take more of a hands-off approach.
It's important to consider whether you're ready to buy a business, including assessing whether you have the necessary skills, if you have the funds, and what your goals for the business are.
Other things to consider include how much time you have available to dedicate to a business and whether you're prepared to work unusual hours, as well as whether you're physically and emotionally ready to take on the task of running a business.
Assessing your strengths and weaknesses will help you to determine not just whether buying a business is the right step but also which business could be the right one for you. Everyone has different strengths and weaknesses, and it's essential to be honest about yours before taking the leap and buying a business. Knowing where your skills or areas of expertise lie can help you to determine both if you should buy a business and which business might be right for you.
Are you the sort of person who is good with numbers, systems, processes, and being organised? Perhaps your strengths lie in marketing, sales or working with people, thanks to your confidence and charisma. Or you could excel at problem-solving and finding unique solutions which can elevate the business to the next level.
Get Expert Advice When Buying a Business
Anyone who is considering buying a business should get expert advice to help them make the right decision. When you get help from professionals with the knowledge and experience you need, they will also help you through the process of purchasing your chosen business. All of the complexities of buying a business are difficult to handle on your own, but you can get the assistance that you need from the right advisors and experts.
When you're putting together a team of professionals to help you, we recommend that you consider:
● A business broker
● An accountant
● A lawyer/solicitor
● A business coach
● A financial planner
● A marketing advisor
You don't have to know all that there is to know about buying or running a business. The most important thing is that you get the advice that you need to fill in the gaps. This is why it's important to be aware of your strengths and weaknesses, and what you do and don't know.
Valuing a Business
Valuing a business that you're interested in is one of the most important things you need to do. Paying too much could lead to disaster, and you want to make sure you can start making a profit as soon as you can.
There are many things that go into valuing a business. There's no set value for businesses of any size or industry. The key thing to keep in mind is that a business is worth whatever the market will pay for it. However, you still need to work out how much a business is worth to you and try to make sure you don't overpay.
To value a business correctly, you need to think about the return you expect to make from it. Like any investment, you want to come out on top, so you don't want to pay more for a business than you're likely to get back.
Using the asset valuation method, you can value a business based on all of the assets that the business has, minus the liabilities it has. You could also consider the earnings multiple method and the comparable sales method.
Another factor to consider when valuing a business is how much risk you are taking on. A business that is likely to be low-risk might produce a lower return, but you can be more certain that it will be stable long enough to help you start making a profit.
If you are looking at a business that is more high-risk, a higher return justifies taking on the risk of investing in the business. If two businesses earn the same profits, the riskier business may be valued at a lower amount to ensure a higher return.
The business you invest in should offer you some level of security. You want to know that your future earnings are going to make your investment worth it. The business might be earning a good amount now, but you need that to continue into the future. To make sure this is likely to happen, you should assess a few key factors.
● Tenure: is there a secure lease with enough time left on it to secure your future earnings?
● Staff: are the staff a good fit for you and will you be comfortable managing them? What's the staff turnover like and how happy are the current employees.
● Suppliers: check the current suppliers to find out what relationships with the business are like, and consider alternative suppliers and the potential to improve.
● Key clients: find out who the key clients are and how much the business relies on them so you can determine the level of risk.
Funding Your Purchase
Your finances will be a core point to consider when looking at buying a business in Australia. It's essential to be organised with your finances because many people end up making mistakes when deciding how much they have available to invest.
There are multiple acquisition costs that you will have to consider when buying a business. In addition to the purchase price, you will have to consider any stock that the business has, Stamp Duty, assignment fees, legal fees, accountant fees, capital improvements, and various other costs related to acquiring and getting involved with a business.
If you want to avoid getting your figures wrong, you should meet with financial advisors and business brokers who can provide you with the right advice. We recommend hiring experienced professionals who can give you a full picture of what you can really afford. This will help you to set your budget and purchasing strategy.
Carrying Out Due Diligence
Anyone who wants to buy a business needs to conduct due diligence to gather as much information as they can about the business. Due diligence involves looking at key aspects of the business, including its finances, operations, and legal documents.
Some of the things that you will need to check include:
● Licences and permits – Are the necessary licences and permits in place and are they up to date?
● Contracts and leases – Can you transfer the lease into your name or will you need to negotiate a new lease?
● Agreements – Are the agreements between the seller and suppliers that will be in place when you purchase the business?
● Equipment and machinery – What's the status of any equipment or machinery? Is it leased or owned, does it need to be licensed, and what condition is it in?
● Assets – What assets does the business have, both in terms of physical property and intellectual property?
● Inventory – What inventory is there and is it included in the price? How is it managed?
● Liabilities – What liabilities does the business have, such as debts?
There are many different things that should go into the preparation for buying a business. In addition to the above, you should also be sure to carry out financial due diligence. This should include looking at financial information for the last three to five years for the business. Work with an accountant to look at tax returns, business activity statements, records of accounts receivable and payable, balance sheets, profit and loss records, cash flow statements, and sales records.
You will need to really drill down into the business and how it functions to gather as much information as possible. You need to know how it operates, all about the people who help to run it, marketing, and more. Creating a business plan, as well as marketing and exit plans, are also an important part of research and planning when preparing to buy a business.
Where to Find a Business to Buy
Knowing where to find a business to buy is essential. Before deciding which business is right for you, you should spend time browsing, researching, and comparing different industries and businesses. You might already have an idea of an industry that you're comfortable with or interested in, or you might be more open to exploring different possibilities.
In today's digital world, many people's first port of call when looking for a business to buy is online. Online listings can give you a quick overview of what's available, including franchises that might be on offer. The friendly team at Benchmark Business Brokers are available to discuss your options and provide details of upcoming and off-market listings.
We recommending meeting with business brokers who are experts in your specific region or industry. You can find expert business brokers in the following locations:
Business Brokers Brisbane
Business Brokers Gold Coast
Business Brokers Sydney
Business Brokers Melbourne
Business Brokers Adelaide
Business Brokers Perth
Work with a Qualified Broker When Buying a Business
It's vital to approach the purchase of a business with care and attention. Therefore, working with a qualified broker is the best way to get the support and advice that you need. An experienced business broker can do so much for you, from helping you to find off-market listings and valuing businesses, through to ongoing support like connecting you with valuable business connections such as accountants and marketing agencies.
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Benchmark Business & Valuations has been helping sellers and buyers smoothly complete transactions for more than 20 years. Browse our listed businesses to start finding one that could work for you and your business goals.