Buying an existing business may be easier compared to starting one from scratch. You don’t need to worry about setting up equipment, finding suppliers, finding customers and negotiating contracts. Instead, you are buying into a business with a proven business model and have the ability to take over the business and make the adjustments you wish.
If you are planning on starting your small business by buying one, know that it is not as simple as buying and watching the money roll in. When you buy a business, you are essentially buying a business (maybe with employees), customers and vendors, real estate, office equipment and much, much more. Before you consider buying a business, you must:
-
Analyse the Market
The first thing you need to do is analyse the market of the business to decide if it is a good fit for you. To do this, you need to do your research on the business market, review the company’s financial reports, and meet the business’s owners, vendors, and employees. You need to ‘kick the tyres’ of the business and make sure it is a good fit for you. You may even negotiate a trial period where you work in the business for a week or 2. As an example, if you are purchasing a restaurant, you need to ensure that the market is growing and that the area has many potential customers – you need to get a feel for the daily bookings, capacity and walk-ins.
Talk to the team at MKS Group to assist you with this process to ensure that you have the tools to safely invest your money in a business to help secure your financial future.
2. Know How to Make an Offer
If you are purchasing a business and borrowing money, you will need to find a lender who is willing to finance your purchase. Finding a lender can be a daunting task, with so many options it is essential to find a lender that understands your situation and that is “business-friendly”. Teo Torrelli, Director of MKS Lending Group has been arranging Business and Franchise loans since 1985. He will work with the banks to get your loan sorted.
In addition, you will have to find out what other businesses are for sale in your area. What are the sellers asking for the business? How much cash would they require from you?
What are the tax consequences? What are the other fees that come along with the purchase?
3. Find a Way for the Business to Make Money for You
It can be in the form of a salary, or you can charge a fee for managing the business for the seller for a set period.
4. Business Structure
It is critical that you start the business with the right structure. This may be different for everyone, but in a nutshell, most businesses will operate through a Company and/or a Family Trust. There are many reasons for doing this, but the most important is Asset Protection. When you have worked so hard to build an asset base for yourself, you want to protect this when you enter the business world
While this is a critical step in the purchase process, the Team at MKS Group will be the ones to guide you through this process.
5. Negotiate the Contract
There will be legal documents to sign. You will have to agree on the purchase price, sales contract, financing arrangements, payment schedule and guarantees. If you are starting to feel overwhelmed with what is included in the purchase of a business, contacting an expert team of small business accountants can put your mind at ease. MKS Group are small business specialists and understand the unique challenges business owners face – and we deliver cost-effective service that helps your business grow.
Never discount the value of a Lawyer when looking at buying a business. Contracts need to be reviewed by a qualified Lawyer and so do Leases. The Team at MKS Group work very closely with a group of Lawyers who are well experienced in this area.
6. Get a Business Licence
You may need to get a business license or permit to operate your business. This will depend highly on the type of business you are looking at and whether it is regulated or not. To learn more about how to obtain a business license and the different kinds available, click here.
7. Pay a Visit to Your Tax Accountant
Once the purchase transaction has happened, you will need to ensure that you keep track of other business expenses. For this, you will need a system like Xero to record all the transactions and help with your lodgement obligations.
The experienced tax advisers at MKS Group understand all your business obligations and know how to help you legally minimise tax while keeping your ATO compliance up to date. They’ll make sure you have all your important documents lodged on time, every time.
8. Work on the Details
There are many different compliance obligations that you need to ensure you get right. Most importantly, is the documents for your Employees (if you have any). Things like Contracts, Employment Declarations, relevant Awards, etc, just to name a few.
We have a comprehensive checklist that we provide all new business owners to make sure that every ‘i’ is dotted and every ‘t’ is crossed. Missing one of these might cost you dearly in the future. Don’t be one of those business owners that pays ‘Stupid Tax’
9. Have a Business & Financial Plan
A Business Plan is a vital tool for any business owner. Not having one is like trying to get from point A to point B without a map or Satellite Navigation. The Business Plan is your roadmap to success. It is not rocket science, but it is something that needs a lot of thought and experience to put together.
The Team at MKS Group have done this over and over. We will work with you and your stakeholders to make sure that the Roadmap is one that can be easily followed without too many speedhumps or bumps along the way.
Conclusion
While buying an existing business is simpler than starting your own business, you need to understand the risks involved. You need to make sure that you buy a profitable business with a promising future. You also must ensure that you have enough money to purchase the company and operate the business.
Working with a small business accountant can also help you decide whether you should buy a business or start one from scratch. Having an experienced accountant on your side will also help you determine how you will manage your new business.
MKS Group has helped hundreds of new small businesses, contact the team to learn how we can help you.
