Buying an existing business can be more advantageous than launching a startup as it has an established infrastructure and immediate cash flow. Learn all about how to buy a business in Australia.
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People want to start their own business for many reasons. It could be a passion project that you want to monetise, an itching desire to leave the nine to five gig you’ve been doing for years or simply an entrepreneurial mind that is hungry for a new challenge.
As well asstarting a new business from scratch, buying an existing business is another viable option. Buying an existing business can even be more advantageous than launching a startup as the cogs in the wheel are already turning.
That said, buying a business can be complex so it’s crucial to do your homework, ask the right questions and assess whether it’s the right avenue to go down.
On this page, we’ll delve into the pros and cons of buying a business and what each stage of the process entails.
Buying an existing business isn’t for everyone, and it comes with benefits and drawbacks that you’ll have to weigh up carefully.
The benefits of buying a business:
The cons of buying a business:
Below are some of the pros and cons of buying a franchise business.
The benefits of buying a franchise:
The cons of buying a franchise:
The process for buying a business may be slightly different for every buyer, but it usually involves the following steps:
1. Assess whether you’re ready to run a business
Running a business is no small feat. Not everyone has the time, discipline or money to keep a business running smoothly. The first step is understanding if taking on a business is right for you. Ask yourself the following questions:
The key is to be honest with yourself.
2. Review the options for buying a business
The next step is to identify which type of business is right for you, i.e would you prefer to be the owner of a:
Researching and understanding the legal structure and liabilities associated with each type of business will help you narrow down your options. This will largely depend on your personal preferences and financial circumstances.
As well as business type, it’s also important to outline preferences such as:
3. Research
Once you’ve found a potential business to buy, you need to approach the research phase with a fine tooth comb. Put on your inspector hat and be strategic in your approach to determine the overall health and outlook for the business.
Key considerations in your research are:
4. Complete due diligence
Due diligence is crucial in determining the nitty-gritty information relating to financial and legal matters. It’s essentially an investigation into knowing exactly what you’re buying and the risks it involves. Key items on a due diligence checklist include:
The questions you need to ask as part of your due diligence will depend on the nature and industry of the business. But on a general note, the key questions to ask before buying a business are:
Financials to request and review include:
5. Value the business
There are many ways to value a business, one which is to look at its intangible assets. Intangible assets include intellectual properties, a brand name's goodwill and customer loyalty. There could also be a new product or service in the pipeline which can score you a handsome profit.
6. Consider hiring a business broker
Business brokers are experts in helping you find the right business and negotiating the right price so that both buyer and seller are happy. They can remove some of the legwork and headaches of finding suitable businesses by helping you cut through the noise.
7. Acquire the appropriate funding
Unless you have a lump sum of cash ready to pay out, how will you finance a business purchase? This is actually something you need to think about early on as it can take time trying to gather documents and submit applications.
There are several options to finance a business purchase:
Regardless of which finance option you choose, you will need to have a solid business plan, a healthy cash flow and a good credit history check.
8. Make an offer
Once you’re confident in your decision to buy a business, the final step is to put your negotiating hat on and make an offer. This process may be straightforward or complex depending on the type and value of the business you’re buying (and who you’re buying it from).
It’s important that you brush up your negotiation skills and understand best practices when it comes to landing a favourable deal. For example, you should never agree on the seller’s first offer or outwardly show how much you want the business.
Again, this is where consulting with a business broker or adviser can work in your favour - especially if you’re not comfortable or negotiation skills aren’t your forte.
When you and the seller agree on a price, you will need to get a legal contract written up to outline the agreement terms, sale price and payment method.
We know how stressful it can be entering the world of business, but on SavvySME you’re not alone. We have thousands of new and established business owners who are eager to share experiences and knowledge of all things relating to business. You can also find and connect with industry experts and service providers in over 400 solutions, whether you’re looking formarketing andbranding advice,bookkeeping solutions or advice ontax matters.
For more information relating specifically to buying a business, reach out to abusiness brokeror browse through our Q&A section.
Hiring a business broker may be a better option if you can’t find interested buyers or sellers, or you lack strong negotiation skills. Brokers have a wide network of contacts, can prep your business or franchise for sale and negotiate the best price. They can also represent you on your behalf if you prefer to be anonymous in the negotiation.
Of course, hiring a broker is an extra expense. Being a private buyer or seller can be more cost-effective, especially if you’re well connected and know where to look.
There are various fee structures for business brokers. The fee structure offered depends on:
Generally speaking, most business brokers charge a commission of 5-10% of a sale. You'll find some brokers or companies charging a flat rate or monthly fee instead, so make sure you read the fine print.
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