Why buy a business that already exists instead of starting one from scratch?
What you are buying is a proven track record. An existing business has infrastructure, financial history, brand power, assets, staff and more. Some estimates say that one in three new small businesses in Australia fail in their first year of operation and two out of four by the end of the second year. By understanding the history of an established business, you are mediating the risk of starting from scratch.
The business sounds great, so… why are they selling?
The reasons for sale differ from business to business but don’t be afraid to ask us why the seller has decided that now is the right time to sell. Some owners wish to retire in the near future, others are relocating out of Perth. Some sellers simply had an end goal to sell after they had built a successful business – allowing them to move on to another venture.
We operate with full transparency and in order to sell a business, we require a seller to provide full financial information which is available to potential buyers after they have been vetted and signed a NDA.
Is buying a franchise a good idea?
There has been a boom in franchising in recent years – you can find a franchise for sale in almost every industry. Unlike setting up your own business, when you buy a franchise the franchisor owns the brand, intellectual property and associated operating systems. You will benefit from a well-known brand, typically with a long history and a good reputation. The business model is established, so you will get access to refined procedures, operating manuals, stock control systems, financial systems and more. Franchises also tend to have good initial training, ongoing support and assist with marketing/advertising. Banks will usually lend on a Franchise where they probably won’t on a non-franchise business in the same industry e.g. food
When can I see the financials?
The majority of sales are confidential sales and as such potential buyers are asked to sign a NDA (non-disclosure agreement). Once signed, you can review the business summary with financials.
What happens if my offer is accepted?
If an offer is accepted a deposit is payable and a settlement date is set. Due diligence is completed subject to the buyer’s satisfaction. Depending on the business this could be very simple or more complex for larger businesses.
What is due diligence and who is responsible for it?
The buyer can ask any questions they would like to understand the full business picture and get the confidence they need to continue the business. For example; can the claimed revenue and profit be verified? You may also wish to see legal agreements such as licenses, permits, insurance policies, lease agreements, employee details, supplier contracts and more. The seller is responsible for collating information that the buyer requires. A solicitor and accountant can be engaged at this point for any professional advice. How long the due diligence process takes really depends on the business but you should allow roughly 15-30 days minimum.
What other costs need to be considered apart from the purchase price?
Stamp Duty, Settlement agent, cash flow, bank guarantee/bond if commercial lease. Also any fees applicable to the industry where transfers are required and when purchasing a Franchise the up-front fees to the Franchisor.
Are you buying a business in Perth? Do you have a Perth business for sale? For more information on how you can get the best results, contact Angela at Advance Business Brokers today.
