Buying a Business This information page has been prepared as a general guide to the business buying process. The purchase of every business is unique and we strongly recommend that you obtain professional advice that takes into account your specific personal circumstances and that of the business involved.   Deciding and Planning to Purchase   The decision to buy a business is a major step in most people’s lives, especially if they have not owned/operated their own business before.   It is important to identify why you want to buy a business. You need to identify and assess your reasons, wants, needs, goals, aspirations and experience and find a business that matches your lifestyle aspirations. Going through the process of doing a simple SWOT analysis can help through this process.   You should surround yourself with a team of professional advisers as this will go a long way to achieving a successful purchase and the future profitability of your business. If you haven’t already done so, contact and seek referrals to business focused accountants, lawyers and advisers. M A Legal is happy to personally introduce you to our business network.   Financing the Purchase   This is a key consideration for all aspiring business owners. It is a personal preference as to whether you like to know what you can afford before starting your search or to make the deal happen once you have found the right business.   Unfortunately, most aspiring business owners will need to get some form of business finance. If so, how will you get it? Will you loan it from a bank or go into partnership with investors?   In most cases, it will be necessary to speak to and develop relationships with bank managers, finance brokers and/or an accountant.  A good relationship with these people can go a long way, not only in obtaining finance, but as a good sounding board throughout the purchasing process. You will soon be asked to make key decisions about the structure used to purchase the business, obtaining finance and the various tax and financial implications of each.   If you have any queries about finance, please contact us, we will be happy to personally refer you to our established network of financial planners, bankers and financiers.   Searching for a Business   Businesses that are for sale are typically advertised in newspapers and the internet. Similar to the process of buying a house, you should test the market and see what is out there, how particular types of businesses are valued and establish criteria and limits for your own search. For example, do you want to buy into a franchised business?   Business brokers, whilst acting on behalf of the sellers (or vendors), can also be a useful source of information.   Once you progress to the negotiating stage, it is common for the vendor or business broker to request you to enter into a confidentiality agreement, to protect the information made available to you from misuse. If possible, you should also seek exclusive negotiating rights with the vendor, to enable you to conduct due diligence without the threat of the vendor selling to another purchaser.  This can save you time and money.   Due Diligence – Evaluating the Purchase   There is no doubt that the vendor, or business broker, will make a number of representations to you about the business and how it operates. Generally speaking, due diligence is the process of checking that you are getting exactly what you have been promised. It will also reveal exactly what you are buying, which is usually a combination of goodwill (key staff, reputation and location) and assets.   At the least, it is recommended that you use the services of an accountant and lawyer throughout this process. Your financier/bank will also go through a similar process before providing you with finance.   Some of the key issues that the due diligence should reveal include:   ·         the vendor’s reasons for selling ·         who owns, the terms of and a summary of the contracts relating to the major components or parts of the business, including: o      suppliers o      debtors o      clients o      employees o      assets, stock, tools and equipment, including any finance or hire purchase agreements o      intellectual property o      premises and leases o      leases, licences and permits Your impending purchase should be subject to the successful renewal, transfer and/or assignment of the key contracts to you or your business entity.   ·         whether there should be any amendments to the Sale of Business Contract. This would include: o      clarifying exactly what you are buying – goodwill, customer lists, stock and/or assets, debts, key employees, tax liabilities etc o      ensuring that all representations made to you during the negotiating process are confirmed in writing o      restraining the vendor or other key people involved from operating/opening a competing business in the same area in the future o      attaching copies of all assets, equipment, contracts, key employees terms, intellectual property, licences, leases etc ·         the financial records and viability of the business ·         a bankruptcy check on the vendor ·         company compliance with all laws, contracts etc. ·         any past and/or present court actions involving the company ·         whether to purchase the company that owns all the assets, or purchase the assets and goodwill independently   Note that if the business is a franchise then there are additional factors to consider, these include: ·         a review of the franchisor’s disclosure document and franchise agreement ·         the integrity and value of the system and brand ·         ready comparisons with other franchisees and the franchise group as a whole ·         limits on the business, including territory, stock, employment conditions, ·         training requirements ·         additional financial obligations to the franchisor, advertising funds and on sell fees etc   Structure of the Purchaser   There are numerous structures you can use to purchase a business: in your own name, a company, a trust structure or a combination of these. Each structure has its advantages and disadvantages.   Your accountant and MA Legal will be able to advise you on the most appropriate structure that can be used to minimise tax, your personal liability and for asset protection purposes.   If you are purchasing a business with other people, we can also assist in preparing a partnership agreement or shareholders agreement. These agreements provide certainty to business partners about the operation of the future business, who can make what decisions, the division of profits and, importantly, the resolution of disputes.     M A Legal can assist and advise on all legal aspects associated with the purchase of your business, including due diligence, business structuring, property and contractual advice.   For additional advice or information please contact:   Rex Afrasiabi Principal rex@malegal.com.au