The basics of buying an established business

Buying a business is no small feat and should not be an impulse purchase. Take the time to do your research about the business and the industry you’re buying into. As there is a lot to consider when purchasing an already established business, we’ve compiled a checklist to inform you about how the process works.

Consider the pros and cons of buying a business

When it comes to buying a business that’s already up and running, there are a number of factors to consider. Some factors might be a pro or a con depending on the type of business you buy. Some of the pros and cons might include:

• An established customer base: It makes sense that an established business would have an established customer base. This means you won’t need to put in the leg work to grow your customer base. But you’ll still need to put in the time and effort to nurture both your new and existing customers.
• Existing procedures: If the business you buy has implemented successful processes, it can help simplify your job. But if the existing procedures are more of a hindrance, you’ll have your work cut out for you in fixing them. 
• A proven track record: Before you buy any business, take the time to get the business’s financial reports. This will help you determine if it has a proven track record and what you might need to change when you take ownership of the business. For example, if you buy a popular café with a unique menu, changing the menu might impact the customer base. 
• Potential hidden pitfalls: While you might do your best to uncover a business’s successes and failures, you might unknowingly buy a business with hidden issues. Once you buy the business, these issues become yours to fix.

What to consider before you buy a business

• Business plan: No matter what type of business you want to open, you need to write a business plan.
• Business type: The type of business you buy will impact how you are able to conduct business, share profits and pay tax.
• Contract of sale: This is possibly the most important factor and you’ll want to ensure a lawyer helps you draw up the contract. It will dictate the terms of sale including what is and isn’t your responsibility and how much you’ll pay.
• Existing debts: Find out if the business has any existing liabilities, including debts and outstanding warranties. Work out which debts you will still be expected to cover as the new owner of the business.
• Expenses: How much does the business already spend on regular expenses including stock, insurance and payroll?
• Industry trends: Take a look at the market trends for the industry you’re interested in entering. 
• Insurance: Different types of different businesses require different levels of insurance. You may have to get cover for yourself, your employees, your clients and customers.
• Profits: Established businesses will have records of the business’s profits to give you 
• Tax: What taxes does the business already pay and what will you need to pay when buying the business? This might include GST and stamp duty.

Think you’re ready to purchase a business? Start comparing business loans to get a good idea of your budget.

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