Buying an established business

If you plan to buy an existing business, carefully analyse both the advantages and disadvantages. One advantage is that a good business history can increase the likelihood of a successful operation and ensure that finance is easier to obtain. Potential disadvantages can be overestimating the goodwill figure and a poor public image inherited from the previous owner.

As a prospective business owner you should determine the current worth of the business and its future prospects. Some important considerations are:

• Vendor - reason for sale of business
• Sales - patterns, trends, customer base, current suppliers
• Costs - fixed and variable costs, staff costs
• Profits - analyse financial records, future cash flow and profitability
• Assets - identify and check all assets, including intellectual property and leasing arrangements
• Liabilities - outstanding debts, refunds and warranties
• Purchase agreement - review carefully
• Tax - GST, Capital Gains Tax, stamp duty implications
• Legal issues - leases, business structure.

For advice and protection in buying a business we suggest that you seek the services of a solicitor, accountant or business adviser.