What to look for when buying a business

Finally finding a business, you would like to purchase and invest in is exciting. Before finalising your contract, however, make sure it is genuinely worth the investment you are about to put in.

To protect yourself, consider having a checklist of things to review before closing the deal. Do not just depend on what the seller says, or the business’s overall performance is. Dig deeper and analyse.

To assist you, we have listed down some of the items you have to consider when purchasing a business.

Check, and Double Check the Documents!

Some of the documents you should have, and review are:

  • Contract of Sale
  • Vendor’s Statement or Section 52 Statement
  • Copy of Lease
  • Financial records

When reviewing contracts, it would be best to check if you could add a performance clause. The clause should state “minimum takings of the business” for a set period while you finalise the settlement. Additionally, consider having the right to work on the business before you get into a binding contract. This way, you could confirm all the claims the seller made about the business.

Another thing you should review is the business’s existing contracts with suppliers. Ensure transfer of these contracts is included in your Contract of Sale.

Before the Transfer

Verify the name of the business and make sure the seller has clear ownership. Furthermore, they must have full rights to transfer the ownership of the business.

Does the seller own the premises where the business is located? Are they transferring the title of the premises to you, too? If yes, verify the land ownership to confirm they are the actual owners and have the right to transfer the premises’ ownership to you.

Red Flags

Take caution if you see any of these red flags when trying to purchase a business:

  • A significant amount of customer complaints
  • Dropping of prices to boost gross sales before selling the company to you
  • Pending litigation

Failure to disclose any relevant information regarding the business should be a significant red flag for you. Therefore, it is crucial to perform a background check about the business. You really would not know if a seller were concealing something unless you do your own research.

Is the seller in a hurry to sign off? Are they refusing to introduce you to their suppliers? If so, it may be best to take a step back. Decide if it is in your best interests to proceed with the purchase.

Still need help with acquiring a business? We can assist you. Call us on 03 9885 9793 to find out how we can assist you with a business acquisition. You can get in touch with us by sending an email to enquiries@glanceconsultants.com.au to schedule an appointment with a member of our team.

SUBSCRIBE to the Business Accelerator Magazine