“Buying a business is like purchasing a car – you wouldn’t drive it off the lot without checking under the hood first.”
Taking the leap into owning a business is exciting.
Whether you’re looking to leave the 9-to-5 grind or expand your portfolio, buying a business offers a head start compared to starting one from scratch.
But, as with any major investment, there are crucial steps to ensure your purchase is a sound one. Ensuring you have the financial preparedness and resources is vital for making the right business successful, as sufficient capital is crucial to avoid failure.
This guide walks you through the essential steps to buying a business in Australia, helping you minimise risk, maximise value, and make the most of your new venture.
1. Define Your Goals: Finding the Right Business for You
The first step is knowing what you want. Are you buying a business to be your own boss or as an investment? Consider your skill set, background experience, and personal goals.
For instance, if you’re passionate about food and hospitality but have no prior experience, buying an established business in this industry might save you from the steep learning curve of starting from scratch.
Established businesses often have a good history and a better chance of securing financial backing from banks, but they may also come with existing contracts or a tarnished public image, so thorough research is essential.
2. Research the Market: Find an Existing Business That Fits
Start with market research to identify industries with potential growth. Look at businesses for sale through online listings, franchises, or by working with a business broker.
A business broker is like a matchmaker, helping you find opportunities that fit your budget and goals. They can also provide guidance on negotiations and contracts.
3. Conduct Due Diligence: Check Under the Hood
When buying a business, you need more than surface-level details. Due diligence ensures the business is everything it claims to be, including a thorough review of the business’s assets, financial records, and agreements.
What to Check:
The following are some of the major areas to review:
Financial Documents: Profit and loss statements, balance sheets, and cash flow statements give you a snapshot of the business’s financial health.
Intellectual Property: Confirm the ownership and transferability of intangible assets like trademarks, patents, or proprietary processes.
Outstanding Contracts and Agreements: Identify liabilities such as leases, employee entitlements, and unpaid debts.
Existing Customers: Understand the customer base to assess loyalty and potential growth.
Staff Resources : Review what staff resources you will need and if they are already in the business as part of the purchase. Are they loyal and what is the staff turnover like.
Operational efficiencies and challenges : Review any operational issues that exist or could occur in the future such as significant agreements lapsing
Example: Imagine buying a factory only to find out the lease has a redevelopment clause that could be actioned at any time during the lease.. Due diligence helps you avoid these costly surprises.
4. Get the Business Independently Valued
One of the biggest mistakes buyers make is paying more than a business is worth. Especially if the buyer is looking to basically buy themself a job. An independent valuation considers the business’s assets, liabilities, and future earning potential to determine its true value.
Think of this step like getting a property inspected before purchase – it ensures you’re paying for what you’re actually getting.
Pro Tip: A Chartered Accountant that specialises in Business Valuations can help arrange for the business to be independently valued, ensuring a fair purchase price.
5. Review Tax Obligations and Financial Records
Buying a business is a significant investment, and with it comes the responsibility of understanding its financial and tax position.
A thorough review of the business’s tax obligations ensures that you’re aware of the future forecasted tax liabilities ongoing once you purchase the business. It is important to ensure past tax liabilities remain with the Vendor either by agreement or by structuring the purchase correctly.
Key Areas to Examine:
Accounts Receivable and Payable: These reflect the business’s cash flow health. Reviewing these accounts helps identify outstanding debts owed by the business or payments due from customers, which could impact your financial planning.
Employee Entitlements: Ensure that accrued leave, superannuation, and other entitlements have been appropriately managed. These obligations will transfer to you as the new owner.
Tax Compliance: Confirm that the business has met its obligations for GST, income tax, payroll tax, and any fringe benefits tax.
Outstanding Contracts or Leases: Long-term agreements or equipment leases can have ongoing tax implications that need to be factored into your cash flow and tax planning.
Why This Matters:
Failing to understand the tax position of a business can lead to costly surprises.
For example, you might discover unpaid GST liabilities or unreported income that require immediate resolution. These issues not only affect the profitability of your purchase but can also create legal complications.
At Bishop Collins, we take the guesswork out of this process. Our team will:
Perform a Comprehensive Financial Review: We’ll review profit and loss statements, cash flow, and balance sheets to ensure the business’s financial records are accurate and reliable.
Identify Tax-Saving Opportunities: Our expertise in taxation allows us to structure your purchase in a way that minimises your tax obligations, such as through asset allocation or leveraging available concessions.
Ensure Compliance: We’ll verify that the business is up-to-date with ATO requirements, giving you peace of mind that you won’t inherit unexpected liabilities.
An Example in Action:
One client, while buying a small business, discovered through our review that the previous owner had underreported GST for several quarters. With our teams support, we renegotiated the purchase price to account for the unpaid tax liability, saving the buyer thousands and avoiding future disputes.
Your Tax and Financial Safety Net
Reviewing tax obligations and financial records isn’t just about avoiding risks – it’s about maximising your investment. With Bishop Collins as your guide, you’ll have the confidence to move forward knowing your purchase is sound and your taxes optimised.
6. Know what Structure is best for you
How you Structure the purchase and which entity to take the business forward is essential in reducing risk and minimising tax.
How to structure the purchase
It is common for businesses to be run in a company structure. This business is an asset of the company and includes Goodwill, knowledge, trademarks, processes, clients, contracts and staff.
The business is not the company. This is an important distinction as there are two ways of purchasing a business in this situation. You can purchase the Business alone or you can purchase the company.
The company has other assets that may not be involved in the operations of the business such as Investments, other businesses and other assets.
It can also have liabilities that do not relate to the business such as Director loans, Tax Liabilities and Mortgage on Assets. It can also have Contingent liabilities or other risk areas not recorded in the accounts such as lawsuits or claims made against the company. In summary it can have unknown “Baggage” to be wary of.
It is most common for a purchase of the business to be isolated and separate from the company so you don’t take on these risks.
Also to consider is how the Assets in the Purchase agreement are structured. Is there a need to have the Purchase Agreement apportion values to Goodwill and Tangible Assets. Having no apportionment provides both parties with flexibility to determine their own apportionment within reasonable grounds. This can have significant tax benefits to both parties.
Choosing the best entity to purchase the business into.
Choosing the correct entity to own the business is essential to consider. It could be in a Company, a Unit Trust, Discretionary Trust, Partnership or a Sole Trader. Each of them have their own Advantages and Disadvantages and make a considerable difference in the Roisk and Tax paid into the future. The below are some of the factors to consider:
Goals and Age of the purchaser.
Existing structure of the purchaser – Family and other entities.
The finance required.
The type of contracts involved.
The risk profile in the business and the industry.
The risk appetite of the purchaser.
Other investments and Assets of the purchaser.
It is essential to speak to a Chartered Accountant to assist in determining the best outcome.
7. Negotiate the Deal: Know What You’re Paying For
Once you’ve done your homework, it’s time to negotiate. Beyond the price you pay, consider factors like:
Transfer of equipment and contracts.
Support from the previous owner during the handover.
Terms of the lease (if applicable).
8. Understand the Legalities: Get Professional Guidance
Transferring ownership involves legal complexities, including drafting contracts, transferring licenses, and ensuring compliance with regulations. Missing a single detail could cost you.
This is where engaging a legal professional becomes essential. They can handle the intricacies while you focus on your new venture.
Why Bishop Collins is Your Business Buying Partner
Buying a business in Australia involves more than signing a cheque. From due diligence to tax optimisation, every step is critical. At Bishop Collins, we help you:
Analyse financial records and tax obligations.
Reduce risks and avoid costly mistakes.
Maximise the benefits of your purchase through tailored advice.
Don’t leave your future to chance. Contact Bishop Collins today to make your business buying journey seamless, strategic, and successful.
