Buying a business is a significant decision that requires a lot of careful consideration. The process can be complex and requires thorough due diligence to ensure the business is viable and will give you the return on investment you are hoping for. 

This is a move you can’t make on your own. While the NPR Law team can provide detailed legal advice, these are the factors to consider when you’re looking into buying a business. 

Take a look at what you need to keep in mind, then contact our team for help completing the process. 

Buying a business: What you need to know

1. Financials and valuation

It is crucial to examine the financial statements of the business you are considering buying. Look at the revenue, expenses and profitability of the business over the past few years and aim to develop a detailed understanding of its financial health and whether it is worth the investment. You should also request a professional valuation of the business to ensure that the asking price is fair. 

2. Legal and regulatory compliance

It would be a huge mistake to buy a business that is not compliant with all relevant laws and regulations. This includes things like tax compliance, licensing, employment laws and any industry-specific regulations. 

Failure to comply with these laws could result in significant fines or legal action. Even if you aren’t found to be responsible for past problems, proving you weren’t involved in the bad decisions of the past will cost you time and money. 

3. Industry and market

Research the industry and market in which the business operates. Look at the competition, market trends, future potential and the overall health of the industry. This will help you determine whether the business is in a good position to achieve the goals you have for it. 

4. Location and lease

If the business that you want to buy is operating from a leased premises, one of three things will occur:

• The lease will be terminated and you will operate the business from another location; 
• The lease will be assigned to you as the new owner on the same terms; or
• The lease will be surrendered and a new lease will be negotiated with the landlord, on new terms.

The direction you go in will depend on your preferences and circumstances, and the agreement between the existing owner and current landlord.

5. Customers and reputation

Consider the business's customer base and reputation. Are there negative reviews or complaints online that could deter potential new clients? What is the customer retention rate? Are there any recurring customers or contracts in place to support a recurring revenue model and how likely are these clients to remain with the business after a takeover? These factors can affect the long-term viability and success of the business so do your due diligence in this area.  

6. Staff and culture

Take the time to understand the staff and culture of the business you are considering. This includes the leadership team, employee morale and turnover rates. It is important to know whether there is a positive and productive work environment and to have a plan in place to make the transition easier for everyone involved. 

Think about which staff you will retain and if you will need the owner of the business to stay involved for a period of time before they step away. If buying a business means new people will join your existing team, work out a way for everyone to get to know each other and adapt to each other’s working styles. 

7. Assets and inventory 

When buying a business, you need to thoroughly review the assets and inventory included in the sale. This includes any equipment, vehicles, stock, or intellectual property. Make sure that everything is in good condition and that there are no outstanding debts or liabilities. 

You will also need to obtain PPSR releases that discharge any registered security interests associated with the business assets. By doing so, you are confirming that you will receive clear and unencumbered ownership of the assets, free from any claims or interests by third parties. If you fail to complete this step, you may face potential complications, disputes, or even loss of assets. 

8. Communication and systems

Like a car, you will expect to pay more if everything is in great working order. Ask about the systems and software the team uses to get things done: do people rely on manual processes or are they leveraging the latest technology to maximise productivity? 

The other area to review is marketing and communications; are customers kept informed and communicated with on a regular basis? Does the business have a blog and a social media presence? It will be worth more if you can hit the ground running rather than having to start in these areas from scratch. 

9. Future potential

Consider the potential for future growth and development of the business. Before you commit to your purchase, think about the steps you will take to expand the business or increase revenue streams. 

10. Financial considerations

Here are seven more factors to keep in mind as you prepare to buy a business: 

• Whether GST is payable on the purchase price (if the business is not sold as a going concern);
• If a new company should be incorporated to be used as the purchasing entity;
• Transfer duty that is payable on the transaction;
• Transfer duty payable on any vehicles owned by the seller;
• Amounts payable to a franchisor (if relevant);
• Whether the business name is registered, and if not fees payable to register the business name; and
• Entitlements of employees you might assume under the contract. 

11. Seek professional advice

Buying a business gives you the potential to increase your net worth but it is a significant investment that requires careful consideration and due diligence. When you’re ready to start making offers, seek professional advice from a commercial lawyer near you and accountant who will guide you through the process and help you make a savvy purchase.