Key considerations when buying a business

Buying a business can be an exhilarating yet complex endeavour, especially in areas that have continued to grow like Southeast Queensland. Whether you’re an entrepreneur venturing into a new industry or an experienced investor expanding your portfolio, understanding the nuances of purchasing a business in Queensland is essential.

Are you considering buying a business?

There are many crucial factors and issues to consider before sealing the deal and buying a business including:

Legal and Regulatory Compliance

• Ensure the business complies with your state’s legal and regulatory requirements. This includes licenses, permits, zoning regulations, environmental compliance, employment laws, and any industry-specific regulations.
• Seeking experienced legal counsel will help a buyer navigate these complexities and mitigate potential risks. Special Conditions should be part of a business sale contract to ensure necessary licenses can pass to the buyer in the event of a sale.

Financial Due Diligence

• Financial due diligence is an important component in purchasing a business and should be included as a Special Condition in a business sale contract, especially if you have not had the opportunity to review the finances prior to making an offer. 
• Financial Due Diligence includes conducting a comprehensive financial analysis of the business by reviewing financial statements, cash flows, tax records, debts, and assets. A Buyer should assess the business’s profitability, potential liabilities, outstanding contracts, and any pending legal issues.
• Engage with an accountant to thoroughly evaluate the financial health of the business before you agree to take the business on.

Assets and Inventory Evaluation

• Evaluate the tangible and intangible assets of the business, including equipment, inventory, intellectual property, and customer databases.  This list should be included in any business sale contract to ensure a buyer receives the assets and goodwill of a business and the seller does not retain these important assets.
• It is important to verify the condition and value of these assets to ensure they align with the purchase price.  Special Conditions and inspecting the assets during a Due Diligence period assists in mitigating the risks of any surprises once a buyer takes over the business.

Operational Assessment

• Analyse the current business processes, staffing, management structure, and operational efficiency. Gain insights into the day-to-day operations of the business.
• Standard business sale contracts allow for a buyer to negotiate training before or after settlement occurs. Buyers should determine whether this would be an important requirement as part of a sale.

Employee Matters

• Understand the existing workforce, their contracts, entitlements, and any pending HR issues. Consider how the transition of ownership will impact employees and ensure compliance with labour laws regarding employee rights and obligations.
• Knowledgeable legal counsel should advise how transferring employees will be treated, but the general rule is that the employees will retain all their entitlements when they transfer to a buyer. A buyer needs to ensure they are prepared for this financially and this is articulated in a business sale contract.  

Customer and Supplier Relationships

• Evaluate the reputation of the business within its customer base and the stability of supplier arrangements. A strong customer base and reliable supplier relationships can significantly impact the success of the business.
• Ensure your business sale contract includes these customer and supplier lists so you receive this invaluable information with the purchase.

Future Growth Potential and Exit Strategy

• Assess the potential for future growth and expansion. Identify opportunities for innovation, scalability, and diversification.
• Consider reviewing your exit strategy—how you plan to eventually sell or exit the business and the factors that may affect its resale value.

Engage Professionals and Seek Advice

• Throughout the buying process, it is crucial to engage professionals such as lawyers, accountants, business brokers, and industry experts. Their expertise can provide valuable guidance, streamline the process, and help mitigate potential risks.

Negotiate and Plan Carefully

• Negotiate the terms of the purchase agreement carefully. Ensure all aspects of the deal are clearly outlined and understood by both parties. Draft a comprehensive business plan to guide your actions post-acquisition and set realistic goals for the business.

Buying a business demands thorough research, meticulous planning, and careful consideration of various factors. Being well-informed and diligent in the due diligence process can significantly increase the likelihood of a successful acquisition and pave the way for a fruitful venture in a dynamic business landscape. 

We can help you with your business purchase today. Contact our team of business and commercial lawyers to assist with your business purchase.