As an alternative to starting a new business from scratch, you may be interested in buying an existing business or a franchise business. There are some advantages to this, including an existing customer base, tried and tested procedures, a reputation in the market place, functional operating systems, knowledgeable staff and proven results. Because of this you can expect to pay for goodwill or, in the case of a franchise, a franchise fee.  In some cases the head start this can give you will work out better financially than starting your own business.

Due Diligence

According to the Merriam-Webster Online Dictionary, Due Diligence is defined as “research and analysis of a company or organisation done in preparation for a business transaction”

Undertaking due diligence when looking to purchase a business is essential.  Indigenous Business Australia and other organisations can assist by assigning a business mentor to assist you in carrying out your due diligence. You should also seek the help of a qualified accountant or solicitor. Failure to investigate your proposed purchase fully can result in costly mistakes.

The Northern Territory Government website has an informative fast facts feature on Buying a Business.

You can start by asking for a copy of the most recent Business Plan, Financial Statements and Depreciation Schedule.  The financial statements should contain at least three years Profit and Loss and Balance Sheet as well as the current year to date Profit and Loss and Balance Sheet.

If you are thinking of buying a franchise you should check out the website for the Franchise Council of Australia  

Valuing a business

Sometimes the asking price for a business is different to what the business is actually worth.  You should always seek guidance from your accountant as to what the business is worth and what you should offer if you choose to proceed with negotiations.