17 Jan How to buy a business – Step by Step
Before embarking on the journey of buying a business, you will need to identify the type of business and/or opportunity you are looking for. Things for consideration include industry, location, finances, operating hours, level of day to day involvement you wish to have, as well as any licence requirements or technical qualifications. We’ll talk about how to define the opportunity in a later post.
The objective of this post is to clearly identify the steps to take when you’re ready to buy a business:
Once you’ve identified the type business you’re looking for, the first step is to begin your search.
Broadly, there are four (4) primary methods when searching for a business:
- Online search using advertising websites such as: anybusiness.com.au, seekbusiness.com.au, bsale.com.au, commercialrealestate.com.au, businessforsale.com.au, Business Brokers Network Australia, Gumtree and Facebook marketplace;
- Contact a Business Broker such as: Merchant Business Brokers, Benchmark Business Sales, Xcllusive Business Brokers, Link Business Brokers, Flippa, SBX or any of the other 300 Business Brokers registered with the AIBB (Australian Institute of Business Brokers);
- Approach the business owner directly, either in person or over the phone. Alternatively, you may make contact by email or social media;
- Use a professional Buyer’s Agent whose expertise is finding and reviewing businesses.
Effectively, conducting a search for a business using the right parameters is extremely important, because if you can’t find the business, you can’t buy it.
When you’ve located a business that fits within your search criteria, it’s time to approach the seller, or their broker, and request more information to help your decision-making process.
Importantly, before providing further information about their business, most sellers will (or should) want to ensure you are a genuine buyer by identifying some key points of information about you as an interested party. Be prepared for them to ask questions about your skills, experience and financial ability to complete the purchase. It’s common process for an owner or a business broker to ask you to complete a Confidentiality Agreement before providing any information about their business.
Next, it’s time to complete the preliminary due diligence, evaluating all the information supplied to you by the seller and to verify the information presented is accurate. However, it’s important to note you will have the opportunity to complete detailed due diligence with your Accountant and Solicitor later in the process.
When you’ve completed your preliminary due diligence and you’re confident this is the right business for you, it’s time to make a conditional offer. Your Solicitor can help with the legal aspect of drafting your offer, which should cover the key aspects of the offer, including:
- Handover period;
- Restraint period for the seller;
- List of assets included;
- Adjustment for employee entitlements etc;
- Settlement terms and conditions;
- Other business specific terms.
Your offer will either be accepted, rejected or countered, beginning the negotiation stage. Whilst the price is certainly important, it’s equally important to ensure an adequate handover and restraint period for the seller. Some sellers may be willing to offer vendor finance to the right buyer.
When you have reached an agreement with the seller, you will typically pay a refundable deposit and commence the detailed due diligence with your Accountant and Solicitor.
While you are completing your detailed due diligence, the seller’s Solicitor will typically prepare the Contract For Sale. You should then review this document with your Solicitor to ensure it accurately reflects the agreement you reached with the seller. Both yourself and the seller will then sign the Contract. This is referred to as the “exchanging contacts”.
Once you have exchanged contracts, the next steps are the settlement and handover stages. Typically settlement, or the date the payment is due, will be in a 6 – 12 weeks period. During this time, you can finalise your finance if applicable and start preparing for the taking over of the business.
Upon settlement, you become the owner of the business. Keys, alarm codes and passwords (and any other agreed items within the signed contract) will be transferred to your ownership.
If you have negotiated a handover period, the previous owner will introduce you to any staff in place, suppliers and customers as agreed, and provide training to help you understand and manage the day-to-day business operations.