Buying an existing business – Advantages & Disadvantages.
Buying an existing business may present several advantages over setting up a new one. Here are a few helpful hints from Interbiz Business Brokers to consider:
Buying an existing business may provide some level of comfort as it will have a trading history, financial statements to show cash flow and profits. Systems are likely to be in place for a smooth running of day to day operations.
The value or goodwill (as it is known) is the price paid for a business. Look at the financial records of the business including the balance sheet to ascertain what proportion of the purchase price equates to goodwill and how much is allocated to the physical assets such as plant & equipment. There could also be some IP (intellectual property) that will also be transferred as part of the sale as an added bonus. Always keep in mind that maintaining the goodwill or adding to it may further add value to your investment when the time comes to sell again. Best to speak with a reputable business broker before buying an existing business who could tell you how much similar Australian businesses recently sold for from their data base of recent sales.
An existing business may offer a better chance of survival than one that has been newly established as a very high proportion of new business start-ups fail in the first year of trading.
Buying an existing business has the added advantage of having staff that know the business and could be a great asset, especially to a new owner who has limited knowledge of the industry.
Be mindful on how the valuation of the business was made. Was it priced by the Seller or was a business valuation report prepared?
Interbiz Business Brokers is a firm believer in due diligence. It is best practice to have all the books and records of the business fully investigated during due diligence. The advantage of buying an existing business is that if the numbers presented can be verified, then you are on the right path to success
Buying an existing business often means a positive cash flow from day one as opposed to setting up a new business where considerable time and money is spent on marketing and advertising to establish the business before it becomes profitable. The Australian Tax Office states no GST is applicable if the sale is deemed as a going concern, provided it meets their criteria: refer to: ato.com.au for further information. An added advantage is a 10% saving of GST on the purchase price that could assist in reducing acquisition costs and cash flow.
Buying a business is a major investment of both money and your time. Choose a business broker who is licenced in Queensland and more importantly one you can trust!