Buying a business

Buying a business
There are 3 key questions for the purchaser of a business.

1. Is the business worth the price that the seller is asking?
2. What is included in the purchase price?
3. How are you going to deal with the tax and accounting issues going forward?

What is the business worth?
There will be difference of opinion as to the value of a business. Of course, the seller will have a higher expectation and the purchaser a lower expectation.
We can do a “due diligence” on the business to give our opinion of the value of the business. More information that the seller can provide, the more confidence we will have in the opinion that we give.
Putting a price on a “Cash Business” can be difficult as you have to rely on seller’s word. In addition, the cash sales may be used to pay cash expenses.

What is included in the purchase price?
While it may seem like and obvious question, you should be very clear as to what you are buying.The following are something that you should think about.

-What are the terms of any lease that you will be taking over.
-Does the contract include all the equipment that you need to run the business.?
-Are you taking over the important customer contracts for the business?
-Is the seller giving a restrictive covenant? A term in the contract that they won’t open a competing business for a period of time.

-If it is important to running the business, are the phone numbers and email addresses going to be transferred to you?
-Will the seller give any assistance to you in taking over the business? If so, for what period and and on what terms?

Dealing with the Tax and Accounting issues going forward
These are very similar to starting a business.
1. Legal Structure of the business.
Are you going to trade as a sole trader?
Are you going into business with another person so will you trade as a partnership?
Do you want to trade through a company or trust?
Each of these structures has advantages and disadvantages. As the disadvantages can only come to light after a few years of running the business, thought needs to be given to this at the start.

2. Business Name
Especially, if you are operating as a sole trader or partnership, are you doing to have a business name?

3. Registration with the Taxation Office.
At a minimum you will need to get an Australian Business Number (ABN) by registering with the Taxation Office. This applies whether you trades as s sole trader, partnership, company or trust.
In addition, you will need to be registered for Goods and Services Tax (GST) if your anticipated business turnover exceeds $75,000 a year.

If you plan to have employees, you will need to be registered for Pay as You Go Withholding (PAYG). The is the system that you deduct tax from the employee’s wages
and pay it to the Tax Office.

4. Superannuation
If you have employees, and they earn more than $450 per month, you will be required to pay superannuation for them. For ease this can be done through a clearing house.
5. Insurances
What insurances do you need?
Will you need Public Liability Insurance?
This insurance covers customers or clients who are injured at your business premises or work site.
Will you need Workcover?
If you have any employees legally you have to have Workcover Insurance.
Depending on your business, you may need other insurances such as insurance cover for equipment.
6. Records keeping
What record keeping system will you use?
A manual system or a computer based system, such as Xero or MYOB?
Will you hire a bookkeeper or will you do it yourself?

7. Registrations required
Are there any special registrations or licenses required to operate the business?

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8. Banking
If you are operating through a partnership, company or trust you should open a new bank account in the partnership’s, company’s or trust’s name.
If you are operating as a sole trader it is advisable to open a separate business bank account.
Do you need merchant facilities so you can accept credit cards?

9. Domain Name and Website
Do need to register a domain name (e.g. kofod.com.au) or will an existing domain name be transferred to you?
Do you need a website for your business or will you take over an existing website?
If you have any questions or need help please contact me, Stephen Kofod
p 0414 252 161
e stephen@kofod.com.au

Legal Disclaimer
The comments on this page are of a general nature only and not intended to be specific advice. Before acting on any of the comments contained in this website we advise you to seek advice from an appropriately experienced and qualified adviser.