Introduction

Buying a business is an exciting prospect. However, it is also a significant financial decision that requires careful consideration. There are many issues to be investigated and advised upon to ensure the purchase of your new business is legally sound and your interests are properly protected.

What Questions should I ask Before Buying a Business?

Since buying a business is a significant commitment, it is important that you do it right. Before committing to buying an existing business, there are fundamental questions and research to conduct to satisfy yourself that the business will be profitable, meet expectations and be in your best interests.

 

What does the market look like?

Researching the market of your potential business is essential to help you assess how well the business is likely to operate and perform in the future. Looking into the competition and potential and future customer base/s will allow you to determine the prospects of the business, the potential of growth and likelihood of success. Understanding the current and projected market will help determine whether the business is worth investing time and money into.

 

What are the current financials of the business?

Due diligence refers to the process where you, your accountant and your legal advisor will assess various components of the business you wish to purchase.

 

Due diligence will include a detailed examination of matters such as the current and previous financial statements of the business (indicating how it performs independently and in comparison, to competitors), customer bases/loyalty figures and any existing contracts that may exist between the current business owner and third parties such as other vendors or suppliers of goods and services. This will help you understand why the owner is selling the business, whether it is a suitable business for you to purchase and what the future potential of the business is.

 

Due Diligence Examples include:

  • Financial Statements: Reviewing current and previous financial statements to evaluate the business’s performance relative to competitors.
  • Customer Bases: Examining customer loyalty figures and understanding the dynamics of the business’s relationship with its clientele.
  • Contracts: Reviewing existing contracts with vendors, suppliers, or other third parties to comprehend the business’s obligations and relationships.

A thorough financial examination helps uncover reasons behind the sale, assesses the business’s sustainability, and predicts its future prospects. Your accountant will help you with this.

Will the Business Work for You?

As a new owner, you will have ideas about how exactly you want your business to function. This is especially important if you are planning to alter the business in any way. There are a number of factors that must be considered before you make the decision to purchase a business.

 

Location

Is the business in the right location? As businesses grow due to their customer base, it is essential to consider whether your prospective business is situated in a place that is easily accessible and within an area with a high potential customer base. Ensuring it is located in the right location will promote customer loyalty and allow you to expand the reach of your product.

 

Employees

It is essential to consider the current employees of the business you are purchasing. Do you plan to keep these employees? Or change any roles and functions in their employment agreements? Are the current employees trained and able to add value to the business and support you when you take over.

Lease

You must also consider the current lease of the building for your business. You need to know how long the lease is, whether it has options to extend the lease, the current rent and rent review mechanism, any responsibilities you, as the new tenant will have such as an obligation to repaint or refurbish the premises during or at the end of the lease.

 

Stock and Trade

Clarify what is included in the business purchase, such as equipment, trading stock, and intellectual property. You want to make sure you get everything required to run the business. You don’t’ want to buy out of date or obsolete stock. This understanding is vital for a smooth transition and ongoing operations.

 

Is there a Business Purchase Checklist?

Buying a business is a significant financial responsibility. Before diving into the significant responsibility of buying a business, it’s essential to be well-informed about all relevant elements. Lord Commercial Lawyers offers a comprehensive business purchase checklist that covers crucial aspects requiring attention and consideration.

 

Navigating the complexities of a business purchase demands legal expertise on commercial agreements, business contracts, co-owner arrangements loans, and employment contracts. Lord Commercial Lawyers has an experienced team of lawyers focused on the needs of small businesses. We ready to assist throughout the entire process.

 

Are you buying a small business in Melbourne and need a small business purchase lawyer? Lord Commercial Lawyers can help you with commercial agreements and business contracts. Located at level 10, 167 Queen Street, Melbourne, you can visit us, contact us here, or call (03) 9600 0162.

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