June 28, 2021
Do your homework before buying a business

Buying a business is an important decision.  It’s important to know where to start and to get good advice, and to make sure you do your homework and understand exactly what you are buying. 

Seeking professional legal advice at the beginning of the process can save you a lot of time, money and stress down the track. 

Buying a business or franchise can have big advantages over starting from scratch, especially if you get an established client base.

Be realistic about what you need to put into the business. If you’re putting your life savings into the business or borrowing against your family home, you need to assess whether the business’ current and potential profit is adequate compensation.

Understanding the market that you intend to operate within is crucial. Research the business, including its financial statements, suppliers and competitors. You need to research industry trends in the region, and compliance requirements. Is there the potential for expansion and any barriers to growth? Think about your skillset and whether you will need to employ staff.  

‘Due diligence’ requires an understanding of assets, liabilities and potential for profit and growth. Research both the tangible assets of the business - plant, equipment and vehicles - and intangible assets such as intellectual property rights and goodwill. The amount of goodwill payable for a business reflects its profitability, location, brand and reputation in the market and you should consider whether the business will continue being as profitable once the current owner has sold.

The purchase of a business may also require a review of any lease arrangements, supplier and employment contracts.

Lyon O’Neale Arnold Lawyers’ specialist legal team is available to assist, phone 07 928 4422.

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