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Considering Buying a Small Business?


It is the dream of many Australians to be their own boss, but that dream can turn into a nightmare very quickly if proper investigations and enquiries (often referred to as Due Diligence) are not made. Before taking the leap and buying a small business, it is imperative to take small steps with both financial and legal due diligence.

Financial due diligence is essential. Do the figures stack up? What is the financial history of the business? What is the past return to the owner and what are the circumstances that might affect future profitability? These investigations need to be made by an accountant who can look at all financial matters objectively and provide a true and balanced opinion.

Equally important is the legal due diligence. Some things you may need to consider are:

  • Accurately recording the assets being purchased in the business. Don’t assume that such things as telephone number, fax number and email address are included.

  • Thoroughly examine any lease of premises occupied by the business.

  • Ensure that old and obsolete stock is not counted in any stocktake so you don’t pay for it.

  • Ensure that plant and equipment being purchased with the business is accurately recorded and there is an obligation on the seller to maintain the equipment until settlement and to hand it over in good working order.

  • Have a well-drafted restraint clause in the purchase contract to prohibit the seller to start a competing business for a specified period.

  • Know which staff are staying with the business and what entitlements you, as buyer, are taking over.

  • Know your stamp duty liability for the purchase.

The above are some of the investigations that need to be done by someone experienced in the purchase of small businesses. Proper and thorough investigations will give you peace of mind and ensure the best start to fulfilling your dream.

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