Owning your business can be extremely rewarding. You will be able to do the work that you love. You will be your own boss. You will determine the pace of growth. Having said that, buying a business can be a daunting endeavor. As normally businesses are not often bought and sold, most people are not aware of all the steps in acquiring a business. People are not aware of what paperwork needs to be filled out. People are not aware of required licensing or permits.
One approach would be to take the time and learn the trade. However, for a once-off deal, this will be highly inefficient. A much better solution would be to hire an experienced business broker. Here is the added value business brokers bring to their clients who are buying a business:
Competence
Licensed business brokers will bring training, experience, knowledge, and expertise to your deal. In order for them to have a license, they have undergone rigid training and successfully passed all necessary exams. While normally you will be engaged in purchasing a business once in a lifetime, for the professional business broker this is “just a day in the office”. Their extended experience and expertise will help buyers to understand the strengths and weaknesses of every deal.
Finding The Right Businesses For The Right Price
Finding the right business for you is not always easy. What business brokers will be able to offer is their extended referral base with hopefully (for standard businesses) a pool of sellers. In this way, you will have a selection to choose from.
Due Diligence Of The Business
But it is not always enough just to find a business. What is also important is in what shape is the business. Again the business broker will facilitate the conduct of due diligence of the business in order for you to check:
- The financials of the business for the past years;
- The assets and the liabilities of the business;
- The list of equipment which is being sold;
- Real estate deeds or lease contracts;
- If the business is a franchise – a copy of the franchise agreement;
- What are the customers and the suppliers of the business;
- Legal rights and obligations of the business;
- Who are the competitors?
Last, but not least you need to ascertain that the offered price is reasonable. Business brokers are trained in business valuation and financial analysis and will be able to provide the necessary insight into the business’s finances and make an independent evaluation. What is more, they will have insights on the functioning of the business, the business climate, and future prospects, which they can share with you.
Now you will have a justification of the required price, you know what is being sold, and maybe certain that you are not jumping into an overpriced deal.
Communication And Negotiations
Few deals are just straightforward agreements signed on site. Normally buying a business will be a relatively lengthy process of questions and answers between the buyer and the seller (before, during, and after the due diligence). This preliminary communication is also necessary in order for both sides to be fully clear on all the details of the upcoming deal.
Besides determining details about the business usually, the sides of the deal will enter into the negotiation phase. This is when the offered price and the terms of the deal will be negotiated. The business broker is invaluable in this stage of the deal, as he will liaise between the buyer and seller, facilitate communication and make the negotiations fruitful.
Deal Structure
Assuming that you have identified the business of your choice, and are comfortable with the price, the next step would be to structure the deal. This means that all of the details about the business purchase need to be clarified and expressly written down. Although no two deals will be the same, some of the elements of the deal structure are present in each deal. Here are a few of the more common ones:
- Who is selling and who is buying;
- The price, as negotiated and approved by the buyer and seller;
- What is being bought – assets or stock;
- What are the payment terms for the deal;
- Will, there be any holdback from the sale price and under what terms;
- Specific terms for any real estate of the seller, which is used by the business.
The business broker will suggest the most appropriate deal structure, will clarify all the details, negotiate if necessary, and will offer the final draft for consideration by the parties.
Paperwork And Taxes
Structuring the deal is not the end of the paperwork necessary for buying a business. Now a contract needs to be drafted, closely following the deal structure. Additional permits and licenses may also need to be updated, as the owner is being changed. Some taxes will need to be paid. The transfer of the business name to the buyer should also be enacted. All this paperwork, taxes, and necessary registrations of the business purchase will be facilitated by your business broker.
How To Choose A Business Broker
As you will be depending on the competence and expertise of the business broker it is important to make sure that he is a licensed company (do avoid one-man-shows). The proper license for a business broker is issued by The Australian Institute of Business Brokers. Having ascertained the license, now chose your individual one.
Huge organisations like Goldman Sachs or J.P. Morgan also function as business brokers. However, especially for small and medium enterprises, the best choice for a buyer is to go local. If you are looking for a business in Melbourne, do not aim at an international company, but rather look for competent business brokers in Melbourne. Chances are that they will have a better local network, know the business climate better, have a long list of businesses for sale in Melbourne, and will be able to advise on any local opportunities and threats either for the business or for the deal.
Now you know how the purchase of a business can happen easily, with few efforts and rework and without any mistakes. Just find the business broker suitable for you.
