Lately, in a post covid slump, we’ve had a lot of enquiries from new clients looking to either establish their own business, buy an established business, or become an owner in a multi-owner business. Whether it’s been post offices, locksmith businesses, cleaning businesses or professional services businesses, all have shared one key element – a motivated, enthusiastic, acquirer.
When reviewing a business, we always suggest a staged approach. This is because, although it’s easy to have an open-ended project, it’s much better to have points of decision making.
Stage 1: Understand the Valuation and Transaction
If there is a price on the business, we can help review this and ‘sanity check’ it for you. Essentially, we want to know what profit the business can generate each year, and how many years it will take to pay back the debt (literal, or figurative) to buy the business.
Stage 2: Terms Sheet
We will always suggest negotiating a terms sheet with the vendor, this way it informs the legal team preparing any contracts, and allows for all parties to understand the terms of the transaction being contemplated. This will include items such as:
- Who is buying the business
- What they are buying
- Handover terms
- Price and how this is calculated
- Conditions to the transaction
- Items transferring – staff, premises, IT etc.
Stage 3: Informed Due Diligence
We often steer away from a formal due diligence process for small businesses, as the costs can be prohibitive. However, a good Accountant can always talk you through the basics to review yourself. This might be reviewing BAS’s and lodged tax returns to revenue reports in different businesses. Red flags can be escalated to your adviser.
At each stage of this process, it comes back to the question “Are you still pursuing this?”. This allows constant evaluation of the transaction for you. We often talk about the non-tangibles throughout a transaction – what does your significant other think? How are you financing the transaction? How will it impact and benefit your life in the future? Are there any licenses, or education you need to pursue to be successful?
Stage 4: Structuring and Post Transaction Support
Once a deal is agreed, we can help you work through structuring advice to set you up for success in the future – during this, we need to consider your personal circumstances, tax consequences and asset protection. There are also things to consider like GST registrations, reporting obligations and record keeping. Now’s the time to build a connection with your Accountant if you haven’t had one before – it’s time to ask all the questions you have and learn about the nitty gritty of being a business owner!
If you’d like us to help you evaluate a business, contact your local Accru office and we’ll be happy to provide you with personalised support.
