Commercial Property
Issue No. 27 - February/March
The Business of Buying a Business
How often do you hear “the most significant investment a person will make during their lifetime is the purchase of a home?” Well, for many people this isn't true. There's usually more money and risk involved in buying a business.
Just as you'd (hopefully) do your “home” work before buying a house, so too should you thoroughly check out what you're really getting when you buy a business.
Doing “Due Diligence”
'Due diligence' is the process of ensuring that the business you intend to buy is what it appears to be and that there are no hidden surprises. Due diligence should ideally involve both a chartered accountant and a lawyer to obtain and review information about the business. Regardless of who is going to perform the due diligence, the following should be some of the key factors reviewed:
Historical Financial Statements
What are the trading trends, changes in margins and unusual inconsistent expense items? The financial results should be compared with financial benchmarking information for the particular industry.
GST Returns and Tax Returns
Do the financial statements match the information provided to the ATO? If there are discrepancies, they need to be investigated and this is also a good way to identify seasonal fluctuations in trading.
Accounts Receivable and Customer Lists
It is vital to know how many customers a business has and what reliance there is on ...
