When you are purchasing a new business, you will need to take certain steps to ensure that your new business is a good investment. Part of the research you might undertake when considering what services you may need, include: 

  • scanning the market;
  • conducting due diligence, and 
  • seeking a second opinion from relevant professionals. 

Having experienced professionals in your corner as you go through the purchase process can have a significant impact on the outcome of the transaction. This article discusses three people you should engage when buying a business, including:

  • an accountant;
  • a business broker; and
  • a lawyer.

The Legal Stages of Purchasing a Business

Before speaking with an accountant, a lawyer or a business broker, it is useful to understand the process of purchasing a business. The process generally involves:

  1. an offer to purchase;
  2. review of the contracts;
  3. negotiations and exchange; and
  4. settlement.

The type of assistance you need will depend on your progress in the purchase process.  However, it is common to engage these professionals in the early stages of the purchase. This is so you are able to ask questions and seek professional advice as the sale moves along.

An Accountant

A good accountant will provide ongoing assistance throughout the purchase process. An accountant can offer a range of helpful services, including:

  • financial planning to ensure that the investment is within your budget;
  • tax management strategies;
  • protection of your existing assets;
  • valuation of the assets, goodwill and potential profit of the business;
  • review of the vendor’s profit and loss statements and projections;
  • budgeting and forecasting for your takeover;
  • business planning; and
  • help with finding finance for the purchase.

Evaluating the Purchase

During the first two stages of the purchase process, your accountant’s vital role will be to help you assess the viability of purchasing the business. This means that your accountant can help you understand the financial history of the business. The critical question your accountant should help you answer is whether the business is worth the asking price. Ultimately, this could affect your willingness to accept the vendor’s price.

Planning for the Future

A good accountant will help you prepare for the future as well as assisting with due diligence. Part of the purchase process is to create a financial plan for the first few years. A good plan should include a: 

  • business plan;
  • modelling income; and
  • expenditure and budgeting. 

Creating a financial plan for your takeover will allow you to evaluate the potential return on investment from the purchase of your business. This information will allow you to forecast the amount of cash flow required to ensure that the business is a success.

How Do I Find a Good Accountant?

Not every accountant specialises in the process of buying a business. Also not every business purchase is the same.

For example, if you are purchasing a local cafe, an accountant with experience in mergers and acquisitions for multinational corporations may not be an appropriate choice. 

You should search for an accountant who:

  • is experienced with business sales and purchases similar to the business you are looking to purchase;
  • has worked with other businesses in the relevant industry (e.g. hospitality); 
  • is capable of thorough financial due diligence;
  • can assist with financial modelling and cash flow projections; and
  • provides sound overall business strategy advice.

A Business Broker

A business broker is likely to be your first point of contact in the purchase process. Brokers act on behalf of the vendor and assist in finding a buyer for the best price. Their goal is to get the sale across the line, and they usually have an interest in maximising the purchase price. They will attempt to wrangle terms that will suit the vendor, rather than you, the purchaser. Therefore, it is essential to keep the broker’s motive at the forefront of your mind as you negotiate. Despite this, a business broker has valuable information about the business and the market. They are in a unique position as the only professional with this level of expertise and information.

Brokers have extensive experience and understanding that you may be able to leverage during negotiations. 

What Questions Should I Ask a Business Broker?

During the early stages of the purchase, you will have the most contact with the broker. The kind of information you can gather from the broker includes:

  • a comparison of the business to others in the market;
  • what the current state of the market is (for example, whether it is supply-heavy or demand heavy);
  • how the business was valued;
  • financial records, and how accurate they are;
  • what the key terms of the sale are;
  • the vendor’s goals for sale and why they are selling;
  • what the projected and ideal timeline for the sale is (for example, whether there is any urgency); and
  • whether there has been any other interest in the business.

A Lawyer

A lawyer with experience in business sales and purchases will be essential to have around when dealing with the business purchase process. They will be able to provide you with legal advice and help you make smart decisions throughout the purchase process. Some of the services they help you with include: 

  • due diligence;
  • reviewing the heads of agreement;
  • reviewing the sale of business agreement;
  • providing legal advice about the terms of the sale, the risks involved and your legal obligations throughout the process;
  • negotiating the terms of the deal on your behalf;
  • exchange of contracts; and
  • assisting you to finalise the settlement and your purchase of the business.

The vendor will set the terms of the sale, and the vendor’s solicitor will draft the sale of business agreement. As a result, your lawyer’s role is to help you: 

  • understand the terms; 
  • evaluate their fairness; and
  • get the best deal possible. 

What Makes a Good Lawyer?

Your lawyer will play a crucial role in the process of purchasing your new business. You should find a lawyer who you trust and has experience in the area. Key qualities of a good lawyer include:

  • experience in the sale and purchase of businesses of a similar size;
  • a general understanding of the relevant industry (e.g. retail);
  • a commitment to collaborative negotiation;
  • willingness to be flexible and work on a fee structure that you’re comfortable with;
  • a commercially-minded approach; and
  • excellent communication and responsiveness.

Key Takeaways

If you have not purchased a small business before, doing so can be a daunting prospect. Fortunately, connecting with the right network of professionals and leveraging their experience can put you in the best possible position to succeed in your new venture. Finding a good lawyer, business broker and accountant is the first step in the right direction. If you need help with purchasing a business, contact LegalVision’s sale of business lawyers on 1800 544 755 or fill out the form on this page.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

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Sam Burrett
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