The 5 easy steps to buying a business are:
Step 1. THE SEARCH
Step 2. UNDERSTANDING THE VALUE OF THE BUSINESS
Step 3. THE OFFER
Step 4. DUE DILIGENCE
Step 5. THE TAKEOVER
In many ways buying a business is like solving a jigsaw puzzle. There are many pieces of information to be gathered for a complete assessment of the business.
To ensure you fully understand what you’re purchasing, we’ll take great care to give you a complete picture of the businesses of interest to you. We have long realized it is not in anyone’s interest to offer a business that is not well disclosed with good documentation.
With an excellent reputation to protect, you will find us making a point of providing you the best possible documentation – and should any queries arise, we’ll do our utmost to provide you with complete answers. If you select a business to be of definite interest, the GMO broker will arrange for you to meet the owners and make a physical inspection of the business and its premises.
This meeting should also explore questions you might have about the business model, the business operations, the profit calculations and the strengths, weaknesses, threats and opportunities that are presented to it.
Your GMO broker will follow up with supplementary answers from the owner and the business’s accountant.
The GMO team is here to assist you in putting all the jigsaw pieces together.
Your GMO broker will give you an Information profile on one or several businesses which match your criteria.
The profile has a thorough coverage of how the business operates and a financial analysis to help you and your accountant make an informed decision.
The profile includes information on:
When buying a business, it is important to be accurate in estimating the total investment and your ability to meet what is required as the total investment can be more than just the purchase price!
For instance, you may need to allow for the following:
If you’re seeking a loan to purchase your business, we strongly recommend using an experienced Finance Broker to assist as he/ she will know which banks and bank managers suit certain industries. The Finance Broker will assist in making your loan application look as professional as possible.
There are four key aspects to a business that you pay for:
The profit of a business is “valued by the marketplace” on a yield on the purchase price or a multiple of profits. The most common way this is expressed is as a Return on Funds Invested. That is: the profit divided by the total price and multiplied by one hundred per cent. The formula looks like this:
The stability of profits is an indication of the likelihood of earnings continuing after you have assumed ownership.
Essentially, a business is worth what the market will pay for it, but as basic guideline, value usually relates to expected returns as well as the level of security. The price is usually based on a multiple of earnings. For instance, a business regarded as “very safe” may fetch a high multiple of earnings while “less safe” businesses may sell for a lower multiple of earnings.
The role of our brokers is to explain this in full to you – so do feel welcome to ask questions as you must have a full understanding of what you’re paying for and a good appreciation of the business’s value. When you can see yourself in the business and have a good understanding of its value in the marketplace, you’re ready to make a conditional offer. Of course, you will not yet have every building block of information about the business yet, so we will help you prepare a Conditional Offer which is “subject to” certain pre-conditions being satisfied by thorough Due Diligence before you are totally committed to the purchase.
Before making your offer, you need to decide what type of entity best suits the operation of your business.
You may offer as an individual, a partnership, a company (corporation), or corporation or individual acting on behalf of a trust (such as a family trust).
Your accountant can advise you on which format best suits your family and tax planning situation.
Your offer will be to buy the business: For a certain price – On a certain date – Subject to:
The GMO broker will present your offer to the Seller and there may be either an acceptance or a counter offer.
GMO will mediate on any issues to achieve consensus and acceptance.
Once agreement is reached between Buyer and Seller, the business is then officially “under offer”.
Your deposit is paid into the GMO Trust Account, your Due Diligence will then commence and GMO will help you tick off “all the boxes” as you progress towards settlement.
You need to be aware that though a business can be your route to securing an excellent income and future, sometimes there are trade-offs and personal challenges to your family’s lifestyle to be prepared for.
If you’re not familiar with running a business, we recommend discussing your plans with an accountant or an experienced banker as they can help you to equip yourself well. Remember that whilst a business is your route to securing an excellent income and building a better future for your family, sometimes there are trade-offs to be prepared for.
At the end of the Due Diligence process, you should have a clear picture of where the business is today, where you can take it in the future and why the owner is selling.
The Due Diligence process involves examining the Financial Data, Income Statements, as well as the recent years Tax Returns to determine:
We can recommend experienced accountants and solicitors to help you with Due Diligence, if you do not have arrangements in hand yourself.
In addition to accountants and solicitors we can help you to obtain professional advice from other professionals such as:
Even if you’re an experienced Business Buyer it is still a good idea to have an additional opinion to help you reach an informed, well-balanced decision and to ensure a smooth Settlement.
Through having been in the business sales industry for a long time, we have met and worked with many of Perth’s best advisors.
Let us know if you need a recommendation for professional assistance. We can make suggestions to you on the appropriate route to take.
If the Due Diligence is not to your satisfaction, or your finance is refused, then your deposit is refunded and GMO will present you with other businesses to consider.
Far more likely: Due Diligence, finance and lease issues will all be satisfied and you are now positioned to become the proud owner of the business!
GMO recommends the appointment of a Conveyancer/ Settlement Agent.
As the new owner, you will need to decide if you wish to employ all, or some of the staff and give the Seller time to advise staff members of their employment going forward and introduce you to the staff prior to Settlement Day.
On Settlement Day, you and the outgoing owner should:
Settlement funds usually transfer on a Friday and stocktake and keys handover usually occurs over a weekend.
You are now in business!