Buying a business is a daunting prospect at the best of times. With a variety of factors to consider, risks to weigh up and more, the whole process can seem very confusing.

This article provides a summary of the processes involved in buying a business in NSW and factors one should consider before getting involved in such a transaction.

Buying A Business

As a prospective buyer, when looking at businesses listed for sale some important factors for consideration include:

(a)          the Contract or Purchase Agreement;

(b)          Business Name Registration;

(c)           Tax File Number (“TFN”) & Australian Business Number (“ABN”) Registrations;

(d)          Goods & Services Tax (“GST”) Registration;

(e)          Pay As You Go (“PAYG”) Withholding Registration;

(f)           State Based Registrations; and

(g)          other legal and compliance issues.

Business operation and sales performance:

(a)          review the sales structure of the business;

(b)          check the manner in which the sales are conducted with that of the trend of the industry;

(c)           what are the prospects of business expansion;

(d)          ensure the stock is not too old and is sufficient to carry on the business;

(e)          find out who the existing customers of the business are; and

(f)            check whether you can continue transactions with existing suppliers.

Cost of the business:

(a)          identify all fixed and variable costs;

(b)          check if the depreciations are reasonable or not; and

(c)           compare the price with that of comparable businesses in the same industry sector.

Business profit:

(a)          a thorough analysis of all the financial records of the business including balance sheets, profit and loss statements, Business Activity Statements and sales records should be conducted;

(b)          determine whether the business generates sufficient profit for a reasonable income; and

(c)           compare the profits with that of the industry trends.

Business assets:

(a)          check all the assets carefully before buying a business;

(b)          check the correct depreciation of the assets;

(c)           check any lease attached to the fixed assets;

(d)          make sure that the equipment used in the business are in working condition;

(e)          check if any equipment/machinery is out-dated or if it is necessary for the business; and

(f)            conduct a PPSR search to ensure that there is no security held over the assets of the business.

The Contract or Purchase Agreement:

(a)          check whether all the assets has been included;

(b)          check whether the Contract or Purchase Agreement clearly mentions the liabilities of the business; and

(c)           ensure the Contract or Purchase Agreement includes clauses to protect the buyer; covers issues of obtaining finance, inspecting records, and receiving necessary licences and other rights.

Legal And Compliance Issues

Starting a new business or purchasing an existing business involves various legal and compliance issues, including but not limited to:

Business Name Registration

The national business names registration service requires businesses to register their name with a single national register and pay a fee.

Business name registrations can be undertaken on the website of the Australian Securities and Investments Commission (“ASIC”) at www.asic.gov.au.

TFN, ABN & ACN Registrations

If you decide to operate your business as a sole trader, you can use your own TFN for both your business and personal dealings. A separate TFN is required when your business is a Partnership, Company or a Trust.

ABN registration is required for dealing with other businesses and to avoid having amounts withheld from payments made by your customers.

If you decide to operate your business as a company you will also need to register your company with ASIC and you will be provided with an ACN.

GST Registration is compulsory if:

(a)          your turnover is $75,000 or more ($150,000 or more for non-profit organisations); and

(b)          you provide taxi services for fares, irrespective of what your turnover may be.

ABN and GST registrations can be undertaken online at www.abr.business.gov.au.

PAYG Withholding Registration

PAYG withholding registration is required if your business has employees, makes payment to directors, makes payments to suppliers who have not quoted ABN. Further information is available on the Australian Tax Office website at www.ato.gov.au.

State Based Registrations

If you are starting a business in NSW then information on applicable licenses, State taxes (e.g. payroll tax) and regulatory requirements is available on the NSW Trade and Investment website (http://www.business.nsw.gov.au/doing-business-in-nsw/starting-a-business) and on the website of NSW Fair Trading.

Other Legal and Compliance Considerations include:

(a)          using the correct structure to own the business;

(b)          conducting appropriate due diligence when acquiring an existing business and drafting an applicable Contract or Purchase Agreement for the transaction;

(c)           how you deal with personal information of customers to ensure compliance with the Commonwealth Privacy Act, 1988;

(d)          understanding your obligations towards customers when providing any warranty on products or services sold; and

(e)          reviewing your insurance requirements to assess what insurances your business requires to comply with legislation (e.g. Workers Compensation Insurance administered by Work Cover Authority of NSW for NSW businesses) and other applicable insurances to cover the various risks that your business will be exposed to, in the course of its operations.

We invite you to download our free Business eGuide here.  Our team of experts at WMD Law can provide guidance on the processes involved in purchasing a business, please do not hesitate to contact us on 9525 8688 or wmd@wmdlaw.com.au.