The prospect of owning your own business is an appealing one, especially in the current environment, where discussion of entrepreneurship is frequent.
But with stories of new business founders and successful start-ups popping up regularly in our news feeds, you’d be forgiven for thinking undertaking such a project is easy.
In fact, there are numerous things to consider before you jump in at the deep end. We’ve pulled together ten questions you should ask yourself, before diving in:
1. Is business ownership right for me?
This is perhaps the million-dollar question. And it can be difficult to really know the answer until you give it a try. A good way to start though is to consider why you want to go into business. Do you want increased autonomy? More money? Status and power? Flexibility?
Though short-term rewards are certainly worth addressing, it’s important to delve a little further.
What is your end goal? Think about whether you wish to be in business for a few years or a few decades, and how you’d go about opting out if things aren’t working out.
2. What type of business should I buy?
A multitude of factors are going to come into play when considering what type of business you should buy.
A key influencing factor will be your motivation for going into business. If you’re passionate about a specific industry, your answer will be much easier to define.
Your level of business experience will also come into play. How complicated is the type of business you’re looking at? How much time to do you have to put into it? Are you able to attend a bricks and mortar storefront or do you require something online?
The final – and perhaps the most important – factor is economic. How much do you have to spend? This will determine the type and scale of business that you’re able to purchase.
3. Should I prepare a business plan?
This is a question that many new business owners ask themselves, and often when the business is small or unique, the assumed answer is no.
In fact, business plans are important for all businesses. One of the main reasons small businesses fail is inadequate planning, and subsequently, inadequate resources.
Writing a business plan allows you to determine exactly what you require in order to both start the business and continue to run it successfully.
Diving in without a plan will leave you flying by the seat of your pants.
4. What business structure should I go for?
Before you launch your business, you’ll need to consider what type of structure will be most effective and whether or not you’ll have to change the current structure of an established business.
If you operate your business as a sole trader, you are trading in your own name, meaning you are personally legally responsible for all aspects of the business.
You’ll need to apply for an Australian Business Number, which is cost-free, and submit quarterly Business Activity Statements, which will determine GST and Income Tax owed to the Australian Tax Office.
A company is an independent legal entity from that is able to do business in its own right, meaning that it is the company that is legally responsible for the business.
There will be additional costs to set up the company structure and different administrative requirements, such as the company paying you a wage or salary.
Operating a company gives you much more protection of personal assets, but this protection comes at a cost both in terms of money and administration time.
5. How will I finance it?
Obviously you can’t go into business without being able to pay for it. For most people, financing a new business requires some sort of bank loan.
If so, you’ll need to consider what types of loans are available, your loan structure and prepare a suitable business plan in order to secure the best value loan.
A good start is to make an appointment with a broker who specialises in small businesses loans. They will be able to guide you in terms of what information you’ll need in order to access, and how much you’ll need to service it. They also help you access the best deal.
6. What sort of taxes will I have to pay?
There are numerous taxes that need to be considered but not all of them necessarily apply.
When buying a business there are stamp duty implications on certain assets, says tax accountant Mariana von Lucken.
“Stamp duty will depend on residency of the purchased, what assets are purchased and whether you fall under a stamp duty exemption,” says Ms von Lucken.
Once the transaction has taken place, the following taxes will need to be considered:
- Employee taxes
- Payroll tax if salary and wages over $750k
- Income tax if you make profits
- Workers compensation
- Fringe benefit tax if you provide benefits
7. How do I find the right business?
When deciding on the right business for you, think about your strengths and weaknesses. If you find the process of actually running the business daunting, perhaps a franchise is for you.
If you’ve got the gift of the salesperson gab, then a product-based business might be a better choice.
Or maybe you’re a stay-at-home parent and need to be flexible – an online business could be the way to go.
The most important aspect is research. Be aware of any costs involved with the running of a particular business, staff requirements, and inventory requirements.
An online market place for buying and selling businesses is a good place to start.
8. What do I need to know to do my due diligence?
Due diligence is a crucial part of any business purchase so it’s important to know what information you’ll need. Generally Due diligence is completed after the agreement is made but before the contract is signed.
Done right, it will be the difference between buying a business that makes you money and taking on someone else’s disaster. It’ll make you aware of any liabilities, legal issues and profitability or lack thereof.
Obtain a list of the financial documents that you’re entitled to and be sure to request copies of each. Most importantly, review them carefully.
9. What types of agreements do I need when I buy a business
Once you’ve settled on a business there will be a number of agreements that both you and the seller will need to sign.
Some of these documents include:-
- Letter of Intent
- Terms Sheet
- Memorandum of Understanding
- Confidentiality Agreement, and
- Sale of Business Agreement (alternatively, you may require an asset sale agreement or share sale agreement).
10. What happens during settlement?
Essentially, settlement is what happens when the purchaser pays the vendor the balance of the money owed, after the deposit has been deducted.
The vendor will provide any relevant paperwork, such as transfer of ownership, certificates of ownership, any patents or trademarks etc.
The purchaser will also receive any books and records, keys and security codes or additional permits or consents.
Faye Ferris is the APAC Sales and Marketing Director for BusinessesForSale.com, one of the world’s largest online global market places for buying and selling small-to-medium sized businesses. Faye is passionate about helping Australian small business succeed and regularly writes about entrepreneurship and business management and selling small-to-medium sized businesses.