Buying or Establishing a Small Business

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The legal process involved in setting up a business or purchasing an established business are complex and may prove to be a daunting task for first timers.

There are both advantages and disadvantages of buying an established business and/or setting up your own.

One of the main reasons why people choose to buy an established business is because an established business has an existing cash flow. However, setting up your own business is usually cheaper and gives you control over how the business is run from day one.

This article aims to provide you a summary to guide you through the process of setting up a small business and buying an established business.

Setting up your own small business

When setting up your own business, you should formulate a business plan that will include the factors that will affect your business including; potential customers, present competitors, potential risks involved, cash flow, a marketing plan, a succession plan, an emergency management and recovery plan. You should regularly review and revise your plans as an ongoing business activity.

Choosing an appropriate business structure is one of the most critical decisions in the business setup process. The 3 most popular business structures are – sole trader, partnership and company.

You will need to complete certain registration procedures and formalities depending on your business structure, before starting your business. These include but are not limited to:

  • Business Name Registration;
  • Tax File Number Registration;
  • Australian Business Number Registration;
  • Goods & Services Tax Registration, if required;
  • Pay As You Go Withholding Registration, if required; and
  • State Based Registrations.

Ensure that you have a clear idea about funding before starting your business. A well prepared business plan accompanied by detailed financial information is the key for securing funding from banks or prospective investors.

Setting up your own small business also involves various steps such as:

  • Obtaining detailed financial and taxation advice from an accountant or other qualified adviser;
  • Choosing business premises, negotiating a lease, licence or purchase agreements in consultation with Solicitors;
  • Arranging comprehensive insurance policies against injury, property damage, fire, theft;
  • Arranging for electric, water, telephone and gas connections; and
  • Buying supplies or trading stock, determine terms of payment, deliver and freight.

Buying an Established Business

You should take due care when buying an established business to ensure that the transfer is properly effected and that you are legally protected.

Buying an established small business is a big decision and you need to consider all available options before making such decision.

The consideration depends upon what type of business you are buying and being a prospective buyer, you should determine the current value of the business and its future prospects. Following are some important considerations:

  • The reason for sale of business;
  • Patterns, trends, customer base, current suppliers;
  • Fixed and variable costs, staff costs;
  • Existing financial records, future cash flow and profitability;
  • Identifying and checking all assets, including intellectual property and leasing arrangements;
  • Outstanding debts, refunds and warranties;
  • The Purchase Agreement;
  • Tax – GST, Capital Gains Tax, stamp duty implications; and
  • Legal issues including due diligence checks, negotiating new leases, continuing employees and long service leave adjustment, insurance and indemnity as well as drafting special conditions to suit your needs.

Our team of expert small business lawyers can provide guidance on the processes involved in purchasing or setting up a small business, including referring you to qualified professionals for advice other than legal advice.

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