Taking Over An Existing Business

Taking over an existing business, whether it is buying an established business or taking over the family business requires careful analysis and planning. When buying a business, some aspects to consider include:

  • Why is the business being sold? What is the vendor’s history with the business?
  • Are there any sales patterns or trends? What is the business’ customer base? Who are its current suppliers?
  • What are the fixed and variable costs for the business? Are there any staff costs?
  • Is the business profitable? How does the business’s previous financial records look? Has it consistently run a surplus?
  • What assets does the business have? Does it have any intellectual property or leasing arrangements?
  • Does the business have any outstanding debts? What refunds and warranties still exist for the business?
  • Have you reviewed the purchase agreement carefully?
  • What kinds of tax will apply? Consider GST, Capital Gains Tax, and stamp duty implications.
  • What are the legal agreements on leases? What is the business structure?
  • What has and hasn’t worked for the previous owner?

While a prospective business owner must carefully consider the factors listed above prior to purchasing an existing business, taking over a family business requires consideration of a different set of factors. They include:

  • Work-life balance – business creeping into family life
  • Different expectations and work ethics between generations
  • Rivalries – family members who don’t work well together or are too competitive
  • Older generations not willing to let go and handover control, or younger generations not wanting to join the family business
  • Deciding the future direction of the business
  • Choosing the right person to take over the business
  • Managing disagreements between family members.

The benefits of such a takeover can be significant. Those that take over a family business often have a longer term view of success and plan for returns over a longer period. They often demonstrate stronger customer focus, community reputation and special care for employees.

One of the biggest challenges of owning a family business is balancing the relationship between work and family. Regardless of which option you choose – buying an existing business or taking over a family business, discuss the plan with your Chartered Accountant to ensure you are making a fully informed decision.

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