There are plenty of advantages to buying an established business. You don’t need to spend time setting up workflows, hiring staff, buying equipment, and establishing a client base. All you need to do is figure out how to make the business work.
However, you can’t account for everything that could happen once you’re already at the helm. What you thought would be a revenue-generating machine could put a strain on your finances; you could end up spending thousands of dollars trying to get your business up and running. Don’t fall into this trap; consult your commercial lawyer before signing, and watch out for these hidden factors before buying someone else’s business.
Do you have up-to-date technology?
Before buying the business, look into the software licences and the hardware at the office. Know how much of your tasks rely on having the latest software and hardware. If you acquire a company with outdated, decades-old devices, it will cost a lot to replace the equipment, train personnel, and obtain the needed licences. For some businesses, having the latest technology is vital to operations; for others, it’s nice to have.
Do all the equipment belong to the business?
When buying a business, one of the first things to check is if it owns the equipment or office space outright. You have to be aware of what the company is still paying for since this is a potential drain on your revenue. If you don’t check this, you might end up paying off old CAPEX. Consult a lawyer who specialises in commercial conveyancing or corporate law about issues involving transfers of titles for buildings and office space.
Does the website need revisions?
A website is a company’s digital storefront, and having a poorly-designed website could cost the business its credibility. If the website needs redesigning, it could cost several thousands of dollars. Also, redesigns could take several weeks. If you want to make an offer on a company, get quotes on how much it will cost to redo the website and incorporate this figure into your calculations.
Do you have access to all the subscriptions?
It’s necessary to know which online service subscriptions a business has before buying it. Most SMEs these days have online web support, SEO software, Google Ads or Facebook Ads accounts, and others. If you don’t know what tools the company uses or how to use them, you could end up cancelling a vital service or paying for something that isn’t worth it.
Before making an offer, know the impact of these software and subscriptions on the company’s bottom line. Also, find out what system the business uses for archive records. If you need to digitise documents, it could lead to legal liabilities.
Mistakes in archiving company records could cost you thousands of dollars to rectify. Furthermore, clearing out records could be expensive. You don’t want to buy papers that you need to have officially destroyed, so get this cleared before signing.
Does the business have licencing agreements?
Finally, check what licencing agreements this business has with suppliers. You don’t want to end up paying thousands to keep using patented tech that barely improves your earnings, or producing goods that do not earn for the business. Get an idea of the future profit margins given these agreements, and decide if they’re worth keeping.
Conclusion
Buying a business could be a great way to improve your portfolio, especially if you have the skills and drive needed to help a business succeed. Before making an offer to buy a company, it pays to know what the ‘hidden’ costs are, and factoring these into your decision.
Get expert legal advice on your plans for your business from GLG Legal. We are Brisbane commercial lawyers helping business owners and investors get the best possible deal for their assets through cutting-edge legal advice. Contact one of our experts today for more information!
