Article Category - Business Law Buying or Selling a Business KS on Call By Andrew Kelly 02 February 2023

Buying an established business can often be a way to leapfrog the uncertainty of starting a business from scratch. It can enable instant cashflow and a customer base from which to build and can be easier to secure capital and allow you to obtain the established processes for the business. In this article, we examine some of the key issues that should be considered when purchasing a business.

Why are you buying a business?

This is a consideration often overlooked. Whilst every business wants to make a profit, there is much more to a business than just its financial performance which needs to be considered. Think of these questions when considering why you want to buy a business:

  • Do you require a change in lifestyle, what sort of business would afford you to have the lifestyle that you want?
  • What sort of businesses align with your skills? Do you have the requisite skills to operate the business that you would like to purchase? Can these skills be learned through education or training?
  • What are your needs? Do you have financial needs that the business will need to support that you will be dependent upon? Are you physically and emotionally ready to run a business?

The above questions are broad in nature, but are important considerations. Some businesses will require all of your attention, including early starts and late finishes. Whilst a type of business may suit your skills and financial needs, it may not align with your other lifestyle needs, such as taking care of your family or your own health and wellbeing.

Choosing a business to purchase

This can be the most difficult phase of the business purchase process. Choosing what business to buy involves examining a number of factors. Depending on the nature of the business, certain factors which are favourable for a business will differ. For example, in a business that sells products or goods that are manufactured or sold:

  • Is the product effective and does it have a good reputation within the market;
  • If the business is reliant on a trading location, is the location good for that particular type of business to sell, distribute, or manufacture its products? For example: does it rely on high foot traffic, such as in retail, or does it rely on a specific type of building to operate, such as a bar, motel or factory;
  • The relationships that the business has with its suppliers and distributors (especially when such relationships have favourable terms).

The following are considerations that we would consider universal across all businesses:

  • The reputation, brand, and goodwill of the business;
  • The market share of the business within its industry;
  • The position of the product or service within the market ie. are the products high end or a low cost alternative?
  • The customer base of the business and their loyalty and retention;
  • Is the business successful already or does it have the capacity to be successful in the future?
  • Where is the business in its lifecycle? Does it require a rejuvenation which would require significant capital to improve?
  • How much capital will you need to expend to purchase the business? Do you have the requisite capital or can that capital be obtained through finance or sale of your assets?

Choosing the right business to purchase involves researching the market, the industry, and its potential. Some businesses will have market research and industry trends that are readily available online or that you can buy. Some information you may have to collect yourself, such as understanding foot traffic in a retail precinct may involve you sitting in the area and taking note of the volume of traffic of passers by.

If there are industry associations related to the business you are purchasing, you may be able to contact them for information relating to the industry generally which can assist you with understanding the position of the business you are looking to purchase.

No one factor will be determinative of whether or not you buy the business, however there may be certain factors which you deem to be more valuable than others in selecting your business. Identify those criteria and then examine whether the business matches.

Once you have chosen the business to purchase

Now that you have chosen the business you would like to purchase, if it is on or off the market that may change your negotiation approach, however it won't necessarily change the way that you conduct further due diligence into the business.

Your due diligence process and its extent and length will depend on the nature of the business that you are purchasing and its size and scale. Businesses that are larger, rely on specific contracts or require certain personnel or know how to operate may require a much more thorough and involved due diligence process than other businesses.

Either way, it’s a good idea to gather as much information as you can about the business you're interested in before signing a contract to purchase the business. Even a small business will require that you undertake a due diligence process, after all, you're about to part with your money and potentially obtain finance to secure this business. Some vendors may require you to enter into confidentiality agreements in order to secure their confidential information, which is not unusual, and after all, you probably wouldn't want anyone telling other people about your business either.

The due diligence process involves observing documents and information relating to:

  • The financial performance of the business;
  • The state and ownership of the assets of the business and identifying the assets that are necessary for the continued operation of that business on sale;
  • The contracts and relationships which underpin the business; and
  • How the business operates.

If the business is one which requires certain permissions and licences to operate, you should ensure that these are up to date. This may require you to check with local council and various state or federal regulatory authorities to verify the status of permissions and licences.

If the business is to be sold as an asset sale or the sale of the membership interests (such as shares in a company) this will necessitate a different approach in due diligence. If the membership interests in the holding entity are being sold then you will also need to examine the history of that entity, including its taxation, ongoing liabilities and potential claims upon it.

It is a good idea that during the due diligence process that you liaise with an accountant, or business advisor, and a lawyer to assist you to understand the documents and financial information that you obtain in relation to the business and to provide an impartial view to assist you.

Make an offer

Once you have gained an idea of the financial and asset status of the business and gone through them thoroughly you should be in a position to enable you to understand whether to make an offer or not on the business. If you are still unsure on the value of a business, you should seek the advice of a professional such as an accountant or a valuer to gain their opinion.

Make your own prediction of the future turnover of the business, however it may be unwise to base your offer on that. You're purchasing the business as it currently is and what its value is today.

Review the contract and negotiate

A contract for the sale and purchase of the business should always be sought. It's better to have all the terms and details of the sale set out in writing rather than relying on discussions between you and the vendor. This prevents future disagreements about the terms of the contract and what is being sold.

The contract will usually set out the following terms:

  • The general terms and special conditions of sale, including how and when payment is to be made, when the contract will complete, and any disclosures by the vendor in relation to the business;
  • Any training pre-completion and post-completion (it is recommended that if you require an understanding on the operation of the business on a day to day level you request training);
  • Restraints on the vendor's competition with you post completion (this is important if the business has relied on the vendor's key relationships and to protect the goodwill of the business in the future);
  • The employees of the business and their current employee entitlements; and
  • The assets and key contracts that will be transferred to you.

Don't assume that the terms of the contract are set in stone, you can always negotiate. If the vendor is unwilling to negotiate on certain terms which are not favourable to you, you may need to consider whether such terms are a deal breaker for you in purchasing the business. You can review the contract yourself, however it is strongly recommended that you obtain professional legal advice in relation to any contract for sale and purchase of a business.

It is also recommended that you obtain taxation and legal advice as to your legal structure for how you will hold the assets of the business for the purchase. We have covered some of the types of legal structures for operating a business in our previous article here: So You Want to Start a Business

After Exchange

Once contracts have exchanged, further due diligence is usually required. Your legal advisor will be able to assist you in relation to this process and assist and attend to the practical transfer of the business assets.


Once you have finished the purchase, the business is yours, and its time to get to work. In some cases, there are obligations after completion which may be required to be completed by the parties. Ensuring that all the obligations of the parties are performed is important and should be monitored after settlement of the sale.

Contact our Business team today on (02) 6331 2911 if you are thinking about buying a business, now, or in the future, to set yourself up for success.

Andrew Kelly | Senior Solicitor