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Buying a business

07 Sep 2016 - 15:01 | Version 7 |

Contributed by SulifaTonga, KirstyGrainger and DavidQin and current to 1 May 2016

There are some advantages to buy an existing business rather than starting from scratch. Some of the advantages include:
  • the business is in operation immediately
  • the location, premises and equipment are already provided
  • there is already a customer base established
  • there is a proven business track record
  • experienced staff are already available.
There are also some potential disadvantages to buying an existing business. The previous owner may have had bad relationships with suppliers or clients. The business may be using outdated equipment or business procedures. There may be unexpected expenses or the returns may not be as high as projected. The skills or personality of the previous owner may have been critical to the success of the business and that success might not automatically pass on to a new owner.

The first step a potential buyer should take is to investigate the business. An interested buyer should:
  • find out the reasons why the business is for sale
  • evaluate the location, client base, equipment and stock of the business
  • determine the value of the business
  • determine the potential profit making capacity of the business
  • research the competition and market of the business if the business premises is leased, obtain a copy of the lease.
There are two basic methods used to determine the value of a business. The first is known as the capitalised value method, which examines potential future profit and return on investment. The second method values the business on the basis of the appraised value of assets. A person wishing to buy a business should seek advice from their accountant or business adviser for help in evaluating the business potential. Some of the necessary items to examine include:
  • profit and loss statements from the past three to five years
  • balance sheets from the past three to five years
  • tax returns from the past three to five years
  • asset and stock registers
  • list of debtors and payables
  • sales patterns and figures
  • operating costs.
Once the investigation phase is complete and a buyer decides to proceed with the purchase, they should commence negotiation with the original owner. The central negotiation issue is usually price. A number of factors may affect the asking price of a business. The original owner may wish to sell the business quickly due to health or financial reasons and therefore be willing to take a lower price. On the other hand the owner may wish to negotiate the highest price possible and be willing to accept deferred payment. The price paid for the business can be different from what it is worth.

A buyer should seek expert advice during the negotiation process to ensure the best deal possible is achieved. In the NT advice about buying a business can be obtained from the Northern Territory Consumer Affairs (NTCA), the NT Chamber of Commerce, and Department of Business . The Department of Business publishes a guideline for buying a business on its website, which can be assessed at http://www.dob.nt.gov.au/business/starting-business/business-guides/Pages/buying-business.aspx.

The Department of Business operates several Territory Business Centres as the initial contact and referral point for starting a business, business and industry licence information, business planning assistance and departmental assistance programs. At a Territory Business Centre you may:
  • register a business name online
  • conduct a business name search online
  • access all relevant licence and permit requirements for operating a business in the Northern Territory through the Australian Business Licence Information Service (ABLIS)
  • download applications for a range of business and industry licences
  • lodge a selection of licence applications online
  • access accurate information on a range of business assistance services and products.
The contact number for the Territory Business Centre is 1800 193 111.

The Department of Business also has an extensive referral network of contacts, information, tools and resources to help facilitate development and improvement within the local business community. The relevant contact number is 08 8999 5479 in Darwin or 08 8951 8502 in Alice Springs

Commercial leases

Most businesses operate from premises leased from a landlord. A person signing a commercial lease should read the document closely and seek legal advice before signing it. There is now legislation in the NT which applies to most commercial leases - a solicitor should be seen for advice on this legislation.

Leases are signed for a particular period of time ending on a specific date. A lease cannot be broken before that date, free of liability, unless the landlord and tenant both agree. Unless the tenant has an option (that is, right) to renew, a renewal of the lease can only be made at the discretion of the landlord.

A lease should specify the agreed arrangements for paying rent. It should also state any additional payments the tenant may have to pay, such as council rates, water rates, building insurance, and costs of preparing the lease. Some shopping centres have additional requirements, such as a contribution towards promotions, security and building improvements, and these should be included in a lease. Stamp duty is not payable on leases in the NT, unless valuable consideration is given for the lease (in addition to or other than rent).

Some questions a potential tenant should ask before they sign a lease are:
  • Who will be responsible for maintaining the structure, fixtures, fittings, equipment and chattels?
  • Who will be responsible for removing the fitouts and fixtures in the premises at the end of lease?
  • Who is responsible for the legal costs of drawing up the lease?
  • Do the premises have the right zoning?
  • What is the duration of the lease? Can it be renewed?
  • Who is responsible for outgoings such as rates, water, sewerage, gardening, air-conditioning charges and so on?
  • What types of insurances are required for the premises?
  • Is there a relocation or demolition clause, where during the term of the lease you may be required to relocate elsewhere, in the lease?
A person should not sign a lease unless they agree to all the conditions contained within the lease.

The Department of Business publishes a comprehensive guideline on business tenancy which can be obtained from its website at http://www.dob.nt.gov.au/business/starting-business/business-guides/Pages/business-tenancies.aspx. You may also contact a Territory Business Centre for more information on 1800 193 111. The NTCA also posts publications in relation to Business Tenancies, including relevant booklets, fact sheets and legislation, on its website, which can be assessed via the following link : http://www.consumeraffairs.nt.gov.au/ForBusinesses/BusinessTenancies/Pages/default.aspx

Useful Contacts

The Northern Territory Consumer Affairs (NTCA)

The NTCA mainly provides protection to consumers in relation to the purchase of goods and services, residential tenancies and residential building disputes.

Tel: 8999 1999 or 1800 019 319
Postal address:
Darwin: PO Box 40946, CASUARINA NT 0811
Alice Springs: PO Box 1745, ALICE SPRINGS NT 0871
Website: http://www.consumeraffairs.nt.gov.au/Pages/default.aspx

Department of Business (DoB)

The DoB is the branch of the Northern Territory Government that oversees the business sector in the Northern Territory. It also provides useful information and services on various aspects of business such as employment, training and licencing.

Tel: (08) 8999 5511
Postal address: GPO Box 3200, Darwin NT 0801
Website: http://www.dob.nt.gov.au/Pages/default.aspx

NT Chamber of Commerce (NTCC)

The NTCC is an employer association in the Northern Territory. It provides its members and the business community with a platform for information exchange, while it also provides services and support business in a number of areas, such as industrial relations, training, and employment.

Darwin
Tel: (08) 8982 8100
Postal address: GPO Box 1825, Darwin, NT 0801

Alice Springs
Tel: (08) 8952 4377
Postal address: PO Box 864, Alice Springs NT 0870

Website: http://www.dob.nt.gov.au/Pages/default.aspx

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