Buying A Business
A business purchase occurs when one person or entity buys the business assets from another. This typically includes stock, physical assets (like furniture and equipment), and intangible assets such as goodwill, intellectual property, and customer or supplier lists.
It's important to distinguish a business purchase from a share purchase:
In a business purchase, the buyer purchases the assets of the business.
In a share purchase, the buyer purchases the shares of a company, taking ownership of the entire legal entity — including its assets, liabilities, and history.
Example
Mary has a sweet shop, operating as 'Mary's Sweet Shop Limited'. Mary has decided to retire at the end of January before the new school year starts. Barbara, an employee of many years, has decided she would like to buy the business.
Mary and Barbara would enter into a Sale & Purchase agreement to buy the stock on hand, business assets (shop fitout, computers, furniture etc) plus the supplier lists (i.e., where the stock is purchased from), plus the customer's goodwill (the repeat customers).
There are many other factors to consider, such as the assignment of any leases, restraint of trade against the vendor (so they can't immediately set-up a new shop in competition after the sale), and new employment agreements to staff members.
Barbara sets up her own company and begins trading under a new name, using the same premises and customer base from the agreed date in the Sale & Purchase Agreement.
Before you buy a business, we recommend reviewing (not a comprehensive list):
- Prior financial statements / financial history – is the business profitable?
- Cashflow forecasts
- GST and tax compliance
- Existing contracts or leases
- Staff implications and key employees or management team
- Valuation and what price you are paying
- Business operations – is the business model sustainable and efficient
- Examining vendor relationships and supply chain stability
- Market positioning and the growth opportunities or potential threats
- Legal considerations (contracts and agreements, intellectual property ownership)
- Personal factors (fit with your skills, experience, and interests), lifestyle implications, financial capacity and risk tolerance and long-term goals.
- Shareholder Agreements (if buying with others)
Contact Us
Contact us to discuss on 07 827 9130. Our office is in Cambridge, NZ, but distance is no problem. We have many international and national clients.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
