By Rob Prior

Are you thinking about buying a business? Perhaps you have owned a business or maybe you are sick of working for wages and want to run your own show. There are many pitfalls to be aware of when buying a business and a number of things that you should know in advance.

Business Valuation

Before putting in an offer on a business, run the Sale of Business Figures past your Accountant. They should check that the business is worth the asking price and give you relevant advice before you put your offer in. You don’t want to get caught out by not receiving the correct (or any) advice in advance – you’ll regret it later.

Owner Dependency

How dependent is the business on the present owner? Most businesses are worth far more when the vendor doesn’t play a critical role in any of the business processes. These may include supply arrangements, sales/customer relationships and expert knowledge.

Operating Structure

Structures that you can trade through include: sole trader, partnership, company or trust. The structure that is best for you will depend on factors like the business profitability, business risk, asset protection, legal requirements, other business owners, likely tax reform, future capital gains tax, succession planning, ease of administration and set-up/ongoing costs.

Offer and Acceptance

The name that you use on your offer is the structure that you are buying the business in. If you are intending to operate in either a company or trust, then you need to set these up before you put your offer in. To later change the offer into a different name could mean that you pay double the transfer duty (which I’m sure you’d rather avoid!). You should include “Subject to Finance” and “Subject to Due Diligence” clauses in your offer - amongst other possible “subject to…” clauses.

Transfer Duty

This is payable on purchase of a business and should be estimated before you proceed, as you’ll need to allow for it in your budget. In WA, transfer duty is payable at a sliding rate from 1.9% up to 5.15% on the value of plant & equipment and goodwill purchased. At least trading stock is exempt from duty. The Department of Finance website (www.osr.wa.gov.au) has a calculator you can use to estimate the amount of transfer duty payable on your business purchase.

Due Diligence

Once you’ve put in your offer to the vendor and they have accepted it, then IF you have included “Subject to Due Diligence” in your offer, you have a period of time (usually 2-4 weeks) to review and confirm the Sale of Business figures. This is a crucial time as it enables you to not go ahead with the purchase if you and/or your Accountant find that the figures don’t accurately reflect the performance of the business.

Business Benchmarks

If business benchmarks exist for the business you’re interested in purchasing, they can be a great tool to compare its performance to other businesses in the same industry. Again, this is something to ask your Accountant.

Lease

You should obtain a copy of the business premises lease agreement (where relevant) and run it past your solicitor. Rent review dates and amounts, restrictions, assignment, renewal, repairs and capital improvements should be reviewed in detail – so you know in advance what you’re getting into.

Cash Flow Forecasts

It’s a good idea to prepare a cash flow forecast based on the last year figures and include other payments such as tax and loan repayments to ensure there is enough positive cash flow in the business. Your bank manager may want to see your cash flow forecast also when you apply for finance, so it’s a good idea to be prepared for this.

Employing people

Most businesses need employees. There are many rules, obligations and requirements you need to be aware of plus documentation you need to maintain. These include workplace safety and health procedures, training, work hours, minimum conditions and entitlements. When you purchase a business with existing employees, you take them on along with their existing entitlements. You should adjust this in your purchase price. Our Employer handbook on our website contains some handy tips on employing people.

New Business Handbook

Also, if you’re new to business, then you should also have a look at our New Business Handbook on our website.

This is just a short list of some of the items you should consider. Contact your Accountant before putting in an offer to purchase a business, and they will advise you how to proceed to ensure that you don’t get caught out.

Youth Allowance

By Katelyn Russell

For regional students who have to move to Perth for university, being able to claim youth allowance after 14 months instead of 18 months means students will now be able to receive payments when they commence their studies. This will help with relocating to Perth and the cost of setting up a house and buying textbooks.

I'm almost at the end of my gap year at Lincolns and have been through this process. Here are my top tips for claiming Youth Allowance.

Begin the process as soon as you can

You can apply for youth allowance up to 13 weeks before you commence your studies. I began my application at the beginning of December. You are bound to come across some hiccups, so the sooner you start the more likely it will be that you will begin receiving youth allowance from the earliest possible date.

Reach out for help

As the youngest in my family, I am blessed to have older siblings who have gone through this process and could help me out. I also had the support of the Lincolns team who were happy to help me out and answer my questions. In the 2016 financial year, 430,000 students received youth allowance – so you aren’t alone! Don’t be afraid to reach out and ask your support network for help through this process, as the chances of someone you know having gone through the same or similar process is very high.

Research

As I have had siblings go through the claiming process and be eligible for youth allowance, I knew that I too would be eligible. However, if you are unsure as to where to begin, I would recommend doing your research and determining if you met the criteria for dependent or independent youth allowance. The Human Services website has some useful information to help you determine your eligibility.

Coffee with ...

By Amy Sims

Our "Coffee With ..." this month features Brooke Pearson and Nicole Forgione. The owners of Just Move Just Eat are focused on improving the health and wellbeing for the women of Albany. They caught up with Amy Sims to share their inspirational story.

Read their story here.

Risky business