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Factors to consider when buying a business

There are many factors to consider ahead of buying a business.

Acquiring a business is a big decision that requires much research, financial planning and an evaluation of the target business's profitability.

Chamber of Commerce and Industry Queensland (CCIQ) has said potential buyers must be sure the organisation they are purchasing will still be relevant in five years.

CCIQ partner Auswide Bank claimed there are a number of different formulas used to calculate a business's value, including asset valuations and reviews of capitalised future earnings and comparable sales.

Auswide Business Banking Manager Mark Moller stated there is no "black and white" way to value a company, so a combination of approaches is often recommended.

The buyer must also consider the current market and whether the organisation is prepared for change. Mr Moller cited Kodak as an example of an industry pioneer that later filed for bankruptcy after failing to stay relevant.

"While in the process of going into business or purchasing a business it is not always simply a case of paying the purchase price, walking into the business on day one and everything is in place and ready to go," he stated.

"There are usually other details to organise or at least to have a think about before you open the doors."

Anyone considering a merger or acquisition in Queensland should seek advice from commercial lawyers and their accountant at an early stage. This ensures all legal issues are effectively handled and the transition goes as smoothly as possible.

According to Mr Moller, someone buying a company should ask themselves several important questions before committing to the purchase. For example, why is the business selling? Are they aware of industry changes that could affect future profitability? And will the enterprise be able to innovate its offerings?

Discovering the answers to these questions may be a challenge, but experienced commercial lawyers will be able to guide you through the necessary processes.