How to protect yourself when buying a business in Australia (in 2024)

Key Takeaways

  • You need to understand the Australian market and industry trends if you're on the hunt for a business to purchase.
  • Legal compliance and due diligence are essential in protecting your interests.
  • Consulting a lawyer and understanding financing options can safeguard your investment.
  • Special considerations are needed when buying a franchise.
  • Be vigilant against scams and unsafe products.
Two images of people buying businesses. Caption reads, "How Can you Protect Yourself when Buying a Business?" Blaze Business & Legal Logo.

Introduction

It is essential to know how to protect yourself when buying a business in Australia, and potential purchasers should approach such a venture with caution and due diligence. This article provides a comprehensive guide on steps you will need to take when buying a business, focusing on legal considerations, due diligence, and practical steps to ensure a successful acquisition.


1. Understanding the Australian Business Landscape

The Australian Market

It is important to understand the market dynamics and industry trends before you purchase a business. For example, if interest rates are increasing and spending is low, it may not be the best time to buy a commerce business with a fixed lease.


In My Experience...

Researching the industry and understanding market trends is essential. Engage with industry experts and gather insights to make informed decisions.


2. Legal Considerations

Australian Business Laws

Familiarise yourself with Australian business laws, including the Corporations Act 2001 (Cth), which governs business operations and the obligations of Directors. You must know all of these before running your new business.


Don't forget that you must sign up for a Director ID in Australia if you don't already have one.


Regulatory Compliance

Ensure you understand all the regulatory requirements your business must comply with, including licenses, permits and registrations. And make sure the business you are purchasing complies with these requirements.


If not, you should consider obtaining a Deed of Release and Waiver as part of the business purchase so you don't become liable for fines for past breaches. Speak with Rachelle Hare about how to put this in place.


In My Experience...

Engage a legal expert to review all legal documents and ensure compliance with Australian laws. Blaze Business & Legal is an excellent resource for seeking legal advice and helping you with your preliminary feasibility assessment.


3. Conducting Due Diligence

Financial Due Diligence

Review the financial records of the business you are considering buying, including balance sheets, income statements, and tax returns. Shannon Drew often helps his clients carry out financial due diligence, being a Business Adviser, a Management Accountant and having bought his own businesses.

Operational Due Diligence

Evaluate the business operations, including supply chain, customer base, and employee contracts.


Legal and Compliance Due Diligence

It is also important to consider whether any legal or compliance issues are likely to arise if you purchase the business - Rachelle Hare can help with this.


4. Risk Assessment

Identify potential risks, including legal disputes, regulatory issues, and market risks. Also, understand the likelihood of these risks occurring, and put in place risk mitigation strategies in consultation with Rachelle Hare as appropriate.


In My Experience...

Due diligence is a critical part of carrying out a successful acquisition. Take your time to evaluate all aspects of the business thoroughly. If the current owner won't give you information about a part of the business, or if you suspect something hinky is happening, walk away!


5. Negotiating Terms

Purchase Agreement

Negotiate the terms of the purchase agreement, including price, payment terms, and warranties. Many States and Territories, including Queensland, have standard contracts (eg the REIQ Business Sale Contract) that are commonly used in business purchases. Special Conditions often need to be negotiated if they are not included in the standard terms. For example, vendor finance.


Protecting Your Interests

Include clauses in the agreement that protect your interests, such as non-compete and confidentiality clauses. Rachelle Hare can help with this.


In My Experience...

Negotiation is an important part of buying a business. Be prepared to compromise but stand firm on critical aspects protecting your interests. You can always walk away and find one better suited, or that will protect you better from risk.


6. Financing the Purchase

Securing Finance

A key consideration is where you will obtain funding to buy the business. Unless you can buy the business outright with your own funds, you will likely need to explore various financing options, including bank loans and investor funding.


Assessing Feasibility

Seek initial business advice about the feasibility of buying the business for your circumstances.

Securing Finance Against Assets

When seeking financing for purchasing a business in Australia, securing a loan against assets (eg using property such as a house as collateral) can lead to more favourable terms. However, it can also place you and your family at more risk and should not be entered into lightly and without running various number scenarios.


In My Experience...

Ensure that the financing terms are favourable and that the investment is financially feasible in the long term.


7. Franchise Considerations

Protecting Yourself When Buying a Franchise

When buying a franchise, reviewing the brand online is important and ensuring the franchisor is financially stable. Seek quality legal advice from Rachelle Hare and understand the franchise agreement thoroughly.


Remember that Franchise Agreements often contain "out of the usual" requirements and obligations, including potential buy-in amounts, limitations on what can be sold through your business, territory limitations, and limits on the ability to change your physical building. Make sure you are aware of these - and happy with them - before you sign.


8. Protecting Against Scams and Unsafe Products

Awareness of Common Scams

Protect yourself and your business by being aware of common scams. Stay vigilant and verify the authenticity of information and products.


Avoiding Unsafe Products

Always check with Product Safety Australia to avoid the risk of dealing with unsafe products. Ensure that the products comply with Australian Safety Standards. If you are importing products into Australia, ensure you've considered import laws and made sure any imported goods will comply with Australian laws and safety codes.


9. Consulting a Lawyer

Legal Consultation

Consulting a lawyer when buying a business is crucial. A lawyer such as Rachelle Hare can help review legal documents, ensure compliance with Australian laws, advise you about risk and protect your interests.


10. Transition and Integration

Transition Plan

Develop a transition plan to ensure smooth business integration under your management.


This will include understanding whether any employees will be transferred to your new business. They may need to sign new employment contracts, or the current employment contacts may need to be transferred to them. You may also need to work out how to deal with their entitlements (eg whether they will be transferred to you or paid out by the original employer).


Engaging Stakeholders

Engage with employees, customers, and suppliers to ensure continuity.


In My Experience...

A well-planned transition is essential for the success of the acquisition. Engage all stakeholders in the process.


11. Protecting Yourself in Government Contracts

Information Barriers

Implement information barriers to ensure sensitive information is handled appropriately, especially when dealing with government contracts.


Avoiding Conflicts of Interest

Ensure that there are no conflicts of interest that could compromise your relationship with the government as you are purchasing the business or into the future.


In My Experience...

Maintaining integrity and transparency in government contracts is essential. Implement robust information barriers to avoid conflicts of interest.


12. Continuously Monitor the Business Performance Post-Acquisition

After acquiring a business in Australia, it’s imperative to monitor its performance continuously. This is not a one-time task but an ongoing process crucial for your investment's success and growth.


Setting Benchmarks and KPIs

Set benchmarks and Key Performance Indicators (KPIs) that align with your business goals. These could include sales targets, customer satisfaction levels, or operational efficiency.


Regular Financial Analysis

Conduct regular financial analysis to assess the health of the business. This includes reviewing balance sheets, profit and loss statements, and cash flow statements. Keep an eye on revenue trends and cost management.


Customer Feedback and Market Trends

Stay in tune with your customer base. Collect and analyse customer feedback to understand their needs and preferences. Additionally, keep abreast of market trends to ensure your business remains competitive.


Employee Performance and Engagement

Employees are the backbone of any business. Regularly assess employee performance and engage them through training and development programs. A motivated workforce can drive business success.


Risk Management

Identify and monitor potential risks that could affect your business. This includes operational risks, market risks, and compliance risks. Develop strategies to mitigate these risks.


In My Experience...

Continuous monitoring post-acquisition is like keeping your finger on the pulse of the business. It helps in identifying areas that need improvement and in making informed decisions. Don’t hesitate to seek expert advice or make necessary adjustments to align the business with your goals.


Utilising Technology for Monitoring

Leverage technology to monitor business performance. Utilise business intelligence tools, analytics, and CRM systems to gather insights and make data-driven decisions.


Review and Adjust Business Strategies

Based on the monitoring and analysis, be prepared to review and adjust your business strategies. This could involve entering new markets, launching new products, or streamlining operations.


In My Experience...

Flexibility and adaptability are key. The business environment is dynamic, and strategies that worked yesterday may not work today. Be open to change and focused on continuous improvement.


This section is crucial as it emphasises the importance of acquiring a business and actively engaging in its growth and success through continuous monitoring and strategic adjustments.


Checklist for Buying a Business in Australia

  1. Research the industry and market trends.
  2. Understand Australian business laws.
  3. Ensure regulatory compliance.
  4. Conduct financial due diligence.
  5. Evaluate business operations.
  6. Assess potential risks.
  7. Negotiate purchase agreement terms.
  8. Include protective clauses in the agreement.
  9. Explore financing options.
  10. Develop a transition plan.
  11. Engage stakeholders during the transition.
  12. Implement information barriers for government contracts.
  13. Avoid conflicts of interest.
  14. Seek legal advice from experts like Blaze Business & Legal.
  15. Continuously monitor the business performance post-acquisition.

Conclusion

Purchasing a business in Australia requires thorough due diligence, legal compliance, and careful planning. Protecting your interests through legal safeguards, financial feasibility assessments, and effective transition plans is essential for a successful acquisition.


FAQs

1. What are the legal considerations when buying a business in Australia?

Understanding Australian business laws and ensuring regulatory compliance are key legal considerations.


2. How can I conduct due diligence when buying a business?

Review financial records, evaluate operations, and assess potential risks.


3. What should I include in the purchase agreement?

Include terms such as price, payment terms, and protective clauses like non-compete and confidentiality.


4. How can I finance the purchase of a business in Australia?

Explore options like bank loans and investor funding.


5. How can I ensure a smooth transition after purchasing a business?

Develop a transition plan and engage stakeholders.


6. How can I protect myself when dealing with government contracts?

Implement information barriers and avoid conflicts of interest.


7. Where can I seek legal advice when buying a business in Australia?

Blaze Business & Legal is a fantastic resource for legal advice.

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About the Author

Rachelle Hare

Rachelle Hare

Rachelle Hare is a highly experienced Construction Lawyer and Contract Lawyer, with over 23 years of experience in Tier 1 and Tier 2 Construction Firms, Top Tier Private Practice and Government.

With 23+ years of experience as a Senior Lawyer, Strategic Contracting Adviser and Management Consultant in Construction Law, Contracts, Major Projects, Commercial Advisory, Compliance, Procurement, Contract Management and Risk Management, Rachelle has the rare skills to offer you seamless business advice and legal advice to help support your organisation.


As well as a Lawyer and Business Adviser, Rachelle has also acted as a Strategic Procurement Adviser, Compliance Manager, Strategic Risk Adviser and Commercial Manager.

Rachelle owns
Blaze Business & Legal, a combined Commercial Law Firm and Business Advisory Firm located in Brisbane, Queensland, Australia. Blaze Business & Legal assists a broad range of clients in the Construction Industry and related industries, and advises owners, contractors, subcontractors, NFPs and other organisations on a broad range of Construction Law, Commercial Law, Business Advisory and Management Consulting issues in Brisbane, Queensland and around Australia.

Rachelle also owns Blaze Professional Learning, where she offers practical contracting skills, hands-on experience in drafting and working with contracts, and industry insights to help Professionals upskill and advance their careers with real-world skills.

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