Checklist for buying into a business

By Cutcher & Neale Accounting and Financial Services - September 14, 2021

You may be approached to join a business at some point in your career. While flattering, it’s not a decision to be taken lightly.

Joining a business as an owner is in some ways like getting married. The ‘dating period’ is the time you’ve already spent there, getting to know your colleagues and the workings of the business.

Then comes ‘the proposal’ and you realise you’re being asked to make a serious commitment. But before you put ink to paper, you’d better do some due diligence to determine if you can live together ‘in sickness and in health’!

We’ve compiled this checklist to help you familiarise yourself with the key issues you need to understand in order to make an informed decision.

Structure of the business.
How will your ownership interest be held? Is it shares in a company, or an interest in a Trust or Partnership, or possibly even a combination of all? This is crucial to understanding not only how you’ll receive your income but also what potential liabilities you might be exposing yourself to.

Identify what business and personal insurances are required and what is in place.

Key Legal Agreements.
Consider Shareholder agreements, Buy / Sell agreements. These are critical documents once you have bought in as it will essentially prescribe how to deal with each other, performance criteria, how you might leave the business and on what terms.

Directorship obligations.
There are legislative requirements for Director under Corporations Law. It is important to understand what these additional responsibilities are.

Plant and equipment.
Check the value, standard and age of all equipment.

Lease, rent and finance agreements.
Check the extent and nature of current financial commitments.

Funding your buy-in.
You need to consider the timing of the finance application and available security.

Is it server or cloud based? What are the associated costs?

Current employee entitlements.
Check whether key staff members are staying and the extent of staff entitlements.

Talk to an expert.
Like a marriage, getting into a business is relatively easy. Getting out can lead to a world of pain. That’s why it pays to consult with an expert before you make a decision.

If you’re thinking about buying into or setting up your own business, contact our award winning team for a discussion.

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