BEGINNING IN BUSINESS

Business Set Up And PurchaseLorraine Thornton

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1. Setting Up

• Determine salary and profit expectations for: your time your investment your expertise

• Be realistic in your expectations• Survey the market

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• Obtain work in that type of business• Lifestyle?• Match skills, knowledge and experience• List assets that you will require• Are there any businesses for sale?

1. Setting Up cont'd....

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2. Consultation With Professional Accountant

• Type of entity• Documentation required• Explanation of entity’s

operation

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2. Consultation With Professional Accountant cont’d.......

• Feasibility Study: Sales Overhead expenses Wages Set up costs Budget Break even levels Sensitivity Analysis Cashflow Forecasts Pay As You Go (PAYG) tax payable Business Benchmarks Comparison

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• Statement of Net Worth• Projected Balance Sheet• Ongoing role of accounting firms• Competent Commercial Solicitor• Bank interested in small business

2. Consultation With Professional Accountant cont’d.......

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3. Purchasing A Business

• Financial accounts last 5 years• Tax returns last 5 years• Debtors’ Aged Analysis

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3. Purchasing A Business cont’d....

• Access to: Cash Payments

Book Cash Receipts Book Tax Invoice Books Journals Bank Deposit Books Bank Statements Ledgers

Creditors’ Aged Analysis

Creditors’ Invoices Stock records Work in progress

records Wages records Order Book Lease Agreements

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3. Purchasing A Business cont’d....

• Is the Vendor running a similar business?• Check purchases, sales and wages• Restraint of Trade• Will customers remain?• Review stock• History of the business• Market share• Competitors• Suppliers

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3. Purchasing A Business cont’d.....

• Suppliers’ Terms of Trade• Terms of Trade with Debtors – are they enforced?• Are Tax Invoices and Statements prepared promptly?• Check plant and equipment• Is the plant owned, leased or on hire purchase?• Leased premises – get a copy of the Lease

Agreement• Landlord’s approval for transfer of Lease

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3. Purchasing A Business cont’d.....

• Check the Lease – what would your obligations be for: removal of equipment at the end of the Lease? rectification of premises? option periods? exercise of options? painting? repairs and maintenance? re-fit requirements?

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3. Purchasing A Business cont’d...

• Acquiring the building? – Check• Title Deed details• Zoning• Apportionment of price• If taking over Debtors – BEWARE!• What employees are you retaining?• Holiday, Sick and Redundancy Pay• Long Service Leave

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• Customer List• Vendor’s intention• Vendor assist in the changeover?• Valuing of stock• Politics• Gazetted hours• Wages for staff• What is the state of the economy?

3. Purchasing A Business cont’d...

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3. Purchasing A Business cont’d....

• Monthly Sales Dissection• Review Debtors’ Ledger – any large credit notes?• Credit Worthiness Report on the business• Social behaviour changes• Technology changes• Town Planning Regulations• Customers – who are they? – demographics?

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3. Purchasing A Business cont’d

• Review the operations of the business

• Employee work specification

• Does the business have the right product mix?

• Any patents, trademarks, licenses, copyrights?

• Order Book• Partially completed

contracts – check!

• Creditors’ Aged Analysis

• Check the bank reconciliations

• Quality control• Check suitable

systems and policies for GST

• Check on stock buying patterns

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• Remember, what you are looking for are clues that the business is not what it is being built up to be!

• The buyer must beware – check, double check and cross check everything!

• Once you sign the contract, it is very difficult to renegotiate

.

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4. Registrations Required

• Business Name• Australian Taxation Office:

Withholding Tax Public Officer (Company) Australian Business Number GST Registration

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4. Registrations Required cont’d........

• Work Cover• Payroll Tax• Government• Bank Accounts• Insurance• Directories/Associations

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5. Accounting Work/Advice

• Business Objectives• Business Mission

Statement• Accounting and

Management Information System

• Internal Control System• Types of books and

records

• Business Plan, Budgets and Cashflow Forecasts

• Regular accounting reports

• Board of Directors/Board of Advice

• Employees’ Agreements, Conditions and Contracts

• Key Performance Indicators

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6. Other General Matters

• Location• Layout of premises• Does the market exist?• Estimated expenses• Break-even level of

sales required• Break-even point,

including your salary• Credit Policy

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6. Other General Matters cont’d...

• Bankcard, Master Card, Visa Card

• Other cards – Diners’ Club, American Express etc

• Government and Council requirements

• What are the potential risks?

• Can you handle the work?• Communication facilities• Traffic flow• Off season planning

• Local events register• What is happening in the

local area?• Do you need all the assets?• Buy carefully• Listen to experienced

employees• Develop an ability to get on

with people• Staff Manual