Previously, we discussed things you need to know when starting the process of buying a business to prepare yourself and set expectations. Today, we will discuss one of the most important parts of this process – start-up costs.
As consumers, one of the things that really matters to us when making a purchase is the cost of the product or service. We want to know the price so that we can analyse our capacity to buy and if the price is reasonable for the item being sold. We can also use this information to make comparison to other products and services. And once we make the decision to buy, we make necessary adjustments to our budget.
When clients come to us for business advice in regard to purchasing a business, we help them to break down all the costs and expenses involved in the transaction. As a trusted business advisor and Chartered Accountant in Auckland, we discuss with them the importance of various costs and the benefits of having them.
To give you a general idea of the establishments costs involved in buying an existing business, here is a list of some of the types of expenses that may be incurred:
There are contracts and agreements that need to be prepared and signed to legally transfer and bind the business to its new owner. In addition, there are many documents, requirements and agreements that need to be considered. As your accountant in Auckland, we can work alongside your lawyer to thoroughly evaluate all legal documents and avenues required to protect you as a buyer, as well as the future prosperity of your business, including:
• Checking the lease of premises
• Completing company name search and registration
• Reviewing intellectual property
• Reviewing contract of sale
• Consideration of restraint of trade clauses
• Clarifying your obligations in regard to employee entitlements - annual leave, long service leave and other human resource policies
• Understanding contractual relationships with key suppliers and customers
• Checking for royalty payments
You may need to look at getting some of your finance for the business purchase from your bank. With many years of experience in the industry, we have good partnerships with many banks so we can introduce you to different bankers and help you evaluate which bank is best suited to your business needs.
You need to factor into your calculations:
• Overdraft establishment fees and monthly interest
• Loan establishment fees
• Loan principal and interest repayments
• Monthly account fees
Setting up a new business structure
It is recommended you have a Chartered Accountant on board to help you set up your new business structure and systems. Remember to allow for annual account and tax return preparation, GST and other taxes, ACC administration, costs for a cloud accounting system such as Xero or MYOB and more. At Paul Martin Chartered Accountant Limited, we provide all these services packaged into convenient monthly service plans.
If you want a comprehensive discussion of the above list, you can personally contact us at (09) 576 4166 or request an appointment online.
We are happy to discuss it with you in detail.
After analysing costs and expenses, you may be ready for the purchase of the business. And once you have acquired the business, the next important thing you need to do is to create a business plan and strategy. Next week, we will discuss the importance of business planning and how to create the most effective strategy for your business.
If you want to catch up to this blog series, you may check the previous discussions here.