Assess a business before you buy it
Ensure the business you buy is a worthwhile investment
.
There are pros and cons to buying an existing business.
When you buy an existing business, you're buying the owner's assets, stock and customer loyalty. This trading record can help you get financing. But the departure of the previous owner can also have a negative effect, so previous takings aren't guaranteed.
The business might also:
owe staff entitlements such as long service leave
have a bad image that's difficult to change
be overpriced or not easy to transfer
have inadequate or old premises, plant or equipment
be leased from a landlord who isn't willing to reassign the existing lease with its current entitlements
The best way to avoid being caught out by these is to do proper research.
Research your industry
Research your industry to identify your customers and competitors. You want to know how the business is performing compared to others in the industry and its potential for growth in the future.
How to
Do market research
Use our 5-step market research process to learn about your customer base and industry so you can target the right market and increase your chance of success.
Before you invest, use the small business benchmarks tool on the Australian Taxation Office (ATO) website to work out how your potential business is performing compared to others in the industry.
Get an independent valuation
Next you need to verify the the business's finances and potential value by looking at its:
assets
liabilities
profits
work in progress (existing contracts)
This is called 'financial due diligence' and it's best to get an accountant to do it. A CPA survey found that 80% of buyers who did financial due diligence with an accountant avoided paying too much.
The owner might have based their sale price on projections of future earnings or by benchmarking against other similar businesses. By having the business independently valued, you can be sure that you're buying at the right price.
Assets
A business's assets can be tangible and intangible.
Tangible assets include:
buildings
land
equipment
stock
fixtures
fittings
They're usually valued with an estimation of how they've depreciated or their resale value.
Intangible assets includes things like intellectual property and goodwill.
What is goodwill?
Goodwill describes an existing business's reputation, viability and potential. For example, a strong client list or effective business processes can contribute to goodwill.
It's important to assess goodwill as part of the overall investment in a business. This will help to make sure the business will be profitable enough to:
cover your capital repayments after tax
provide you with a fair income
Liabilities of the seller
A liability is money the business owes that decrease the value of the business.
Liabilties can include:
debts owed to creditors, or
employee entitlements such as annual leave and long service leave
When you buy a business, you might have to take on responsibility for employee entitlements, so make sure all entitlements have been assessed and deducted from the purchase price. You wouldn't normally take over liability for debts, creditors or for future orders, so these shouldn't be calculated in the sale price at all.
For businesses that cost under $450,000, the seller must also provide the prospective buyer with a vendor's statement (or Section 52 statement).
Business profits
You need to make sure the business you buy will continue to make a profit. Consider the business's commercial life and if there are other opportunities that might be a better investment.
Commercial life of the business
The value of a business fluctuates throughout its commercial life and it can't always be resold later for the same amount of money.
For example, a business's ability to remain profitable will be affected by:
changes in the economy
the arrival of competitor businesses
the need to replace failing equipment
cancelled contracts
Opportunity costs
Opportunity costs describe the cost of passing up the next best choice when making a decision to invest. In other words, what are you missing out on?
Opportunity costs might be other sources of income or the chance to put the money into a term deposit.
Work in progress
Work in progress are the existing contracts a purchaser will receive from buying the business.
Work out your finances
So you've assessed the business and decided to buy. Now settle on how much it costs to take over and how much you'll need to source from elsewhere.
Look for possible sources of financing and speak to your financiers about loan or investment options.
Business Victoia
Hot Issues
- ATO no longer treating debt the same as during COVID
- Warning for early lodger this tax time!
- Global companies turn to cost-cutting amid ongoing inflation
- Don’t get caught out at tax time with your multiples jobs
- Does Your Small Business Need to Follow AML Privacy Rules?
- SMEs warned as ATO ramps up tax debt collection
- Taxpayer given 35% penalty for BAS recklessness
- How Our Diets have Changed.
- Tips to help you this tax time
- Tax Time Checklists Individuals; Company; Trust; Partnership; and Super Funds
- ATO warns millions of Australian chasing tax deductions to stop making 'unusual' claims
- Impersonation scams are on the rise
- Components of a cyber security plan
- Social Security Payments and Their Effect on Discretionary Trusts
- LRBA ban no better for housing supply or retirement, accountants clap back
- The evolution of the world's languages
- 2026 Year-End Tax Planning Guide – Part 1
- 2026 Year-End Tax Planning Guide – Part 2
- PAYDAY SUPER STARTS 1 JULY 2026 – Planning guides
- Payday Super: 6 Things Small Businesses Need to Know
- SMEs to be hit hardest by new trust tax reforms
- 6 tips to help businesses avoid financial difficulties
- Managing your mental health and wellbeing during times of uncertainty
- Check out what Uses the Most Internet Traffic: Data from 1994 to 2026
- Key tax changes and measures from the 2026 Federal Budget
- Federal budget 2026: Winners and losers
- A breakdown of 2026-27 Federal Budget Themes and Papers.
- ATO reminds practitioners to avoid common FBT mistakes
- Why every business should have an AI policy
Article archive
- April - June 2026
- January - March 2026
- October - December 2025
- July - September 2025
- April - June 2025
- January - March 2025
- October - December 2024
- July - September 2024
- April - June 2024
- January - March 2024
- October - December 2023
- July - September 2023
- April - June 2023
- January - March 2023
- October - December 2022
October - December 2024 archive
- ATO reveals small business hit list to combat tax debt
- What are the FBT implications of Employee Christmas Parties and Gifts?
- Assess a business before you buy it
- Christmas Parties and Taxi Fare/Rideshare – FBT implications.
- Practitioners cautioned on ATO’s top target areas for GST
- ATO to target growing businesses in latest compliance blitz
- Our SG compliance results are here
- Top 20 Most Watched Christmas Movies ever - pre covid
- A Unique Advent Calendar
- Businesses ghosting the ATO targeted in debt collection blitz
- Claiming the tax-free threshold: getting it right
- Aussies tired of ‘dodgy tax criminals’, warns ATO
- Protect your small business by following these essential steps.
- Super guarantee a focus area for ATO business debt collection
- Controversial ‘Airbnb tax’ set to become law
- Withholding for foreign residents: an ATO focus area
- 1 in 3 crypto owners confused about tax, study reveals
- 20 Years of Silicon Valley Trends: 2004 - 2024 Insights
- ATO reveals common rental property errors from data-matching program
- New SMSF expense rules: what you need to know
- Government releases details on luxury car tax changes
- Treasurer unveils design details for payday super
- 6 steps to create a mentally healthy and vibrant workplace
- What are the government’s intentions with negative gearing?
- Small business decries ‘unfair’ payday super changes
- The Leaders Who Refused to Step Down 1939 - 2024