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Business Franchise for Sale

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									                               Buying a Business

Buying a business or franchise is one of the many ways you can become a business owner. The
decision to buy a business or franchise can be easily rushed. For such a significant decision you need
to take time to consider some important factors before you sign any purchase or franchise agreement.

Buying a Business - the Seller and You                 •     Determine whether recorded depreciation
                                                             costs are reasonable.
Before making the big decision to buy a                •     Determine whether you will incur similar
business, make sure that you are comfortable                 costs to the current business owner.
with the:
                                                       Profits
•       reason for the sale of the business;
•       level of co-operation from the current         •     Analyse financial records, including
        business owner;                                      balance sheets, profit and loss
•       type and size of the business in relation            statements, Business Activity Statements
        to your needs, experience, financial                 and sales records.
        capacity and future plans; and                 •     Determine whether the business
•       business performance during the trial                generates sufficient profit for a
        period.                                              reasonable income.
                                                       •     Look at effects of increased or decreased
Check the Operations of the Business                         sales on your profit.
                                                       •     Compare gross profits with industry
Sales                                                        trends.
                                                       •     Ensure that records have been kept well
                                                             and comply with tax requirements.
•       Check monthly and yearly sales patterns
        from the previous three years' financial
        statements.                                    Assets
•       Compare sales trends with industry
        trends.                                        •     Identify all asset items that you are
•       Determine if the business is expanding,              buying. Refer to an asset register/list, if
        losing sales or remaining static.                    available.
•       Value existing stock - ensure that it is not   •     Check depreciation schedule for
        old or unsaleable and that there is                  equipment, fixtures, fittings, etc.
        sufficient stock.                              •     Determine book value, market value and
•       Identify the business customer base and              replacement value of fixed assets.
        percentage of sales from different             •     Identify any current leases for fixed
        customers. Check to see if the                       assets.
        customers will stay with the business if       •     Ensure equipment is in good working
        you purchase it.                                     condition.
•       Find out if you are able to continue to buy    •     Determine if any equipment is
        from existing suppliers.                             unnecessary for the business or
•       Find out if there are any local                      obsolete.
        developments that may affect the
        business' sales.                               Putting Pen to Paper - the Purchase
                                                       Agreement
Costs
                                                       Closely review the draft purchase agreement
•       Identify all fixed and variable costs.         as well as all the clauses in the agreement.
•       Include interest expenses on your              Ensure the purchase agreement:
        borrowings for the business.
•       Examine the costs recorded for the             •     includes all assets, including goodwill,
        business and ensure costs are                        that are being purchased; and
        reasonable.                                    •     clearly states all liabilities that you will
                                                             assume upon buying the business; and



Buying a Business                                                                     Page 1 of 3
      includes clauses that will protect you as a   Before entering into a franchise agreement, you
      buyer and covers issues of obtaining          should obtain the following information:
      finance, inspecting all records, receiving
      necessary licences and rights, and            •     A complete description of the business.
      ensuring a minimum trading level during       •     The track record of the franchisor and
      the trial period.                                   current motives for franchising.
                                                    •     Evidence of the franchisor's strategic
Sale of Business and the GST                              plan - where is the business heading.
                                                    •     What the franchisor offers under the
The supply of a business as a going concern is            agreements, such as name, product,
GST-free if the following requirements are met:           reputation/goodwill, site location,
                                                          advertising budget and back-up
•     The purchaser must be registered or                 assistance.
      required to be registered for GST.            •     Fees involved, including up-front capital
•     The supply is for consideration.                    and percentage of takings payable to the
•     The supplier must carry on the business             franchisor.
      until it is sold.                             •     Terms of sale of goods supplied by the
•     All things required for continued                   franchisor and if you can purchase from
      operation of the business must be                   outside the franchise network.
      supplied.                                     •     Success/failure of other franchisees in
•     Both parties must agree in writing that the         the same business.
      supply is of a going concern.                 •     Obligations upon termination of franchise.
                                                    •     Guidelines for sale of the franchise.
Buying a Franchise                                  •     A franchise Operations Manual, if
                                                          available.
                                                    •     The franchise agreement document and
A franchise is a type of business ownership
                                                          the period of franchise.
where an individual, partnership or company
can operate a business under the banner of an
already-established business.                       The Franchise Agreement

Benefits of a franchise can include:                A franchise agreement is a written document
                                                    outlining the rights and obligations of both the
                                                    franchisor and the franchisee. It is a legal
•     support of the franchisor;                    contract and binds both parties. The content of
•     flow-ons from the franchisor's advertising,   a franchise agreement will regulate, to a certain
      buying power, established goodwill and        extent, the way you operate the franchise.
      trademarks;
•     use of an already-established business
                                                    Operations Manual
      name;
•     access to the franchisor's management
      systems and industry knowledge;               The Operations Manual details how the
•     reduction of business risk.                   franchise is to be run. Every member of the
                                                    franchise operates their business according to
                                                    the Operations Manual. The Operations
Some of the drawbacks of a franchise can be:        Manual ensures that each franchise operates
                                                    consistently under the one banner.
•     less independence through franchisor
      control of management techniques and,         Regulation
      possibly, of supply sources and
      product/service range;
                                                    All franchise businesses are required by law to
•     reputation of franchise may be affected
                                                    comply with the Franchising Code of Conduct.
      by factors beyond the franchisee's
                                                    This Code protects the rights of franchisees
      control;
                                                    and sets out the obligations of franchisors. The
•     could have an unreliable franchisor;
                                                    Code also provides a mediation procedure
•     sale of head franchise;                       where disputes cannot be resolved within the
•     defined/limited geographical market.          franchise system.

Before You Commit to the Franchise                  The Office of the Mediation Adviser (OMA)
                                                    helps franchisors and franchisees resolve their



Buying a Business                                                                Page 2 of 3
problems and disputes without going to court.        •   Institute of Chartered Accountants in
For further information, contact OMA on                  Australia, phone 9290 1344 or website
1800 150 667 or website                                  www.icaa.org.au
www.mediationadviser.com.au.                         •   Association of Taxation and
                                                         Management Accountants, phone
Contacts                                                 9799 6255 or website
                                                         www.atma.com.au
For advice and protection in buying a business       •   National Institute of Accountants,
or franchise you should seek the services of a           phone 9299 3052 or website
solicitor, accountant or business adviser.               www.nia.org.au

Solicitors and Business Law Specialists in       Franchise Council of Australia For
your area can be located through the Law         information on franchising matters, contact the
Society on 9926 0305/9926 0383, or refer to      industry association, phone 1300 669 030, fax
the Law Society of NSW website at                (03) 9822 7752 or visit their website at
www.lawsociety.com.au.                           www.franchise.org.au.

Accountants in your area can be located          About this Brochure
through the following peak accounting bodies:
                                                 This brochure and its contents were provided
    •    CPA Australia, phone 9375 6200 or       from the Department of State and Regional
         website www.cpaaustralia.com.au         Development. www.smallbiz.nsw.gov.au




Buying a Business                                                             Page 3 of 3

								
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