When working out how much money you need to buy a business, it is easy to focus only on the purchase price and deposit.
But there are other costs involved in reviewing, structuring and funding the purchase properly.
These are separate from the normal operating costs of the business and need to be included in your acquisition budget.
Accounting fees
Your accountant should review the financial information provided by the seller and help you understand whether the reported profit is reliable.
This may include reviewing add-backs, cash flow, tax obligations, working capital requirements and any unusual items in the accounts.
They can also advise on the best ownership structure, whether you are purchasing the business assets or the shares in the existing company, and any GST implications that should be considered before the agreement is signed.
A business can appear profitable while still having weak cash flow, overstated earnings or future costs that are not immediately obvious.
Legal fees
A commercial lawyer should review the sale and purchase agreement before you commit to the deal.
They may also need to review the lease, employee arrangements, important contracts, warranties, restraint-of-trade clauses and any vendor finance terms.
If you are buying the shares in a company rather than purchasing the business assets, the legal review may be more involved because you are taking ownership of the company itself.
Valuation and finance costs
Depending on the business and lender, you may need an independent valuation or other supporting reports before finance is approved.
There may also be lender establishment fees, lender legal costs, adviser fees and costs associated with registering security over the business assets.
These costs will depend on how the purchase is funded and whether you are using a bank, non-bank lender, vendor finance or a combination of funding sources.
Lease and landlord costs
If the business operates from leased premises, the lease will need to be reviewed and may need to be assigned to the buyer.
There may also be landlord legal costs, lease-assignment fees, rental bonds, personal guarantees or bank guarantees.
The lease can be a critical part of the acquisition, particularly where the business depends heavily on its location.
Insurance and specialist reports
You may need business insurance in place before settlement, particularly where it is required by the lender or landlord.
Depending on the business, you may also need equipment inspections, a building report, an IT review or industry-specific compliance advice.
Not every purchase will require these reports. The right level of investigation will depend on the type of business and the risks identified during due diligence
Research the costs and do not automatically choose the cheapest option
Professional fees vary depending on the size and complexity of the transaction.
Speak with your accountant, lawyer, finance adviser and other relevant professionals early. Ask what is included in their fee, what may cost extra and whether any further reports are likely to be required.
It can be tempting to limit the work or choose the cheapest option to save money. But proper advice can identify problems before you become responsible for them.
Spending money on the right advice before settlement could save you from much larger costs and headaches later.
Do not forget stock and working capital
Stock may be additional to the advertised purchase price, with the final amount confirmed through a stocktake close to settlement.
There may also be settlement adjustments for items such as rent, prepaid expenses or customer deposits.
You will then need enough working capital to cover wages, suppliers, rent, GST and other expenses after taking ownership.