With interest rates at record low levels it is not only houses that are more affordable, but also businesses. A good business will provide a much greater return on investment than a rental property. Unlike capital city properties, it is a buyers’ market for purchasing a business.
The Reserve Bank Governor, in speeches made this month, has indicated that that he sees interest rates staying down over the next few years. The Reserve Bank is lowering interest rates to try and drive the exchange rate down toward to where one Australian dollar equals 70 US cents. This approach to low interest rate provides a good degree of confidence when purchasing an asset, such as a business.
A question I’m often asked is where do you find a good business. Web sites such as businessforsale.com.au provide businesses for sale by a wide range of brokers. However most businesses that are for sale are not listed. Many baby boomers who are reaching retirement age would sell their business if they had a buyer come along. There are inexpensive services that help you tap into this market such as mnadirect.com.
The business you purchase will be more successful if it is something you have some experience or knowledge about, as well as a passion for. A business owner needs to be able to mentally handle calculated risk and in most cases enjoy being around people; staff and customers.
However when you find a good business the returns can be well worth it. A business should give you a return on investment of 20-35%. It provides good income tax benefits that you do not have as a salaried worker. In addition upon sale of the business there are generous capital gains tax exemptions.
Once you have a general idea of the sort of business you would like to purchase, it is good to talk to the bank, in their business section, to find how much you can spend on a business. This then helps narrow the business you can buy. Bear in mind most businesses sell for considerably less than the owners are asking.
When you have found a business that you like, get an appraisal from your accountant as to what is a fair price for the business. A good accountant will be able to step you through the appraisal process so you get an understanding of how a business is priced. Once you know what you should pay for the business, you are in a position to make an offer. At the same time it is then wise to engage a solicitor who is experienced with business purchases to get them in the loop early on. Once you have signed the contracts it is important to engage your accountant to undertake a thorough due diligence on the business to ensure that the business is actually performing as well as it has been presented in the sale information.
For the right person, purchasing a business can be a very astute investment decision. Engaging good professionals that work together; accountant, solicitor and banker, will make a difficult process so much smoother and a achieve a much better outcome.
Peter Ambrosiussen is the managing partner of Ambrosiussen Accountants & Advisors www.ambrosiussen.com.au
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Published by Toowoomba Chronicle www.thechronicle.com.au on Saturday 20 June 2015