Buying an existing business in Australia can be an efficient and strategic path to ownership, but success depends on preparation and professional advice.
Determining the right purchase structure, understanding the legal process, and performing comprehensive due diligence are all critical to avoiding costly mistakes.
Why buy an existing business in Australia?
Buying an existing business can be one of the most effective ways to enter the Australian market or expand your current operations.
Advantages of buying an established business
Rather than starting from the ground up, you’re purchasing an enterprise that already has customers, systems and brand recognition.
This provides an immediate foundation for cash flow and growth, while reducing the uncertainty that often comes with launching a new venture.
Acquiring an established business can also make it easier to obtain finance, as lenders and investors tend to favour businesses with proven trading histories.
The presence of trained staff, existing supplier relationships and established processes can also increase early profitability.
Risks of buying an existing business
However, it’s important to recognise that buying a business means inheriting both its assets and its challenges.
Existing debts, contractual obligations or reputational issues may come with the sale. For that reason, careful evaluation and professional guidance are essential to ensure that the business you buy aligns with your goals, risk tolerance and financial capacity.
Determining the right structure
A critical early decision in any acquisition is determining how the purchase will be structured. In Australia, this typically comes down to two main options: an asset purchase or a share purchase.
Asset purchase
In an asset purchase, the buyer acquires specific assets of the business. This can include equipment, intellectual property, goodwill or contracts, all without taking ownership of the company itself.
This structure can be advantageous if you want to avoid assuming the seller’s historical liabilities. However, asset transfers can involve additional administrative steps, including reassigning leases, contracts and licences.
Share purchase
In a share purchase, you acquire the company as a legal entity including all its assets, employees, contracts and liabilities. This option is often simpler from a continuity perspective, as existing arrangements remain in place.
However, it carries greater risk if the company has undisclosed debts or compliance issues.
Consider your priorities and risks
Selecting the right structure depends on your strategic priorities and appetite for risk. Legal and accounting advice at this stage is invaluable, ensuring the structure suits your long-term objectives and offers the right level of protection.
Conducting due diligence
Before signing any agreement, a thorough due diligence investigation is essential. This process verifies the information provided by the seller and identifies any hidden risks or liabilities that could affect the value of the business.
Financial due diligence typically involves reviewing profit and loss statements, balance sheets, tax records and outstanding debts to confirm that the business’s financial position is accurately represented.
Legal due diligence examines contracts, leases, intellectual property rights, employment arrangements, regulatory compliance and ongoing disputes.
Operational due diligence assesses the stability of suppliers, customer relationships and internal systems.
Why due diligence is important
Due diligence is your best defence against unexpected surprises after settlement. It provides a complete picture of what you are buying, allowing you to renegotiate terms, seek warranties, or even walk away if red flags appear.
Important considerations
You should also consider qualitative factors: why the owner is selling, whether key staff intend to stay and how transferable the customer base truly is. Together, these insights inform whether the business is viable under new ownership and whether the asking price reflects genuine value.
Consulting professionals
Purchasing a business is a complex transaction that requires more than just commercial intuition. It calls for the combined expertise of legal, accounting and financial professionals.
A commercial lawyer can review and negotiate contracts, identify potential liabilities and ensure the terms of the sale protect your interests. An accountant can evaluate the business’s financial performance, forecast future earnings and advise on tax implications or optimal purchase structures.
If you’re interested in buying a new business, Optima Partners’ team of experienced business advisory accountants can help. Whether you’re an experienced owner or looking to break into the market for the first time, we’ll help put you on the right path.
