Buying or starting a business in Western Australia

By Rosalind Baker, 12 January 2003

Moving to a new country is a very stressful time for most of us and the older one is, the more side-effects! That and buying a business doubles the strain, so if you are in the process, or considering it, watch your health, eat wisely and take plenty of vitamins. Swim in the sea and walk on our lovely white beaches, whenever possible. Constant relaxation gives the body time to heal and you will be able to cope.

For a new migrant arriving for the first time in Australia, it is much more difficult to start a business than it is to buy an existing one with an already proven track record. Businesses making a profit under management are difficult to find but are usually well worth looking at. One can sometimes offer the best employee or manager there a small share in the business, in return for any increased output and profits.

Although Australia seems very similar to other English-speaking countries, there are mixed cultures from many countries established here, and the seemingly sunny, relaxed holiday atmosphere tends to camouflage the intense competitiveness of the business community in general here.

After practising in Perth as a business broker for a few years, assisting migrants (I was a migrant from Zimbabwe myself six years ago), I am very aware that only the hard-working, informed, alert and “hands on” business owners are making money. The rest have bought themselves a job, together with all the responsibilities and stress of running a small business.

I appraise many businesses which new owners have been running for only 6-18 months and they wish to sell. Many of these businesses that you will find advertised on the market are there because, for some reason, the profit margins are in decline, or the owners have worked themselves to a standstill to make the business work, and have ruined their health along the way.

A new migrant must be careful not to fall into the same trap!

Having seen so many of the mistakes that other people have made (and made some myself, when I arrived), here are a few tips which may help you to choose the correct business to buy:

• Never put all your savings into a business so that if it fails, you have nothing left to fall back on. Only risk what you can afford to risk.
• Try to buy a business which you know about. Trying new, unfamiliar things increases your risk.
• A vendor offering vendor finance is often doing it because it is the only way he can sell the business. This is not always a bad sign, but it can be.
• Imagine yourself in the business doing the same thing every day for the next 5 years!
• Check everything that you are told. The owner wants to sell and the agent is rewarded by the owner to sell. You will have to look for the negatives as probably only the positives will be pointed out to you.
• Always look for a business which you can add something to or improve on, otherwise leave it. If the profit has not been improving, it is most probably on the decline.
• If the business has only one or two customers, check if there are contracts in place. If not, imagine what will happen if these customers are lost. You may be paying goodwill for business which may disappear after a few months.
• Examine many similar businesses until you start to feel that you know what you are looking at and can see the differences from one business to another. Then you can pick out the good ones.
• After you have signed a confidentiality document, the vendor should be up-front and open about the business – and the figures. If not, this is a warning sign. The best businesses that I have sold have been the ones where the vendors have to sell for a very good reason and they are quite happy to show all their figures.
• Never pay for “potential”. If the last owner did not follow up all this potential, you probably will find that there is none.
• If plant or property are involved, have your own independent valuations done and do not hesitate to ask questions to business owners in a similar trade. NB Be careful not to break your confidentiality agreement when you are doing this.
• Try to discreetly check on the vendor by asking your accountant to do a credit investigation for you. The vendor will have to approve this but if there is resistance – wonder why! Try to carefully find out who knows the vendor and listen to what they have to say about him or her. The more you know about the vendor and why the business is for sale, the better.
• Insurance premiums have soared recently in Australia and many small businesses are selling because they cannot afford the premium. Always check on the future insurance costs before signing any documents.
• Make sure that the business is being sold as a going concern (or GST will apply to the sale).
• Think cautiously about any start-up business invitations (unless there are signed contracts for the sales in place) and very carefully about venture capital projects. These can be good to go into for only those with spare funds to gamble with.
• If you are worried about your visa requirements, you will get different opinions and advice from all quarters. It costs nothing to visit the Immigration Department for advice. Always follow up the meeting with your understanding of it, in a letter to the head of the immigration department, so that it is on record in your file. Keep a copy of everything you write or receive from anyone.

Take your time and do not allow anyone to rush you. There is always another business out there!

If you are considering migrating to Perth, Western Australia, I suggest you contact the Small Business Development Corporation in Perth www.sbdc.com.au for free advice and even possible sponsored business migration. This organisation can supply you with most of the information and assistance you require. They will post you an information package on application.

Once you have found a business which you can afford and which you feel comfortable with, show it to their experienced staff. It is always good to let an unbiased person look at what you are doing. You may be driven by the passion or financial need to buy a business, or both, and may need some logical facts pointed out to you by an experienced person. A vendor or business broker will be driven by the desire to sell and may not have your interests at heart.

The SBDC will also be able to give you an idea of what return on investment you should look for in the industry which you have chosen to buy into. All business agents should have examples of recent sales in every industry and what the estimated return on investment is. Speaking very generally, if you buy a business in Perth, you should be able to earn your money back in two to three years.

Try to find an accountant who has bought and sold businesses himself. You usually need a very good one at this stage. Accountants can check that figures balance and do tax returns, but many of them do not have an instinct for business. It is essential that you have the right person to advise you at this stage.

It is worth spending the money on a lawyer for the agreement, when you buy a business. Again try to find one who specialises in business agreements (a divorce lawyer may not have had much practice!).

Well run, profitable businesses are not easy to find but if you search constructively and widely and put in the essential research and necessary hard work, you will be successful and end up buying a good one.