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  • #968800
    Franchise
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    G’Day !

    I am thinking to buy existing or new food franchise business. Would like to know few things regarding buying existing business as following –

    1. How to go about buying existing business ?

    2. How to trust the seller or broker ? How many of them show last 3 year’s tax return. Are the earning shown real ?

    3. Are there any business buyers agent who work 100% in buyer’s interest as we do have in real estate.

    #1035267
    Mitch
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    I recently looked at selling my business through a broker.
    He stressed to me that everything will come out in the wash so if there is anything that will cause problems its best to be upfront about it.

    1. There are many agents that have directories online that you should start scouring.

    2. Im sure there are many unscrupulous operators, my uncle just got done for 100s of K$ and he is an accountant so you have to do your due diligence. You should be able to tell if the numbers are real by seeing if they make sense. ie go in do a trial in the business and see in real life the expenses and profit they are claiming. Everyone should show you last 3 years tax returns but beware as they will probably be 12 months behind. The profits will be real if you are dealing with a business worth buying.

    You should probably spend 1k with an accountant and get some advice.

    3. Also not sure about agents being on the buyers side, i didnt know it existed in real estate either. Sounds like a half truth but i may be wrong.

    I have been involved in food for about 10 years so feel free to PM me if you would like some advice on some numbers….I might be able to offer something.

    Good luck in finding a suitable venture, I would go with a Boost juice if you have the funds.

    Mitch

    #1035268
    Sean@dominiumcapital
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    The first thing I would decide on is whether or not you have a passion for food in the first place and, then (if applicable) try to narrow that down to a style of food you have a specific interest in. This can be challenging, of course, if you are looking for a franchise type of business (for example, you may have a particular interest in, say, Spanish food and there may not be such a franchise). I have clients in the food services industries and it can be very hard work – so you would want to be sure you enjoy aspects of the indusrty.

    A buyer’s agent should be working for you; not the seller. They do exist. I can’t – unfortunately – specifically name anyone here for you. What I would be wary of is a buyer’s agent that also “happens” to be a seller’s agent. It is incredibly difficult to resolve the inherent conflict of interest that exists if the agent works on both the “buy side” and the “sell side”. Therefore, a “buy side”-only adviser is what you should look for.

    An idea might be to speak with you lawyer and/or your accountant – if you have these. They often have clients that might be looking to sell a business and they can point you at those clients and you can make direct contact with the seller – avoiding the need for paying an agent. Just a thought.

    3 years’ tax returns should be no drama for a legitimate business to produce. Don’t get sucked into claims of “additional cash” being generated through the business, which “doesn’t get put through the books”. Beside the tax avoidance issues in this type of activity, anyone with some accounting experience can fudge numbers. Anyone who claims they can show you “official” books and “in house” books is someone I would be very wary of dealing with. Work off the official figures, submitted for tax purposes.

    You should definitely question the seller vigorously about their rationale for selling. Whilst this isn’t foolproof, it should give you some sort of idea as to why they are selling. If they can’t produce 3 years’ tax returns (because they have only been operating for, say, 2 years) then why are they selling??

    A final thought: you don’t have to pay for a business entirely “upfront”. This may not be appropriate for all transactions, but you can structure the deal in such a way (without being overly complicated), which staggers payments on the basis of financial performance and hurdles being met. This is normal business practice. You can structure the deal as an incentive for the seller and also give yourself peace of mind. You might get the seller to stay on in the busienss for a period and have them work for you as an employee. These are a few examples. Get some advice on this – there are numerous ways to get a good transaction structured. A really good lawyer, accountant or business consultant/adviser can assist here. Spend some money upfront getting advice, as Mitch (above) says. It shouldn’t cost you a fortune and it might save you squandering cash downstream.

    I hope this helps you out a bit – good luck!!

    Sean Dunne
    Dominium Capital
    http://www.dominiumcapital.com.au

    #1035269
    Alan Maddick
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    Hey the equivelant to a buyers agent for Businesses is called a…you guessed it an Accountant! Go and find a good Accountant and get them involved early.

    And who to trust the agent or the seller, you need to trust the seller in initial negotiations and then go and do your due dilligence. It’s not a trust thing it’s just business, if you’re investing real money you need to know as much about the business as possible and check every figure etc.

    Just be aware in the initial stages most sellers are hesitant to reveal too much and give too much access to figures etc, this normally comes later in the process.

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