Looking at buying a hair salon. What would be the way to go about it if I wanted to continue as a sole trader? The current owner is running the salon as a company trading as the name of the salon.

Have already negotiated the price and landlord is ok with me taking over the lease with the current terms.

Where can I find a suitable contract for the sale and purchase of a business?

This will be my first business so I'm a total noob with all this

I highly suggest doing a lot of research before taking on an established business. It will just fall over and flop if you don't.

It all depends on how good you are as a hairdresser, how hard you are prepared to work and how clever you are with numbers. Most of the ubiquitous advise out there is overly conservative and aimed at average operators. If you're above average and offering a affordable quality service, then you can have confidence in what you're doing.

You really need the advice of both your solicitor and your accountant - both traditionally conservative occupations. Your solicitor will provide, or prepare, the Sale & Purchase Agreement. And your Accountant will give some very sound advice on how to prepare it - eg Specifying the value of the transferred lease as one of the intangible assets so it can be depreciated.

Your Accountant will help you prepare budgets and cashflow forecasts. Or if you're good with numbers you can do these yourself ... plenty of free templates available in the web. Maybe you have a friend who can do these for you in exchange for free haircut. Naturally you need to know what the numbers actually mean. Completing Budgets and Cashflow Projections (especially the breakeven ones) are important parts of the research LiQuid.Ace is referring too. An accountant in a Business Owners Group I used to attend said that a common factor amongst all the failed businesses that came to him for help was that they did not have a Budget or Cashflow Projections.

Why operate as a Sole Trader? A Limited Liability company is the way to go. They're relatively easy to set up (see http://www.business.govt.nz/compani...rting-a-company ). They are important to protect your private assets against creditors if your business fails ... you don't want to lose your assets (car, family home, future inheritance etc) simply because your business fails. (I was told of a situation where the family farm (worth $5,000,000) was left to the son the day after he went into bankruptcy!)

NB If you borrow any money from your bank they will ask for cross guarantees which will bypass the protection provided by the company. If you are not going to borrow any money, it could be wise to use a different bank ... to keep your business finances separate from your personal ones.

Work hard, enjoy yourself, don't expect too much too soon and provide a quality affordable service ... and you'll be fine.

I don't think you'll find there's any significant advantage in being a sole trader, and definite downsides as above. The sale will also be much more straightforward if it's simply a case of changing the shareholding in the existing LLC.

Egor wrote: I don't think you'll find there's any significant advantage in being a sole trader

Tax.

LLC will pay company tax of 28% on gross profit, any money you draw from the company will then be taxed as per personal income rates, a sole trader will just pay personal income tax, so if you earn $10 as an LLC you'll get $5.82 in the hand (assuming a personal tax rate, including ACC, of 19.2%), but $10 as a sole trader will become $8.08.

Of course, plenty of people get around these things by getting the company to buy things for them.

That said, I agree with just buying the LLC - all the GST registration etc. will be done and attached to the LLC, and that limited liability is really worth it for a business that may fail. Unless you as a director personally guarantee a debt, which, as Tesrof points out, banks will always want you to do, and which you really shouldn't - you're paying extra tax for the advantage of that limited liability, don't throw it away.

Edward Diego wrote: Tax. LLC will pay company tax of 28% on gross profit, any money you draw from the company will then be taxed as per personal income rates, a sole trader will just pay personal income tax, so if you earn $10 as an LLC you'll get $5.82 in the hand (assuming a personal tax rate, including ACC, of 19.2%), but $10 as a sole trader will become $8.08. Of course, plenty of people get around these things by getting the company to buy things for them. That said, I agree with just buying the LLC - all the GST registration etc. will be done and attached to the LLC, and that limited liability is really worth it for a business that may fail. Unless you as a director personally guarantee a debt, which, as Tesrof points out, banks will always want you to do, and which you really shouldn't - you're paying extra tax for the advantage of that limited liability, don't throw it away.

The company can just pay out a shareholder salary so no worries about tax there.

I would not recommend buying the company -too many potential legacy issues it is better to start fresh with a company of your own.

OP even if you didn't get professional advice please tell me you at least did your own due diligence and looked at the financials, turnover, overheads, terms of the lease etc.

Edward Diego wrote: Tax. LLC will pay company tax of 28% on gross profit

Yeah but you pay yourself BEFORE you establish a gross profit.

Some excellent advice guys, I really appreciate it

I have looked through the financial stuff and things look ok and so does the lease. I'm confident I can do much better than the current owner, there is much potential to attract more clientele.

So I will go with running it as a LLC, so how would that work from my perspective? I don't want the seller's company since its not under the salon name (His company trades as the salon name). I start my company and I want to continue trading as the current salon name. What is actually being purchased in terms of the sales and purchase agreement? The trading name? Can you do such a thing?

Sorry for the dumb questions

feijay wrote: What is actually being purchased in terms of the sales and purchase agreement? The trading name? Can you do such a thing?

Oh dear. I recommend having at least 2 separate specialist business acquisition-centric legal council look over all this. Do NOT wing it. It appears you have very little experience and you're playing with fire.

^Yeah OP you have me worried too... what exactly have you agreed to buy?

feijay wrote: I have looked through the financial stuff and things look ok and so does the lease.

Would you mind sharing Revenue, gross and net profits, and how much you're preparing to pay for this? PM if you want. On the surface though it sounds like you're effectively buying yourself a job.

Edward Diego wrote: Tax. LLC will pay company tax of 28% on gross profit, any money you draw from the company will then be taxed as per personal income rates, a sole trader will just pay personal income tax, so if you earn $10 as an LLC you'll get $5.82 in the hand (assuming a personal tax rate, including ACC, of 19.2%), but $10 as a sole trader will become $8.08.

Not true at all.

As others have said, for a small, closely held LLC such as this, the company profits can simply be assigned to him as shareholder salary and taxed at marginal personal income tax rates, the same as a sole trader.

feljay wrote: So I will go with running it as a LLC, so how would that work from my perspective? I don't want the seller's company since its not under the salon name (His company trades as the salon name). I start my company and I want to continue trading as the current salon name. What is actually being purchased in terms of the sales and purchase agreement? The trading name? Can you do such a thing?

You can rename the company. If you don't acquire the company, then you need to clearly agree on what you're buying: assets (and, maybe, liabilities) of the existing company, lease rights to the salon premises (which would likely need cooperation from the landlord), rights to the salon brand, phone number, website, etc. etc.

If you are at all uncertain, seek professional advice before you proceed any further.

Probably good to make sure there's something that prevents the previous owner from setting up a new place close by and contacting their previous customers.

Egor wrote: You can rename the company. If you don't acquire the company, then you need to clearly agree on what you're buying: assets (and, maybe, liabilities) of the existing company, lease rights to the salon premises (which would likely need cooperation from the landlord), rights to the salon brand, phone number, website, etc. etc. If you are at all uncertain, seek professional advice before you proceed any further.

This is the info I was after, thanks Egor.

I will be seeking professional advice as all of you suggested. Just wanted an idea of what was involved and it was a lot more than I thought.

Thanks all, will report back soon