Thinking of Buying a Business?

Thinking of Buying a Business?

There are many advantages to buying an existing business, compared to starting your own business from scratch.

You can reduce the risk of failure… established businesses have a much lower failure rate than new businesses that are started from scratch.

See a return on your investment… even if new businesses succeed it usually takes at least one year before you’ll see any sign of profit.

Make a decision based on facts, not “guesstimates”… when you buy an existing business you can make decisions based on actual performance.

Enjoy existing business advantages such as positive cash flow, trained employees, cost-effective supplier relationships and a profitable customer base.

Sounds good, doesn’t it?

Well, yes and no. You see, not all businesses are created equal… and not all businesses are sold for the right reasons.

So if you’re thinking of buying an existing business, it really pays to do your research thoroughly BEFORE you sign on the dotted line.

Why is the current owner selling?

Why is the current owner selling?

This is essential to know as businesses are sold for a variety of reasons, both good and bad.

If the owner is selling because they are retiring, relocating their family interstate or overseas, they’ve decided to pursue a different career or even because they’ve been so successful they don’t need to work again… you know the reason for sale is not a negative one.

However, if they are selling the business because the profits are falling or non-existent, there are problems with retaining staff, the business needs a huge cash injection that they can’t afford or there is too much competition and change in the sector, you’ll need to proceed with extreme caution… if at all.

Can you really afford this business?

Can you really afford this business?

While the costs of a start-up can be spread over time as your business grows, when you buy an established business it will require a larger financial outlay right at the beginning.

This is because when you’re buying an established business you’re paying for its existing tangible assets (such as physical property, inventory and equipment) as well as its intangible assets (goodwill, brand reputation and the potential for future profits).

However, although the purchase of an existing business requires more money up front, the lower risk means it should be easier to borrow from the bank or investors and there often is the possibility of securing vendor finance, as well.

Is everything in order and as it appears on paper?

Is everything in order and as it appears on paper?

When you’re checking to see if everything is in order, it’s really important to avoid any assumptions. Never be afraid to ask questions, no matter how silly they might sound.

Does the business comply with all regulations?

Are there any legal or tax problems?

Are the financial records complete and transparent?

Do the business’s tangible and intangible assets, liabilities and cash flow reflect both its current and estimated future value?

How does the business perform compared to its competitors?

What is the future of this industry?

Does the business have a good reputation and a healthy and loyal customer base?

Is there any pending legislation that may affect the competitiveness of this industry?

Are there contracts in place to ensure you can retain the loyalty of existing suppliers?

What about employees? Will you inherit knowledgeable, well-trained staff who are keen to stay – or are they unhappy about the sale of the business?

Do I really need to hire a professional?

Do I really need to hire a professional?

In one word… yes!

In fact, you’ll probably need several experts… your lawyer, financial advisor, accountant, a business valuation expert and maybe a business broker.

There’s no point investing in an existing business to lower the risk of failure if you don’t do your due diligence first. Without professional advice you could potentially end up putting your investment at the same level of risk as a start-up… so don’t take any chances.

Buying any business carries some form of risk, but if you do your homework and work with a team of professionals, you will be giving yourself and your new business the very best chance of success.

If you’d like to find out more about buying (or selling) a business, contact Brilliant Businesses.