Buying a business can be an extremely exciting, but also a stressful time for small business owners to go through.
You move from collecting a regular paycheck and all the other goodies that comes with being an employee, through to needing to tightly manage your finances, organising the BAS and tax returns, undertaking marketing & sales activities, not to mention creating the products or services that your company will provide.
Buying a business can simplify a lot of the initial teething issues but there are a range of things you need to look out for, take care of and be sure of before you sign the contract and take ownership.
Past performance is not an accurate depiction of the future.
Just because you and your accountant have gone through the balance sheets for the business plus the sales data and are sure everything matches up and is accurate still doesn’t mean its past performance will always continue that way.
Performance can be taken in both a positive and negative way, as you can always potentially turn around an underperforming business, however, if a business is doing well, you must note that the people behind it – the ones selling it to you – are largely responsible for that result and you will need to work hard to maintain it.
Understanding what you are getting into.
Just because you are a fantastic chef, it doesn’t make you an expert on owning a restaurant or F&B establishment. Having a formalised business and financial plan in place is paramount for the continued success of the business.
If you have not purchased the business yet, you need to see all the financial and business plans the company has in place. If you are not qualified to read the financial information, then you need to engage someone that is – such as a lawyer or accountant.
Undertaking due diligence on your behalf is what they are paid to do, and in many cases, they earn their money by calling your attention to any financial or legal matters that could impact your businesses future earnings.
Understanding the product or service.
If you are buying an established business, it is vital that you understand the product or service that the business is producing, who’s buying them (the market) and of course your regular and premium customers.
Existing customers are the people that you want to maintain and harness. Remember it is up to 25 times more expensive to get new customers than to keep old ones happy.
As such, you need to understand what kept the past customers happy and coming back and how to market to and entice new customers.
By understanding your product or service you might need to delve into the businesses intellectual property and other physical assets that are paramount to the success of your business.
You wouldn’t buy a car without looking under the hood.
As always, when it comes to any financial decisions, such as buying a small business, it is essential you engage a professional lawyer, accountant and business advisor to determine a fair price and review all considerations such as sales, costs, profits, assets, liabilities, tax and legal issues.
Although on face value the business you want to buy may offer you the ultimate in opportunity, in reality when you start getting into the running of the business just down the road from the purchase the wheels may fall off.
Engaging professionals to advise and protect your investment – especially if you are taking out a loan to buy a business it is vital in your future success.
Owning your own business is an extremely rewarding, yet challenging experience. In buying a business you are somewhat hedging your investment as the business has already been established and ideally, is making money.
Always remember, buyer beware and undertake due diligence in any business that you buy.
Author: Hayley Clark
Hayley Clark is a content writer born and bred in New Zealand. She has been writing, editing, and working in the industry for over five years, for a myriad of companies, including Virgin Money, Thrifty, Destination New South Wales and Michael Page.