Buying a business

Buying a business can often be an attractive way to get into your own business. We have put together some tips or topics you need to work through to ensure that the process of buying a business is as productive and successful as it can be for you.

Once you have a found a business what next

Finding the business you want to buy can be one of the most enjoyable steps in this process. Everything looks good from the outside and you are buoyed with enthusiasm. There are however a few things you need to discover and work through at this point;

  • Confirm that the sales are as good as the owner says they are and that the costs are accurate.
  • Are the employees happy with a new owner.
  • Are there contracts in place with customers and suppliers. Are they happy to work with a new owner.
  • Do they have a sound business model. Are there processes in place. Are these documented.
  • Can the business run without the current owner there. Is there a level of key person dependency.

Register your interest

It is important right from the start to show that you are genuine, that you have integrity and that you have a plan for the business that is attractive. Not only is the seller trying to manage the expectations of employees and suppliers, the seller usually has an emotional attachment to the business. They often want to know that it will be ‘in good hands’ once they leave.

Why is the business being sold

You need to understand early on why the business is being sold. Do your ‘due diligence’. Here is a list of areas you need to explore and understand.

Immerse yourself in the business

Talk to customers, suppliers and competitors. Ask them about the business, their relationship with the business. Ask them would they buy the business. You will be surprised by the level of detail people are happy to share. Especially if their experiences have been extremely positive or extremely poor.

Visit the business, imagine you are a customer and document your experience. Ask your friends to visit the business and ask them about their experience.

Analyse the results and market trends

Look at the financial results of the business. Ask your accountant to help you bring these numbers to life. What do they mean. What picture are they painting.

Make sure you are across industry trends. What is happening in the broader market that will impact this business.

Making an offer

At this stage you may be quite excited and eager to make an offer. Get some professional advice in terms of actually valuing the business. You want to understand where you feel you can increase profits and where you can reduce costs before you place a value on the business and therefore your first offer.

Understanding risk

Make sure you understand the level of risk with this purchase. Some of the measures of risk are;

  • Customer or client mix. Is there an over reliance on one or two of them.
  • Is there a reliance on a key supplier. Are there other suppliers that can provide the same product or service.
  • Are the assets of the business worth less than your offer price.

How to negotiate goodwill

The seller will usually feel that the goodwill within the business is worth a premium and it is fair to say that you do want to be buying a business that has a strong brand, customers that are loyal, good profits, location, great staff and on we go.

However, it is important to ask your accountant to actually quantify this. You will most likely be paying for goodwill within your purchase price. Therefore, you need to ensure it reflects true value.

Buying a franchise

If you are buying a franchise there are some specific things you need to work through, including;

  • Fees, both current and ongoing and what to you actually get for them.
  • The other franchisees, are they successful, how long have they been franchisees.
  • Legal and compliance, make sure your solicitor checks the franchise agreement.
  • Are they a successful operator, you want to see evidence of this.

Before you buy a business you need to understand what you are buying. If you have any questions please contact me at rose@roseguerin.com.au

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