Thinking of Buying a Business? 7 Things to Consider

7 Things to Consider when buying an established business

Buying a business can be an exhilarating experience. Not only does it represent the realisation of your dreams of entrepreneurship and financial freedom, but it also entails taking on tremendous responsibility from day one. Before you make such a major decision, however, there are some important considerations that need to be taken into account in order for the purchase to be successful and trouble-free in years to come.

From due diligence research to long-term sustainability plans, learn seven essential insights that all business owners looking to buy an existing business should thoroughly review before signing any contracts or making payment arrangements.

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1. Check if you're business-ready

‍Running a business requires certain skills, as well as time, energy and money. Before you contact a business broker, you need to be clear about your reasons for going into business and to be sure you are up for the challenge! If you are already in business and you are growing your current business by purchasing another, the following would be nothing new to you. If this will be your first business venture, the following factors need to be considered:

• Do you have the right skill set to become a business owner?
• How much time will you need to invest in a business for it to be successful?
• Are both you and your family physically and emotionally ready to deal with unusual work hours and the time pressure that comes with being your own boss?
• What are your personal goals, and will starting a business help you achieve them?
• Do you have the capital and financial backing to invest in a business for it to be successful?

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2 . Why is the business for sale? 

It's important to understand the motivation for the sale, whether strategic or an emergency sale. There may also be hidden reasons for the sale, which your research can uncover. It's essential to look into the reasons for the sale, as you may even find that the purchase price does not reflect the value of the business.

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3. Research the business

Do more than you think you need to! Market research, investigation, learning and questioning about the potential business, the locale, the current owner, the employees, the industry, the customers, the suppliers, the competitors, the market and the nature of the goods or services being sold will ensure you don't rush into a decision just because it looks like a good deal.

If the business has intellectual property that's of interest, ensure it is protected through patents, trademarks and registrations, and importantly, check if these rights will be passed on with the sale.

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4. Due diligence is a must

‍You'll need to see detailed financial records (including profit and loss statements, balance sheets, sales growth figures and cash flow statements), contracts, licenses, supplier agreements, lists of equipment, assets and inventory, lists of liabilities, loans and debts, and all employee records before making your decision on whether this is the right business for you.

What is due diligence?

Due diligence research is a type of investigation that's conducted to gain more information about a particular business, subject or entity. It is generally used in business situations, such as when one company is looking to purchase another, or when a venture capital firm is considering investing in a particular startup. During due diligence research, the party conducting the investigation will typically analyse financial and legal documents, interview key personnel and stakeholders, and assess other factors involved in the proposed transaction or investment. The goal of this research is to ensure that the party doing the due diligence has all of the necessary information to make an informed decision on whether or not to proceed with the transaction.

Specifically, due diligence research provides an opportunity for buyers and investors to identify risks, liabilities, and opportunities associated with their desired investment. It also helps them evaluate how much they should be willing to pay for the target company or venture. By taking into account both positive and negative aspects of the deal through a thorough analysis, prospective buyers can make better-informed decisions about their investments. Due diligence can also help protect against potential losses by uncovering any hidden liabilities that could affect a future transaction. Additionally, it can provide insight into potential areas for growth within established businesses by identifying any changes that need to be made prior to making the purchase or investment.

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5. A good business plan

A business plan helps you navigate each stage of starting and managing your business. It can be used to determine how you'll structure, manage and build your venture.

A good business plan should include:

• an executive summary;
• a company description;
• market analysis;
• competitor analysis;
• sales and marketing plan;
• ownership and management structure;
• financial goals and objectives;
• a detailed description of the services or products offered.

It should also provide an outline of the steps needed to reach those goals. Additionally, it should provide information on how the company will differentiate itself from its competitors. Finally, it should include an overview of the risks associated with starting the business as well as any potential opportunities for growth.

Having a plan mapped out can help you fully understand the steps required to get your business to where you want it to be.

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6. Independent advice

It is important to get independent advice from your tax agent and other business advisors, such as industry experts, business brokers or lawyers, before investing in a business. It can be easy to overlook potential issues or roadblocks when we're excited about an opportunity, but having someone with objectivity look over the situation can provide valuable insights that could save you time and money. Being able to talk through potential opportunities and outcomes with someone will also broaden your understanding of what's possible and what to expect.

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7. Finance

‍ Whether it's your own funds, a business loan or short-term finance options, you will need to work with your advisors and refer to the business plan to assess how much you will really need for the initial purchase, transition period, and future investment.

For financial success it's essential to manage aspects such as tax implications, structuring outstanding debts, and determining required profit margins. Your accountant will be well-placed to help with this area.

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Conclusion

Ultimately, if you are considering purchasing a business, it is important to conduct thorough due diligence research and take your time in examining all aspects of the decision-making process. Before embarking on this journey, consider enlisting a trusted professional team to assist you in making the best and most informed decision. A well-thought-out acquisition has the potential for rich rewards, but also comes with considerable risk, so taking the proper steps to ensure that you make sound business decisions is key.

When considering buying a business, we can help you to analyse the financial reports, activity statements, tax returns and sales and purchases records to give you an independent overview of the financial performance and potential of the business.

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How we can help?

If you need more advice on this issue, please contact our team.

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