Income Resource Club > Business > Buying a Business
Buying a Business
Buying an established business can be a big commitment. To assist you in making an educated decision we have put together the following points to help you research and assess the business opportunity.
A number of considerations need to be made before buying a business and making it a success.
First Consideration:
- Is the type of business is suitable for you and your lifestyle.
- Are you suited, physically, psychologically and financially to that business?
- Do you have the skills, experience, time, resources, vision and commitment?
- Do your personal circumstances make this a good opportunity for you?
Second Consideration:
- Obtain all the relevant information available to enable you to assess the business.
- Will the business continue to generate the level of profits that the business is said to be earning?
- Is the goodwill component of the purchase price realistic? Goodwill generally relates to profitability.
A conscientious buyer will carry out a thorough check of the business and in so doing will identify whether it is likely to succeed in the future.
We would also recommend doing a SWOT (strengths, weaknesses, opportunities and threats) analysis of the business; this will help you assess value of the proposed purchase. Strengths could include:
- contracts that will be sold with the business
- ownership of intellectual property
- exceptional location
- secure client base
- little or no competition.
Threats could include a new or potential competitor.
A business plan or feasibility study should be prepared. Financial forecasts should include:
- ample allowance for the purchase of the business
- costs of acquisition such as legal fees and stamp duty
- any additional expenditure required
- borrowing costs
- working capital requirements.
Make sure you use current costings and quotes, especially for insurance and labour costs.
For further information on Business Planning, please visit:
Caution
Beware that not all businesses for sale are going to turn out to be good businesses. Things to look out for:
- run down
- badly managed
- poorly located
- suffering from recently introduced competition.
A well run, established business with a solid client base, suitably equipped premises and a good lease, with a good turnover and net profit may provide a safe income. Such businesses are often placed in the hands of a broker or accountant who has a list of clients waiting for good businesses, and they may not be advertised.
Information you need about the sale to allow you to evaluate a business you need at least the following information:
- A trading and profit and loss statement for the most recent two years in which the vendor has owned the business and a balance sheet to identify assets and liabilities.
- A list of plant, equipment, fixtures and fittings, which the owner intends to sell and a current valuation. (Proof of ownership will need to be established if you decide to buy).
- Details of any stock that the owner wishes to sell and how the stock will be counted and valued at settlement.
- If the premises are leased, a copy of the lease agreement.
- Ascertain your obligations for employees transmitting with the business.
- If you are buying an existing franchise from a franchisee, ask the vendor for a copy of the franchisor's disclosure statement. If you are being granted a new franchise, the franchisor must give you a disclosure document, as required by the Franchising Code of Conduct.
For further information on Franchising, please visit:
Do not sign any offers or pay any monies until you have been provided with all of the above, you have assessed the business and taken independent professional advice.
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