Buying an existing business can be a great opportunity to hit the ground running and avoid the disadvantages of starting from the ground up.
In a majority of situations, buying an existing business is considered a safe option. You acquire a business that already has a loyal customer base, regular cash flow and hopefully goodwill associated with the business name.
Of course, this can work in the reverse. Buying a business without conducting the right due diligence checks can mean buying a business with a chequered past.
4 questions to ask yourself before you buy a business
1. Why is the business for sale?
2. What is the general reputation of the business?
3. Are market conditions right for success?
4. Is the business profitable?
Once you’ve answered the above the responses will steer your decision. If you decide that the business might be a good investment, a more thorough investigation is needed before a purchase is made.
Key areas to consider when buying a business
- How much of the businesses success (assuming it is successful) is because of the existing owners?
- Will customers leave if they aren’t around anymore?
- Will key employees and management leave if the business is sold?
- Are there detailed operating procedures and manuals?
- What are the sales patterns and trends to date?
- Does the business have a solid customer base?
- How strong is the business’ supply chain and supply chain management?
- Is the business profitable?
- What are the fixed vs. variable costs?
- What does your cash flow look like? Are there seasonal influences?
Assets vs. Liabilities
- What assets does the business currently have?
- Does it have IP and/or leasing arrangements?
- Does the business have any outstanding debts?
- What are the employee liabilities you may be taking on?
- Have you reviewed the purchase agreement carefully?
- Is there a strong enough restraint clause for the exiting owners?
What kind of tax applies to this business structure?
- Capital gains tax
- Income tax
- Stamp duty implications
- What has and hasn’t worked for the previous owner?
If you’re thinking of buying a business and need advice, talk to us and arrange a consultation.
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