How Do You Buy a Business? Here is What You Need To Know.
When it comes to life altering decisions, buying a business is right up there with having a baby or buying a house. Most people we know go into business in order to find more freedom, financially or perhaps for their personal life, but very few people do it in order to be chained to another job or boss.
Without the right advisors, research, understanding and business experience behind you, you can often end up working harder than you intended.
Here is what you need to do in order to buy a business, the right way.
Make Sure You Understand The Business You Want to Purchase
Often the most successful business purchases are made by people who know the industry already. If you’ve been a Chef for 10 years working for someone else, buying a hospitality business will be much easier than if you’d been working as an Estate Lawyer.
Knowing what you’re walking into will be a huge advantage and make the process of taking over a business in its day to day operations, really quite simple. You’ll also know what to look for, and what is important for that business to run smoothly.
Know What You Can Comfortably Afford
No one wants to be stretched beyond their ability to live comfortably. Talking to a finance broker before making any kind of offer is the best way to make sure you don’t get in over your head.
We have great finance brokers we can refer you to that would love to help here.
Do Your Homework
There’s always things to look for and questions to be asked when you’re looking to make a large purchase. Think of this part like the building and pest inspections you’d get before buying a house. We call this due diligence. Here’s what you should be thinking about -
Why is the business being sold? Are they in a hurry? Has it been commercially viable? Understanding the seller's motivation is wildly advantageous for the purchaser, and can really help your negotiations.
Understand who your customers are, what do they want? How big is the market?
Find out who your competitors are, are there many? Where are they located?
What does the future look like? If you are looking at a bricks and mortar business, are there any upcoming developments within the local area?
If it’s bricks and mortar, where will the business be located? Is there a lease? What is parking like? What is foot traffic like?
How are the numbers looking? Are there any debts you’ll assume?
Know the risks with owning a business, as well as the rewards. Look for any pitfalls that may come your way if you do proceed with the purchase.
We have a number of free resources on our website for you - start here for some help to get you stared.
Think About Who You Are Getting Into Bed With
If you’re thinking of purchasing the business with a friend or family member, you should think of it like a marriage. Are you happy to be financially attached to this person going forward? Your business partners or shareholders will need to have similar goals and aligned values if your working relationship is to be successful.
No one aims for business failure, but if your business partner isn’t aligned with you completely it can have disastrous and expensive consequences.
Make Sure Business Ownership Is What You Really Want
Owning a business isn’t for the faint hearted. It comes home with you and it’s extremely personal. Whoever coined the phrase “it’s not personal, it’s business”, may not have actually been a business owner, because in our experience, most business is extremely personal. Are you comfortable taking on the risk that’s involved with owning a business? The pressure of bringing in new business and the cost it could impose on your personal life?
Much like parenting (which largely seems to be about feeding people and cleaning things), there’s more to owning a business than the pretty parts we see online. Bookkeeping needs to be managed regularly, goals need to be set ahead of time and your taxes need to be planned for.
The rewards of owning a business can be monumental, but you need to be comfortable with the risk as well.
It might sound like a sell here, but each business is unique - and we’ve seen it all.
Talking to an experienced business accountant is going to pay dividends. Your accountant should be able to point you in the right direction in terms of a suitable broker and a legal advisor. They’ll help you identify the right questions to ask the sellers and they’ll understand the nuance in the numbers that someone else may miss.
We analyse the business’s profits and losses, past trends, sales projections, profit margins, overheads and the asset and liability position including your working capital needs. We will also assist you to choose the right structure for your purchase. A business accountant can also advise on growth opportunities or lack thereof.
There is a lot of financial due diligence involved so talking to someone you can trust and rely on to give you the advice you didn’t know you needed is invaluable.
We love partnering with driven and ambitious business owners. If you want to dive into the world of business ownership, or look at your next venture with an accountant who is as invested in your success are you are, us.
