Buying a business is a great way to enter into the business world, or to expand your existing business empire. But buying a business isn’t something to enter into lightly.

Becoming the prospective owner of a new business means doing your homework, researching the business you plan to acquire and working closely with a team of advisers.

Here are five key questions to ask yourself, before entering into a deal.

Why are they selling the business?

It’s vital that you know WHY the current owner is selling. It may be that they simply want to move on to a new business venture, or retire. But they may also be trying to extricate themselves from a business that’s not performing well, or has intrinsic issues.

Important questions to ask will include:

  • Is the owner retiring?
  • Are they facing financial difficulties?
  • Are they looking to pursue other opportunities?
  • Are there any legal or regulatory issues?
  • Are there any personal reasons for the sale?
  • Are the finances in order?

A common problem with both startups and established businesses is a lack of cashflow. It’s possible to have a business with a reasonable customer base and ongoing sales, but for poor margins and rising operational expenses to have a negative impact on the company’s finances.

Before you buy, drill down into the company’s finances:

  • Get a copy of the business’ accounts, both statutory filings and internal management accounts, and have them reviewed by an accountant
  • Look for any red flags, such as debt, losses or cashflow problems
  • Make sure the business is profitable and has a solid financial foundation.
  • Are the staff capable and engaged with the business?

As the saying goes, your people are your most important business asset. So, prior to buying a business, it’s important to get acquainted with the top team, management and employees.

To learn more about your prospective workforce:

  • Meet with the key employees and get their input on the business
  • Make sure the core team is willing to stay with the business after the sale
  • Think about the cost of replacing any key employees who leave.
  • What governance do you need to do?

Getting your due diligence and governance done is such an important step in your pre-purchase planning. You need to know this business is a viable enterprise, that there are no links to undesirable activities and that you’re not taking on a whole load of legal issues.

To make sure you’re ticking all the correct governance boxes:

  • Review the business’ contracts and agreements
  • Run due diligence checks on the company and its owners
  • Make sure you understand the legal obligations of the business
  • Get legal advice on any issues that you are not sure about.
  • Can you get the best price?

Buying a business with a well-respected brand is a great move as an entrepreneur, but you don’t want to pay over the odds when agreeing on a deal. It’s important to have a clear ceiling on your budget, and to stick to your guns when it comes to negotiations on price and conditions.

To help secure the best price:

  • Do your research and find out the fair market value of the business
  • Be prepared to negotiate with the seller to bring the price down
  • Don’t be afraid to walk away from a deal if you are not getting a fair price.

Talk to us about planning the buying a business

This isn’t an exhaustive list. There are plenty of additional factors to think about when buying a business. Any business sale is a complex process, where working with professional advisers will help you navigate the twists and turns so you come out with a successful deal.

As your adviser, we can help you:

  • Run due diligence checks on the business
  • Assess the company’s finances to check for red flags
  • Find the relevant routes to finance in order to fund the purchase
  • Connect you with M&A experts to advise on the sale.

If you’re looking to buy in the near future, come and talk to us today via phone call 1300 844 678 or submit a form here, or reach out via email at [email protected].

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