Wanting To Buy A Business? What You Must Consider First

INTRODUCTION:

Had enough of your salary job? Have you ever thought what it would be like to own your own business?

Well, before you jump in you may want to look at the advantages and disadvantages.

Having been an experienced small business accountant Sydney and Dubbo for many years, we have seen positives and negatives when businesses have either been bought or commenced from the beginning.

Figure 1: Setting up a new business rather than buying it can be a huge task.

1. existing customers & goodwill

One of the advantages of buying a business is that most will have existing customers and goodwill already established. Be sure that prior to purchasing the business and working out its business valuation that the customers in the past are likely to still be there and at the turnover level after you have taken it over. Naturally you will adjust your offer once you have done your due diligence if it shows that some of the customers have left or gone broke or are likely to leave after the changeover.

If all is in order, a good business will already have:

• customers;
• suppliers;
• goodwill;
• staff;
• branding;
• signage;
• systems and procedures.

Starting from scratch could take years to get such areas operating and functioning.

2. expenses & finance

If the business is already operational stock will already be on hand usually so you can start generating some good cash flow.

If you are seeking finance, a business that has a track record regardless of who owns it could make it easier to get the loans you need whether it be to buy the business or make changes to it.

3. training & assistance

Many purchases of businesses contain a clause that requires the previous owners have to stay around for a period of time. This makes it easier to receive training for yourself and any new employees. Of course, quite often existing employees stay after the change of ownership and are ready to go whereas starting a business with new employees will usually mean a training component which can be expensive.

Figure 2: Having a team already can be an advantage!

4. goodwill may cease to exist

There is always a risk that customers may leave when the business changes hands. Minimise this risk by performing due diligence or asking for a profit or revenue hurdle or the price for the business reduces.

If the business and customers were heavily reliable on the previous owner due to knowledge, relationships etc., the risk that they leave will be greater. A small business valuation will always be reduced should this reliance be prominent so make sure you consider this and don't pay too much.

5. Reputation

The business you are considering purchasing may have a bad reputation which can take years to fix. The sign "Under New Management" may help but won't necessarily see people running back through the door.

Figure 3: Does the business you are buying have a great brand? Photo courtesy Lara Scolari Gallery Balmain

6. premises & equipment

The premises you take over may need repairing or not capable of handling any improved processes or planned growth. The equipment you have bought may be out of date or also in a state of disrepair.

CONCLUSION:

Whether you are going to buy a business or start one up, be sure to consider the above points before you decide which way to go. Get advice from your small business accountants Sydney and Dubbo and business valuers Sydney before you do anything as in some cases it might be wise to stay where you are for the time being or at least go into the new venture knowing what you are up against.

If you do your research, due diligence and homework about the industry and are super prepared, you may just find the world of a small business owner to be an exciting and prosperous one!