In many cases, buying a pre-existing business is simpler than setting up a new one. With an established customer base, developed processes, branding already in the market, and an existing brick-and-mortar store or a digital storefront, you are more likely to start turning a profit quickly and more efficiently than if you had to start from scratch.
If you have never owned a business before though, there are a few important things to consider before entering the fray, particularly if you are taking over an existing entity. Read our essential guide to buying a business in Australia before making the plunge.
Assess if you are business-ready
Before starting to look at the business classifieds, you need to ask yourself if you have the right skill set to run a business. For example, completing an MBA degree online in Australia and having extensive experience in previous business settings is a great way to give yourself a head start and a strong footing for starting your venture. You should also consider the following to determine if you are business-ready:
- How much time will need to be invested in the business for it to be successful, and do you have the drive and capacity to do it?
- Do you have the capital to invest in a business to ensure it is set up for success?
- Are you physically and mentally able to manage unusual work hours and the pressure that comes with owning your own business?
- What are your goals, and will buying a business help you achieve them?
Determine the right type of business for you
Finding the right industry to purchase a business in is important. Your interests, background experience, and skillset can help you narrow down your choices to a select industry that is best suited to you, keeping in mind finding a business you enjoy working for can be the difference between success and failure. When determining the right industry for you, consider:
- Do you have a working knowledge of the industry, or will additional work need to be put in to understand it?
- Does your skillset or knowledge give you a competitive edge in this industry?
- Is the industry growing, shrinking, or in a constant state of flux, and can you manage this?
- Does your capital allow you to acquire a business in this industry?
- Will you enjoy working in this industry?
Choosing an industry you are interested in is important when buying a business. Photo by Blake Wisz on Unsplash.
Research the business
Once you have found a business you are interested in buying, it’s time to do your research. You will need to understand as much as you can before making an offer, which should include:
- Gaining an understanding of the business’s current reputation in the market.
- Understanding its existing customer base – What is the demographic? Is the market large enough for growth? Does it have regular, return customers?
- Researching competitors and determining potential risks when purchasing the business.
- Talking with existing employees and neighbouring businesses on how the business is doing – you may like to send in a friend or family member to scout this out.
- Observing the business’s day-to-day operations, including visiting physical locations on varying days and at different times of day to observe customer traffic.
- Speaking to industry experts to understand the industry landscape and the future viability of the business.
Conduct your due diligence
After conducting your research, it is time to get the professionals in to help you conduct your due diligence. Before buying a business it is vital to determine its current value and potential growth via professional valuation of the business’s assets and liabilities. Things to review include:
- Financial information including the past five years’ tax returns, business activity statements (BAS), accounts receivable and payable, profits and loss records, balance sheets, cash flow records, and sales records.
- The status of relevant licences and permits required to run the business.
- Any business contracts or leases – you will need to understand if the landlord will transfer the lease, or if a new lease will need to be negotiated.
- The status of any agreements with other parties such as suppliers.
- Assets and inventory owned by the business.
- Any liabilities such as outstanding debt, refunds, or warranties.
Make the offer
You’ve done your research and due diligence and everything checks out – it’s time to make an offer. When making an initial offer it is important to first speak with a professional, especially if there are tax implications. There may be some negotiation with the seller before you reach an agreement, but once this has been determined it is time to sign a contract to legalise the purchase of your business. The contract will outline the cost of the business and what method of payment is accepted, which is generally a lump sum and may require you to take out a business loan.
Also Read: The Importance of Customer Relationship Management (CRM) in Business
