Buying a business can be a stressful time that generally doesn’t come without some risk. However, you can gain a lot more comfort by having control over the process.
Below we have compiled a list of considerations and questions to ask when examining a business to buy, so you can head into the buying situation more relaxed and informed.
Business Buying Checklist
I recently had a client who asked me to assist them in buying a business, which was the first time they had considered such an option. During the whole process it highlighted there is so much to think about, a lot of work and research to be done, and a lot of decisions to be made to make sure the business is not only a good deal financially but also a good fit for you.
You should always seek expert advice before deciding to buy a business, but whether you do or not, here are some things to consider and questions to ask those involved:
- Business for sale
Do you have experience in this business/industry that you can draw on, or do you have the necessary skills that can be adapted to run the business effectively?
- What are you buying?
It is very important to understand what you are buying. Is it shares in a company or is it a business with assets? If it is a business with assets, then are all assets of the business included in the sale? Is there anything specifically excluded?
- Historical or past information
You will need to analyse the past performance of the business. Generally you will look at the past two years performance plus the current year-to-date performance. This information should be supplied to you from either the current owner or their accountant.
- Due diligence
This is the work that needs to be done to verify the above information that you have looked at and more. Information that you would generally ask for would be:
- Financial statements
- Income tax returns
- Business activity statements
- Proof of ownership of business assets and condition of assets
- Profit and loss and cash flow projections
- Existing customer contracts (if applicable)
- Lease of business premises
There will probably be more information you will need to look at so don’t be afraid to ask for it!
It is probable that you will require finance from a bank or similar to fund the purchase of the business. A few fundamentals you will need to consider (and the bank will insist upon) are:
- Will the business be able to finance the loan?
- Do you have enough security between yourself and the business to enable you to get the loan?
- What is the projected time frame for the loan to be repaid?
- Do you require an initial interest only period to help with cash flow?
- Do you need to temporarily finance the GST on the purchase of the business if applicable?
The bank will generally require a lot of information so be prepared!
The business sale contract will need to be drawn up by a solicitor so make sure you have a solicitor who is experienced and competent in this area, and most importantly someone you feel comfortable discussing matters with.
Buying a business is an important decision to make, so it’s always a good idea to discuss opportunities with an experienced financial or business adviser.
BLG Business Advisers have assisted many clients in this situation. Whether you are interested in buying a business or require other advice, get in touch with us today online or by calling (02) 4229 2211.