Key points to consider when buying a business
Buying an existing business can be a great way to get started as a business owner, or to expand operations if you are already running a business successfully. We have recently seen a lot of activity with people buying a business even in these Covid-19 times.
Established businesses have already done the hard work of setting up a business, so you can get up and running on day one without a lengthy formation process.
Things You’ll Need
- Why is the business for sale? – It’s important to understand the motivation for the sale, whether strategic or whether an emergency sale. There may also be hidden reasons for the sale which your research can uncover.
- Research – Do more than you think you need to! Market research, investigation, learning and questioning about the potential business, the locale, the industry, the customers, the suppliers, the competitors, the market and the nature of the goods or services being sold will ensure you don’t rush into a decision just because it looks like a good deal. Ask questions!
- Dig Deep and Investigate (aka Due diligence) – You’ll need to see detailed financial records, contracts, licenses, supplier agreements, lists of equipment, assets and inventory, lists of liabilities, loans and debts, and all employee records before making your decision.
- Independent advice – from your tax agent and other business advisors such as an industry expert, business broker or lawyer. You might think a business looks like a great potential, but objective observers may pick up issues or queries that you have not.
- Finance – Whether it’s your own funds, a business loan or short term finance options, you will need to work with your advisors and refer to the business plan to assess how much you will really need for the initial purchase, transition period, and future investment.
- Commitment to the work – Being prepared for responsibility required to run a business. Running a business does require certain skills, as well as time, energy and money. You need to be clear about your reasons for going into business and to be sure you are up for the challenge!
- A good business plan – That covers one year, two to three years and possibly five years as well. This will help you to look at the longer-term and big picture, assess the potential of the business and give a realistic picture of what you are committing to.
- Financial Forecasting – Profitability is key. Look at those ‘what if’ scenarios – will the business still be profitable? Think about what your cash requirements and shortfalls are and look at what financial consequences you may have to endure. Banks will look at this information as well so it pays to be realistic.
When considering buying a business, we can help you to analyse the financial reports, activity statements, tax returns and sales and purchases records.
The team at Engine Room CA Pukekohe has extensive experience of buying businesses for clients. We always recommend you ask us to analyse the purchase information and sale and purchase agreements to give you an independent overview of the financial performance of the business.
As Accountants, we are here to make sure you don’t lose out, whether you spend $50,000 or $ 5 million so please don’t hesitate to get in touch. Email the team on info@engineroomca.co.nz
