6 Factors To Consider When Buying An Existing Business

The moment you decide to become an entrepreneur and chase your dreams, you are held back by the fear of inexperience and financial risk. Although y...

  • 6 Factors To Consider When Buying An Existing Business
    Gemma Davis Image Gemma Davis

    6 Factors To Consider When Buying An Existing Business

    • Monday 3rd of February 2020
    • Buying

    The moment you decide to become an entrepreneur and chase your dreams, you are held back by the fear of inexperience and financial risk. Although you want to lead an organisation, you may not have an innovative idea that can help you penetrate the market seamlessly. This is the reason why most budding entrepreneurs consider purchasing an existing small business for sale in Sydney Brisbane or Melbourne, as it comes with proven systems, goodwill, customer base and marketing strategy.

    It seems like a viable opportunity in comparison to building an organisation from the ground up. The initial investment is higher than expected in case of an established business, but it is worth the low-level of risk associated with the acquisition. Since you can look into the financial well-being of the business, you can make an informed decision. Here is a list of crucial factors that need to be considered when taking over an existing business.

    1. What Type Of Business Will Be Appropriate For You?

    You cannot pick any business from the lot and make it your own. The idea needs to resonate with you and must be related to your prior professional experience or interest. Your qualification and aptitude will help you to decide the industry where you can excel with your skills. Another important consideration is the integration of the business into your everyday life.

    You must be ready to live a lifestyle that will be different from the usual corporate routine. As the owner of the company, you will be the controlling authority and the leader who will be responsible for everything. So you might struggle to find the perfect work-life balance. So choose a business which can give you ample family time.

    On the other hand, if you are a workaholic, then look for something that will be all-consuming and will keep you occupied. You also have to determine the size of the organisation and its location so that it can be comfortably managed.

    2. Research The Shortlisted Businesses For Sale

    After you have understood what you want. It is time to find out the businesses which are being sold in that segment. Make a list of these companies in the order of your preference. Now start the due diligence process for each organisation so that you have all the historical and financial data of these businesses.

    Look deeper into their years of establishment, performance and profitability with the help of information collected from their financial statements, lease contracts, tax returns, litigations, interviews with employees, digital presence etc. If you are sceptical about any aspect of the organisation, it is better to clear your doubts during your interaction with the outgoing owner. Also, try to understand the reason behind the sale. If it is not related to a crisis or lawsuit, you can go ahead with it.

    3. Determine The Value of The Business

    The seller will provide you with a price tag, but you cannot purchase anything on face value. Hire a lawyer who can evaluate the business and help you to measure the correct and approximate price of the entity. Ask your accountant to check the financial statements of the business which will be provided by the owner as a part of the non-disclosure agreement before the sale.

    You will have to clarify what all will be included in the sale and what will be excluded to arrive at the final amount. Make sure to enquire about any debts and pending payments to suppliers and vendors. Let your accountant carefully analyse the accounts payable and liabilities to make sure that you are making the right decision.

    When you are evaluating the assets of the business, take note of the employees as well. Check if they will be staying after the change in leadership or plan to leave. Add the cost of new recruitment to your budget if needed.

    4. Examine The Existing Customer Base And Prospective Clients

    When you are running a business, you need to be familiar with the target audience. Thus you will have to assess the current customer base of the company and how many sales are generated through them every month. You need to understand how the customers perceive the brand and how well it is positioned in the market.

    It will help you to evaluate how the money is flowing into the business and how the profits can be improved in the long run. It will include assessing the marketing strategy of the business and the way the company interacts with its buyers.

    You will have to find out the exact reason why people buy from the business, whether it is customer service, price, product features, durability, etc. It will help you in succeeding as an entrepreneur by grabbing the attention of the prospective buyers once you take over the company.

    5. Price Negotiations And Securing Funds

    When you are satisfied with your research and have decided to go a step further and initiate the purchase discussion, you need to negotiate on the final price. The upfront cost of purchasing an established business for sale is on the higher side and needs funding assistance.

    You will have to ascertain that you can secure the required funds which will cover the purchase expenses as well as provide for the working capital. You should be ready to face a few hiccups in the beginning until you get acquainted with the operations and processes of the organisation. The existing team and the outgoing owner can help you in this regard. However, keep your financial capacity unhampered with the help of monetary aid received from angel investors and business loans.

    6. Review The Sales Agreement

    When everything has fallen into place and you are geared up to take the leap, the seller will provide you with the sales contract. Ask your lawyer to take some time to comprehend the terms and conditions mentioned in the agreement and make you aware of them.

    Make sure that there are no clauses that can get you in trouble in the future and read every point carefully before signing it. After the legal formalities are over, you can take the hand over and begin your new journey that will be based on a calculated risk.

    Conclusion

    When you are scouring the market for business opportunities in Australia, you will be spoilt for choice. You have to be wary of the existing businesses as they can come with the heavy baggage of liabilities. Thus your decision should be based on effective evaluation of the business to ensure that you are on the right path.

  • Author Info Gemma Davis

    Gemma Davis is a Business Strategist with over 20 years’ experience and a CPA qualification in finance, accounting and business. She has been a source of inspiration to budding entrepreneurs and has guided them to reach the next level in their business growth plans. With her experience and expertise, she can help you to choose the right path and overcome all the hurdles in your journey as an entrepreneur. Her affiliation with Business2sell is a matter of pride for us.