9 Factors in Taking Over an Existing Business

Entrepreneurship is one of the most challenging job profiles that require a lot of hard work, expertise, and business acumen. While many people succeed in creating a well-recognised brand, there is a significant population that fails in this endeavour. The failure of a business comes with the added burden of financial loss and lack of credibility in the industry. Thus, most budding entrepreneurs prefer acquiring an established business for sale in Australia to accomplish their professional goals. It offers a comfortable and smooth road to success with minimal effort.

However, you need to be careful while choosing an existing venture as you do not want to end up with a failing entity. Many sellers can camouflage the weaknesses and debts of their businesses to showcase a prosperous entity. Thus, it is essential to dig deep and find out all the information about the company. Here are nine factors that you must consider while taking over an existing business.

1. Future of the Industry

The first step of acquisition requires understanding the prospects of the product or service that the business is selling. The market potential determines the future demand for the product or service, which ultimately explains the viability of the venture. Thus, you need to identify the market size and its growth rate over the years to analyse its profitability.

It will require conducting market research to understand the needs of the target audience and how they might be affected in the long term. The industry trends play a significant role in determining the growth prospects. For example, if the business is selling essentials, it will continue to remain profitable even during an economic downturn or pandemic. Thus, you must choose the domain carefully before investing.

2. Location of the Business

The positioning of the business is the most vital aspect of its popularity. It should be present in a prime location and surrounded by other commercial ventures to attract high passing foot traffic. A prominent location helps in building the reputation and client base.

It is also needed for hiring the best talent in the industry as qualified and expert professionals look for an easily accessible office in a visible location. It should be well-serviced by public transport and must not be too far from the city. The suppliers and vendors should be able to reach the place conveniently with the supplies.

3. Existing Client Base

The target audience is the entire market that the company intends to capture. However, when you are purchasing a business, you need to find out its actual customer base. Sales are the primary source of revenue for the company and the existing clients are responsible for it. No business can survive without a client base.

Thus, you must specifically find out the list of customers and the percentage of rise in their numbers over the years. Also, the company should have strategies in place to make it grow, such as referral and loyalty programs, discounts, and high-quality customer service. All these ensure that the established client base will stay with the brand and will not be taken away by the competitors.

4. Financial Health

The stability of the business can be gauged from its financial data of the past 3-5 years. You must hire an accountant to examine the statements, including balance sheets, profit and loss statements, cash flow statements, etc. The professional will help you to calculate the profitability and liquidity of the business based on the analysis of the data.

He will assess the credit history and bad debts that can impede the future success of the entity. The accountant will also help in business valuation so that you do not pay more than the market value of the company. Also, taking the help of a professional will ensure that you get to see all the red flags and make an informed decision.

5. Staff Assessment

Trained and expert employees are the backbone of a business. Therefore, it is essential to identify the skill set of the staff members and understand their roles and responsibilities. It will help the prospective buyer to know whether the staff has the capability and competence to run the business under supervision or is dependent on the leader for every small decision. It will also help you to assess if you need to train them further to be able to accomplish your business goals.

6. Competitor Analysis

There are three main types of competitors of every business – direct, indirect and substitute. The direct ones sell exactly the same products to the same target customers. Indirect competitors sell slightly different products to the same target market and substitute competitors sell completely different products in the same market.

Thus, prospective buyers need to analyse all of them and their strengths and weaknesses by speaking to the customers. They also need to evaluate the competitive advantage or USP enjoyed by the business to stay ahead of the competitors.

7. Inventory Management

The stock and raw materials available with the business need to be examined before making the purchase. You must check the average volume of inventory on-hand during every quarter and the accountant can help in determining the inventory turnover.

It is also recommended to identify the stock that has become unfit for sale or is lost or damaged to understand the volume that gets written off during the same period. The volume of outstanding inventory and the return on investment can also help in providing information about the effective management of stock by the business.

8. Equipment and Fixtures

The condition of the equipment plays a significant role in determining the quality of the products offered by the business. The accountant will assess the market value of the assets during the valuation process. However, you need to further check the durability, maintenance costs, and upkeep of the machines and fixtures being sold along with the business. The bills of purchase of all the assets must be retrieved from the current owner and the infrastructure of the venture should be closely evaluated.

9. Business Plan

The business plan is the blueprint of the company. It offers an insight into how the venture is generating revenue and what are its long-term goals. It includes forecasts for sales and profits in the coming years and budgeting for the future. It has details of the stock, suppliers, customer base, employees, and everything that the business needs to continue its operations. The prospective buyer needs the business plan to get funding for the purchase and lending money from investors. Thus, it should be read carefully and thoroughly.

Conclusion

Acquiring a business for sale in Australia needs due diligence and meticulous research to ensure you find the most lucrative and thriving entrepreneurial opportunity. Analyse all the factors mentioned above to make the right decision.