How to Buy A Business With Strong Growth Potential?

Business acquisition is a proven growth path that takes individuals closer to their entrepreneurial goals. It is a highly beneficial but complex task that involves a lot of effort, time and evaluation. For a successful acquisition, the buyer needs to identify a venture that is faring well and is not on the verge of bankruptcy. Reviving a failing business is an uphill task that needs a lot more funding in addition to the initial investment. Thus, aspiring entrepreneurs looking for a business for sale in Perth must focus on acquiring an entity that showcases a strong growth potential.

It ensures that you will be able to generate a stable income from the business and maintain a consistent return on investment. It is way cheaper than launching a start-up and eliminates the effort that goes into setting up the venture. However, it is imperative to find an opportunity that promises high growth in the future because many sellers can hide the weaknesses of the business during its sale. Thus, here is how you can identify the best deals in the market.

1. Measuring Performance

It is vital to understand that every business goes through its fair share of ups and downs. While some periods generate exceptional sales, others lead to a rough patch that drains the reserves. So, it is significant to look at the performance of the business for a long time to evaluate its financial stability. Looking at the financials for the last quarter or financial year is not enough. It must have stood the test of time and have the proof on paper.

The seller could have inflated the profits or acquired funds to showcase a positive bottom line. However, the real picture may be different. Thus, the buyer needs to look at the historical financial data and check for losses, debts, liabilities and everything related to business capital. They must hire an accountant to assess the financial health of the business and verify the cause of losses in the past. If the low-income periods are justified and are a result of common market challenges, you need not worry and can make an informed decision.

2. Look for Reputed Ventures

Shortlist businesses in Perth that are renowned and have a solid customer base to ensure that you do not make a bad investment. The company does not need nationwide popularity. However, it should have a long list of loyal customers who consistently order from it. The brand should be well-known in the region and instantly recognised by the target audience.

A smart investment strategy suggests opting for high-quality and resilient entities that are long established and are preferred by the customers. The COVID-19 pandemic has been a challenging period for all businesses and those which managed to survive the tough times are the ones that will be able to withstand the phases of struggle in the future.

3. Check the Growth Factors

The first growth factor to examine is the location of the business. It must be positioned in a region that is primed for development, which includes infrastructure improvement, rise in population and growth of the economy. The second factor is the credibility enjoyed by the business among the target buyers and the relationship they share with each other.

Other factors to consider are the list of suppliers, lease agreement, pricing of the products, marketing strategy, sales history, tax submissions, etc. Also, evaluate the skillset of the staff members and the business licenses and permits. If all the aspects of the entity appear promising and can be developed further, you can invest in the company.

4. Evaluate the Assets

The buyer must identify the tangible and intangible assets of the company that add to the value to its operations. These include its market share, furniture, equipment, property, vehicle, copyrights, trademarks, employment agreements, etc. The accountant will help you in analysing the value of these tangible and intangible assets after depreciation. Equipped with the right knowledge about the stock and the assets, you can decide the feasibility of the venture and its right value.

Also, determine the investment needed for scaling up the entity in future. If the available assets allow you to expand, you can enjoy strong growth. However, if you need to add a lot of equipment, staff, stock and office space to make it grow, you must rethink the deal.

5. Do Not Go Overboard

In their quest to find a high performing company, many entrepreneurs end up purchasing a big organisation that does not need scaling up. It is a smart decision to identify a flourishing business and invest in it. However, you need to make sure that you have enough funds to buy it and keep it running. Although a thriving business will have enough reserves and working capital, you will have to be prepared for the challenges.

Sometimes, a change in management can lead to unprecedented trials, such as a high attrition rate or moving away of customers because of uncertainty about consistency and quality. Thus, you need to have a contingency plan ready to weather the storm because a big business will have bigger issues. Also, you will be in debt because of the hefty price tag so make sure that you discuss the budget with a financial planner and accountant to make the best choice.

6. Look At Long Term

When you begin the due diligence process, you must analyse the relevance of the products and services offered by the business in the long run. Assess if the target audience would still be interested in buying this product after ten years. For example, if the business is dependent on a specific technology, it can become redundant when there is an innovation in the industry. It happened to Nokia, which was the market leader in the mobile phone segment across the world.

So, identify a business in Perth that will offer good value for years to come. It should not become obsolete due to technological changes and must have the flexibility to transform and deliver according to the changing customer needs.

7. Pay Attention to Work Culture

Business acquisition means that you will be stepping into the shoes of another leader, who may have left a strong impact on the venture. It can be difficult to meet the expectations of the employees and suppliers instantly. You will have to understand their policies, procedures, hierarchy, and work culture thoroughly before starting the operations. Thus, it is better to look at this part of the business before the acquisition to determine whether you can fit into the environment or not.

If you feel that the work culture is too rigid or will take a lot of time to change according to your preferences, you may let it go. You will have to work in tandem with the team members but if they seem unwilling to give up their comfort zone and aim for new objectives, you will have a tough time convincing them. It is better to target a company that shares the same values and principles as you to make a smooth transition.

Conclusion

Buying a business for sale in Australia requires careful and systematic research to understand the prospects of the opportunity. It is vital to check the growth potential of the company before investing in it to ensure seamless functioning and success in the future.