Buying a Business: 4 things you need to know
Buying a business can be a long and complicated process. Many business owners haven’t been through the process before, so it’s important to do your research and understand as much as you can before you commit to purchase. Bsale looks for experts in the field to help potential buyers navigate their way through the buying process. Below, Lindsay Power from Adelaide Business Agents walks us through four key points all buyers should be aware of as they make their way through the buying process.
WHY USE A BUSINESS BROKER?
A professional Business Broker is instrumental in connecting you to the businesses you desire. Most brokers will have a list of businesses-for-sale in various fields, thus saving your precious time, energy and resources in finding the right businesses that fit your financial goal, experience, aspiration and lifestyle.
In the main a broker has (normally mentored) prepared the seller for the sale of their business and takes special care of the emotional attachment the seller may have formed with their business that they have painstakingly built over the years.
Moreover, since you will most likely need the seller to train you after the purchase, it is a good idea to use an expert broker to ensure cordial relationships with business owners. Most importantly, owners are usually more transparent when dealing with a professional business broker in comparison to dealing with direct buyers.
Any business purchase requires a tremendous amount of negotiation, coordination and documentation. A broker makes it easy for you to make your decisions
They will assemble detailed information about the businesses, prepare complete financial statements and organise the necessary legal documents for your reviews.
WHY BUY A BUSINESS INSTEAD OF STARTING A NEW BUSINESS?
The decision on whether to start a new business or buy an existing business pivots mainly on both financial and personal issues. New start-ups almost always encounter countless stumbling blocks that normally inhibit a business progress and may even put its future in jeopardy, creating a great deal of stress for the management team.
Obtaining financing to purchase an existing business that has assets and cash flow is often easier than securing capital for a start-up venture.
When you buy an existing/established business, you know the accomplishments of the business and you have an income from the day you take over. You can immediately focus your energy on running and improving the business. The seller has already taken care of the heavy lifting associated with starting the business.
They’ve built the infrastructure with operational necessities such as computers, phone systems, and furniture. They have developed operation procedures and policies, and they have forged intimate relationships with suppliers, customers, and various legal & financial experts. These are all things that take an enormous amount of time, money and energy and don’t always generate direct or immediate cash flow. Additionally, there may be other intangible benefits associated with buying an existing business, such as an established brand, trademark, copyrights, as well as a proven customer base, business model and a team of trained employees. If you start a new business, you face a lot of uncertainty over the success and desirability of your products or services. Buying a business takes a lot of the initial risk out of your decision.
WHAT IS THE BEST BUSINESS TO OWN?
Most buyers want to own a well-managed, profitable business in an industry that holds a personal interest for them. On the other hand, some buyers may look for opportunities that offer great potential, where they can apply their special skills. In general, there is no particular industry that is better than another. However, there are specific businesses that are more successful than others – even in the same industry.
HOW IS THE OFFER STRUCTURED?
There are many ways to buy and offer a desired business. This will depend upon the type and style of a business. Some examples’
Professional and Services
Accounting, Health, Pharmacy, Childcare, Hair & Beauty, Transport
Retail - Food and General
Snack Bars, Cafes, Food Court eateries
News Agency, LPO, Lotteries Agency
Hospitality, Tourism and Leisure
Wholesale, Manufacture and Distribution
The offer will be structured according to the Law of Contract and with relevance to the specific business; example a Pharmacy-certain parameters are insitu.
Also, in Australia, laws and other requirements may vary from State to State.
And if subject to Finance; a Franchise System; a Licencing Court process…example gaming machines, Child Care Centre… will all add to the mix…in the scheme of things
A Seller will generally prefer to receive full payment at settlement.
Caragh has been an advocate of small business since making the switch working for multi-nationals to independent, Australian owned businesses (like Bsale). With a passion for online marketing and being inspired by the ever-changing business world, Caragh enjoys sharing her thoughts with our Bsale audience. (FYI, it's pronounced Kara!)
You can find Caragh on Linkedin