Thinking of buying a business? Consider these things first!
Many people dream of becoming a business owner as it can be both personally and financially rewarding. There are options to consider regarding the type of business, for example starting from scratch to establish a brand new business or buying an already existing business.
When the time comes for you to purchase your business, you need plan carefully and take several factors into consideration to ensure that you are investing in the right space.
If you are keen on purchasing an existing business, conducting due diligence is a crucial step to evaluate the nitty gritty of your venture. This will help you determine the value of the business, the risks involved, and confirm if the financials are in order.
Before signing a contract, ensure you look at these things first:
- Find out the reason why the previous owner is selling the business.
- Check whether the business complies with all regulations. Are there any existing legal or tax issues involving the business?
- Look at the business’ financial records for the past three years; these include balance sheets, tax returns, bank statements, etc. Are they well kept? Do these records show any potential for growth?
- Consider the business’ assets, liabilities, cash flows, and other factors to derive the current and future value of the business you’re purchasing.
- Examine the business’ reputation. How does it compete with the other businesses? What is the outlook for its industry? Has the industry been growing in the previous years or has it remain static?
- Look at pending legislation that may affect the competitiveness of the industry that the business operates in.
- Be aware of the business’ current employment contracts and liabilities. If you decide to retain existing employees, take note that the selling price of the business will be adjusted when there are leave entitlements owed to the employees.
- Assess the existing clients’ engagement and behaviour toward the products or services of the business. Will you be able to retain them when you take ownership of the business?
It is a good idea to work alongside an accountant when acquiring a business. They can help you get the best possible funding for your business, ensure that you have the right structure in place, help you grow your business and assist with ongoing compliance requirements. They can also assist you in setting up effective administration systems and procedures for record keeping.
Establishing a business, whether from scratch or purchasing an existing one, it’s critical that the risks are assessed. However, when you do your homework and get expert advice, you can be confident that you are off to a great start.
Nigel Plowman, Director, McKinley Plowman
Prior to forming McKinley Plowman, Nigel specialised in management consulting and international accounting, enjoying success in Australia and in the United Kingdom.
His extensive experience in management consulting, international accounting and innovative tax structures has been a major driver in the success of McKinley Plowman as well as the many businesses he has steered towards new levels.
Nigel is dedicated to fast-tracking his client goals with cutting edge tax and business strategies. He is a member of the CPAs and the Taxation Institute of Australia and enjoys developing tax strategies that work well here and around the world.