Tips and tricks to buying a business

Buying an existing business is like buying your first home – it involves lots of time and money and is an investment in your future. It can also be the start of an exciting adventure, but success is far more likely if you do your research and talk to the experts.
 
“Buyers often think about what profit they are going to make, but I would say it has to be more than the money, because buying and owning a business is hard work,” says Zoran Sarabaca, president of the Australian Institute of Business Brokers and founder of Xcllusive Business Sales.
 
“Ask yourself what are you going into business for, and if you’re prepared to work hard with the risk of not succeeding. If the answer is yes, then carry on. If not, maybe there’s a better investment strategy for you,” he says.

Choosing the right business

It’s often a good idea to buy in an industry where you have skills and experience, but don’t rule out something that ticks all the boxes except your level of knowledge.

“Manage the business properly and you increase the chances of your new business staying profitable.”
“If you have good staff who know the business, hold onto them. Manage the business and the people properly and you increase the chances of your new business staying profitable and successful,” Sarabaca says.

He advises talking to a range of owners who are selling, suggesting you could look at 20 different operations before developing parameters for the type of business that is right for you.

“Trust your gut instinct if you feel it’s a good business, but don’t stop there. You must do your due diligence ,” says Sarabaca. That means doing a comprehensive appraisal of your prospective business – finding out all you can about its assets and liabilities, stock and equipment and existing arrangements with staff. It’s about doing a realistic evaluation of its commercial potential and whether the price is fair. It’s also about looking at it with your head not your heart, so it’s worth getting advice from experts who are not emotionally involved in the purchase.

With 43 years as a chartered accountant, George Lawrence is proud of his track record helping people with their businesses. Most of the time there has been a happy ending – and that includes occasionally talking someone out of a purchase!
 
What worries him most is people who don’t do their due diligence, who don’t look at the financial records of the business they are buying. Too often, he says, those new owners will fail. If you’re buying now, you should be able to get the 2017 financials and at least three years back. Your accountant can analyse anything that looks suspicious or that you need to be wary of.
 
“Any business that is worthwhile, where the seller is genuine, will have a package available to potential buyers with the most recent financial figures plus information on customers, products, suppliers, contracts and leases. All the information you need to know before you commit to the purchase,” says Lawrence.

What to look out for

There’s plenty of advice on the internet about buying a business – the government’s business portal is a good place to start – but nothing beats doing your own homework and getting advice from your accountant, lawyer and Steadfast insurance broker.
 
“Yes, it could cost you several thousand dollars, but it’s a small investment that can protect a big one, or stop you from making a mistake,” says Lawrence.
 
Our experts suggest asking the vendor why they are selling. As with houses, people sell for a range of reasons, but see if you can get a feel for what is going on – and take a good hard look at the business during operating hours too. If you think things aren’t being managed properly, it may hint at other things you need to check, such as whether all the various insurances are in place.
 
Your Steadfast broker can tell you what type of insurances are in place and whether the business is insured for the accurate value of its assets and has insurance against its liabilities. Some, like workers’ compensation, are mandatory and should already be in the insurance program, while others depend on the type of business, such as professional indemnity and public liability. And you will need to make sure the right insurances are in place for the day of settlement – just as you do when buying a house.
 
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