The decision to buy a business is one that requires thorough preparation and forethought. There is a long list of variables to consider as you weigh the pros and cons of becoming a business owner. Here are seven questions to ask yourself before you sign on the dotted line.
1. Do you have what it takes?
Buying and running your own business will require stamina and a very specific skill set. Therefore, it is important to take some time to self-evaluate your strengths and weaknesses and ask yourself these questions:
- Are you a self-starter?
- Do you get along with a variety of personalities?
- Are you an adept multi-tasker?
- Do you have the physical and emotional stamina to meet the demands of the long working hours that often accompany running your own business?
- Are you a natural planner and organiser?
- Do you have experience within the industry you’re looking to buy in?
Questions like these will hopefully help you in the consideration process of your business plan, giving you the confidence to forge ahead!
2. Do you have a business plan?
Buying a business is going to require a considerable amount of capital to achieve a successful sale. That being said, once you’re ready to meet with your lender, be sure you’re prepared with a well-formulated business plan outlining your product, forecasts, sales and marketing strategies, along with cost and profit estimates. The government offers a helpful guide and business plan template here.
3. Why is the seller selling?
Once you have decided on the particular business niche that’s right for you, be sure to find out why the business you’re looking at is being sold in the first place. It’s important that you research the motivation of the seller. Often, it can be as simple as someone retiring or just wanting a change of pace.
This is also a good time to research the market patterns and trends, the business’ customer base, and the fixed and variable costs involved. Ask to take a look at their financial records. A business for sale should have everything in order and ready to show off.
Bottom line: Don’t be shy. Be thorough in the questions you ask, and know that a vendor with nothing to hide should have no hesitation in allowing you access to all of their financial records.
4. What licences and permits will you need?
Before you sign on the dotted line, look at all of the required licences and permits you will need in order to open. For example:
- Building leases, licences, and patents
- Trademarks, employee agreements, and records of employment
- Franchise agreements, business registration (ABN), and contracts
- Current loans and insurance policies
- Land title and any agreements, if it’s a freehold sale
It’s strongly recommended that you seek out the counsel of your lawyer to assist you in navigating your way through the legal requirements surrounding the industry.
5. Have you done your due diligence?
Taking the extra time to perform due diligence before buying your new business is imperative. As with the licences and permits, this is another process that can be performed by your lawyer, accountant, or business advisor. It should include a review of the following:
- Records of accounts receivable and payable
- Income statements
- Profit and loss records for the past three years
- Reasons the vendor has for placing the business on the market
- Details about the value and condition of fixtures, fittings, and equipment included in the sale
- Existing contracts with suppliers
- Seller’s credit history
- Any notices the business has been served with regarding health, water, or sewerage which contravene government laws and require extensive work to address
Conducting due diligence when buying a business is all about making sure you know exactly what you’re getting yourself into. Completing all of these essential tasks will help you make the most informed and profitable decision as you begin your new entrepreneurial journey.
These are just a few initial questions to get you started on the road to business ownership. The more thorough you are through each step of the buying process, the more peace of mind you will have as you embark on your new business adventure.
