A Checklist For Buying a Business

30 October 2019 •  Uncategorized

If you’re set on the decision to buy a business, you’ve already made an excellent investment decision. Buying a business is a great way to help contribute to New Zealand’s economy and give yourself a chance to grow professionally.

Purchasing an established business also makes sound economic sense because so many components are already set after you sign the dotted line. The company already has existing customers, clients, employees, premises, a brand and a good financial record or rating. A lot of the heavy lifting and initial legwork has been done for you.

Here are a few other points to consider as you move forward with your decision to purchase before ownership is transferred.

Get Financials in Order

Determining what your budget is for spending is an important first step. Talk to your bank to find out what type of loan you may be able to get and on what terms, depending on your credit, existing loans and previous financial history.

In addition, it may be a good idea to talk to an accountant to help you manage the financials involved with the sale process. A business broker will help with this as well, but a dedicated accountant can focus on the financial transactions so you know exactly how much money you’ll have to supply upfront.

Self-Employment Status

Next, decide whether or not you’ll be working in the business itself. Are you planning to be a bit hands-off with the general, day-to-day operations, or will you be there everyday interacting with employees and customers?

Pick an Industry

Many of your answers to these questions will be determined by the industry in which you purchase your business. Whether you’re purchasing a retail, restaurant/ hotel management, hair/ nail salon or another small business, your role is at least partially determined by whether you have the right experience to run it and what level of hands-on leadership it will require for success.

Choose a Location or Understand the Existing Location

Location is quite important to the success of your business and if you’re purchasing one that’s established, you may not have much say in the matter. The business’ current location can help you reach your decision of whether or not you want to purchase it. Things to look for include:

  • Is it located in a populated area? A city/ town centre, for instance?
  • Is there suitable parking for clients/ customers?
  • Is there enough room for the required inventory you’ll be selling? Is the space big enough to support clients, customers and employees comfortably? If not, or if it’s starting to become too small, future expansion may be necessary.

Conduct Due Diligence

Understanding what assets, liabilities and potential for successful sales a company has is part of due diligence. A business broker can assist you with this process and ensure it’s as thorough as possible. It can be difficult for someone who does not have a lot of experience with this to miss something during due diligence, which can contribute to a deal falling apart. Due diligence checks:

  • Pending court cases or other legal disputes
  • All key assets of the company to be purchased, which includes equipment, vehicles, physical property and intellectual property
  • Contracts with sales, suppliers, landlords, etc.
  • Staff and current employees, including who they are and the roles they have
  • A comprehensive financial history, including projections and financial forecasts for performance potential, debts owed and any stock

Make an Offer and Use a Professional to Help

Once all the information needed has been gathered, you’ll want to use a professional, such as a business broker, to help you make an offer. The offer should be based on the current competition, market value and a fair number compared to the asking price.

When you follow this general checklist closely and take the time to think over each component of the process, you can help ensure the deal and resulting transition proceed smoothly.

 

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