12 steps to buying a business.
Written by Gary Johnston CEO Johnston Marketing
REIQ Accredited Business Broker, Ex Chairman of the REIQ Business Brokers Chapter.
Most prospective buyers usually look at businesses to which they have some prior experience and that's fine, except that sometimes a new industry creates fresh horizons and a challenge which are very important factors in creating wealth, moving forward, enjoying your business life and achieving goals.
The following steps can be used as a guide for prospective business buyers, the main subjects covered in brief are Money, Finance, Research, Costs and the Selection process.
1. Money or available funds means everything in a business purchase.
2. If you are going to borrow funds, seek advice from your Accountant or financial advisor, and especially your banker as to the availability of funds and at what cost, what asset based security is required by the financial institution, and terms of repayment etc. Many financial institutions will only lend funds on leasehold businesses with repayments structured over the remaining term of the premises lease period, for example if you are considering a business purchase in a major shopping centre then you will probably only have a 5 year lease with no further options and that can mean, the bank wants you to repay your principal and interest over the 5 years or over the period / term remaining. If you are borrowing a sizeable amount say $500,000, this can have a very negative effect on your business cash flow and available profits as the bank will probably want principle and interest repayments - sometimes the purchase is just not financially practical. - Contact your Bank, Finance Brokers, your financial advisor, Accountant, an accredited Business Broker for more specific information
3. Most State Governments have specific departments that are structured to provide assistance to business buyers and owners - NEVER be afraid of seeking and paying for advice, education or professional services - sometimes this could be the best investment of your life! Nothing beats experience and education so invest into your future and purchase knowledge and expertise from reputable professionals - "that have been there". Business education is an on-going investment that will not only assist you in successfully operating your business but will also provide comfort and security, future growth potential which also adds capital gain to your overall business investment.
4. Once you have determined what level of total investment capital you have available, you can now research what Business Opportunities are available in the marketplace.
5. RESEACRH is a vital factor in your selection programme, don't be in a hurry, devote enough time as you feel is necessary so that you feel comfortable with your selection. Check out your local and regional newspapers to compare prices and businesses. Discuss your requirements with an experienced and accredited business broker, research reputable websites such as:
www.businessopportunities.net.au6. Ingoing costs - many potential buyers forget about these important costs, as costs vary from state to state, from Lawyer to Lawyer you are best advised to calculate these expected costs upfront, but as an example of approximate costs you can use the following:
" Stamp Duty ranges from 3% of the purchase price and sometimes includes the initial stock purchase
" Due Diligence / Accountancy from $3,000 to $10,000 depending on company and trust structures, complexity of the due diligence etc
" Legals / conveyancing from $3,000 to $10,000 depending on the complexity, leases, and time
Bonds - Most Lessors' [landlords]seek a minimum equivalent of 2 months rent [sometimes this can be as high as 6 months] as a rental guarantee - speak to your financier about a bank guarantee, the first month's rent paid in advance is always required, bonds are usually required by telecommunication and electricity suppliers.
Contact your suppliers and arrange credit account enquiries ASAP, - as some of these suppliers may want you to place a bank guarantee or bond against future orders / purchases - maybe just for a short period of time to ascertain your creditworthiness, but with some suppliers its mandatory today - no bond or guarantee then no credit. Of most importance do not forget "WORKING CAPITAL" - every business needs it to survive and grow. Remember if your providing credit to your customers then you could be waiting 60 - 90 days to get paid, but will your suppliers wait - probably not! - It's sometimes a very fine balance, so do your homework before you commit to buy! In determining your working capital requirements remember your staff and you get paid weekly, rent, power and phone is paid monthly and always allow for the "Unexpected" and a "Rainy day"!
7. You must not go into business UNDER CAPITALISED - it's a guaranteed formula for future failure!! Be careful, do not rely on suspected cash flow or profits from your new business venture to provide additional or investment capital. In time you can rely on the business cash flow but not initially! Always be cautious over statements made by third parties and rely on proven only on proven financial records, business principles, mythologies and professional advice.
8. Now you are ready to commence the SELECTION process.
9. First of all determine how much monthly or annual income you require from your new venture - and allow this as an ongoing expense of the business
10. Calculate your finance repayments - and allow these as an ongoing expense of the business
11. Commence your selection process by researching the above mentioned websites, newspapers, business brokers etc After you are satisfied with your selection, secure your purchase with a small deposit and make your contract of purchase "Subject to a satisfactory due diligence report" from your Accountant, collate as much information as possible and seek your accountant's and or independent advice, I know it costs money but it could be, money best spent. Remember another set of eyes is always a good insurance policy!
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People buy businesses to maintain or improve their lifestyles, purchase a sustainable income, gain a return on their invested capital and hopefully plan an exit strategy which provides a healthy capital gain on invested funds
please visit our site to find out more
http://www.businessopportunities.net.auhttp://www.baronconsultancy.com
