Looking to buy a business? How do you know if it’s a good option for you? In our latest article in The District Reporter we give you some sound tips on what to look for and what to do, before you sign on the dotted line.
How to make sure you are buying a healthy business
One of the most critical elements when you’re buying a new business is carrying out all the due diligence checks to make sure it’s healthy.
First of all you need to think long and hard whether running a business is for you. Are you ready for the long hours, the ups and downs and the strain on your family? Just because you are good at your job doesn’t mean you will be successful in running a business or even enjoy it. If you feel that you are committed to running a business then you need to make sure that you purchase a healthy business and not a business “on life support”.
Checking out the business
You must find out the true financial position of the business by investigating its financial statements. Do not rely on what you are told by the business owner. Have the financial statements looked over by an accountant. Ask the business owner why the business is for sale. Check the client list to see if there are return customers. Is there a high turnover of staff? Does the equipment used in the business need upgrading? Will the landlord grant you another lease of the business premises?
An indicator that the business might be worthwhile buying is if the business has long-serving staff with a good team culture, growing revenue, good systems and increasing profitability. As well, look for plenty of repeat customers, positive social media reviews and high star ratings online.
Make sure that technology does not make the business redundant in the future and go the way of video stores after the introduction of streaming services like Netflix and Spotify.
Buying a business checklist
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Have all the appropriate due diligence reviews been undertaken?
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Are net profit margins increasing rather than declining, year on year?
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Are BAS and past tax bills paid and current?
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Are all staff correctly paid, with superannuation contributions current?
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Are all key telephone numbers, email addresses, websites and software owned by the business and to be transferred to the new owner?
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Does the business have good mentors, management structures and financial safeguards in place as well as human resources policies and contracts?
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Does the company have a good pipeline of future business?
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Is there a current business plan and have there been strategic reviews carried out on an annual basis?
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Is the business receiving plenty of referral business from current customers and suppliers?
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Are all licences to operate current and appropriate?
