What is a Business

A complex set of assets which, when put together, form the platform for income generation and wealth creation.

A business purchase can be simple or complex and every business is different. To confuse you further, a simple purchase can become complex and a complex purchase can be simple.

This generally depends on whether the Buyer and the Seller provide the correct information throughout the selling process from the point of listing a business for sale to drawing up a contract to buy the business.

The parties involved could include the Buyer, Seller, Partners for both, Accountants for the Buyer and Seller, Solicitors for the Buyer and Seller and Solicitor for the Landlord or the Landlord himself. Then there is the Bank or Financier for the Buyer and the Seller, incoming and outgoing mortgagees and securities. There could also be Companies which provide leases on plant and equipment or vehicles in the business. All this takes time and some parties can push the envelope on time.

People tend to allow too little time between negotiating and settlement which invariably creates a large amount of stress in the transaction and also creates danger periods in which people are required to do things without being adequately advised or prepared.

Before signing a contract you would normally enlist the help of your accountant, financial advisor and solicitor to help analyse the business and its potential and advise you on the risks and risk mitigation strategies and on the Due Diligence enquiries that you should consider in buying a business.

Key Considerations

• Does this or can this business cover all your costs?
  If the Business costs $400,000 and indications are that the business will earn the Owner a PEBITDA of $100,000 a year, you have to consider what income you require after tax and whether there will be enough in reserve to pay down your business loan. Ideally this business should sustain and increase those returns over time.
• Will I get my money back and make a profit?
  The business should have the ability to continue year on year and increase in value through earnings, systemisation, management, expansion, reduced costs, increased profits, better buying and more.
• Will the business operate if I am not on site?
  Consider if there is a Manager, Supervisor or Staff capable of running day to day operations and whether systems can be implemented for accountability.
• Can I utilise my skills to improve management and operations?
  Assess your ability to add value through management, marketing, trade or people skills and take the business to the next level.
• Am I going to do this alone or do I need structured support?
  Build your knowledge, have a good Accountant or Bookkeeper, maintain procedures and records, and stay connected with your industry.
• Is this business giving me the lifestyle I want?
  Some businesses offer lifestyle now, others offer potential to grow and achieve desired lifestyle in the future.
• Does the business have repeat sales or once off sales?
  Consider the product or service type, business size, systems, management and history to decide what suits your goals and experience.