Five Questions to ask in Buying a Small Business

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While some people enjoy the thrill of the start-up business or creating their own from scratch, others may decide that buying a business is the right avenue for them.

Choosing the right business to buy however is one of the most important decisions you might make in your life.

Is it in the industry you need it to be in? What is the history/reputation of the business? What do the existing agreements?

One of the main reasons why most people buy a small business rather than starting one from scratch is for the already established infrastructure and ongoing cash flow.

In order to determine whether buying a business is right for you, ask yourself the following five questions.

Are you ready for this business?

Are you in the right mindset to take on the challenges of the business? Running a business is a lot of hard work and requires strict disciple. Before taking on a business,

  • Do you have the right skill set to start a business?
  • How much time will you need to invest in a business for the business to be successful?
  • Are you physically and emotionally ready to deal with unusual work hours and time pressure?
  • What are your personal goals and will starting a business help you achieve them?
  • Do you have the capital to invest in a business for it to be successful?

Is this the right business for you?

This can be a time-consuming and challenging process, but well worth the reward in the end. Consider your own interests and background experience when narrowing down the industry and market that you want to buy into.

You may also want to think about:

  • Does this business have the potential to be successful?
  • What value can I bring to the business (ie. experience, marketable skills)
  • Is it in a good location?
  • Do you want a business that is already up and running, and has an established customer base?

Have you researched the business?

You may not be able to get a refund on a business if it’s not what you were looking for, so make sure that you know exactly what you are getting into. Conduct plenty of research to understand the existing reputation of the business and the potential for it’s growth.

Market research can assist in understanding your target demographic and the market that the business operates in. Information from existing customers, employees and neighbouring business owners can also get you a view of how the business is positioned and performing.

What is the business’s value?

Determining the current value of the business you are interested in and its potential growth can assist you in projecting your business’s future. You may also want to consider a professional valuation of the business’s assets and liabilities.

Have you done your diligence?

A business might seem great at first glance, but internal operations may bely a different view. It’s essential to review the financial records, business operations and legal documents of a business before signing the purchase contract. This may also include checking documentation about:

  • Licenses and permits
  • Contracts and leases
  • Supplier agreements
  • Status of plant, equipment and fixtures
  • Assets
  • Inventory
  • Liabilities

 

This article was originally written by Hall Chadwick Melbourne. For any help in understanding the process of buying a business, or for accounting services, please contact a Hall Chadwick QLD advisor. 

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