Thinking of Buying your own Business?

Starting your own business comes with many pitfalls. It is difficult, expensive, and risky. If you would like to avoid the risks associated with starting a business, buying an existing business might be the solution for you. Done properly, buying a business can give you a better chance at realising your business dreams. If you would like to buy a business, these are the steps you would have to contemplate.

1. Assessment of the Business

Before buying a particular business, you need to know more about that business so you can make as informed a decision as possible. Assess the business to try and determine its overall value. Examine the business’s financial statements or asset and liability valuations to determine its financial health. Research the industry the business operates in to determine the market influences that affect it, and whether it is a growth industry. Understand the resources the business requires to operate and whether you can sustain that resource consumption. Importantly, you must also ensure you obtain and read the vendor’s statement to gain an in-depth understanding of the business and anything that might affect it.

1. Evaluate your potential gain

Now that you understand more about the business, you must evaluate what value you can create from it. What is the potential gain you can get from this business? Obtain projections of the business’s sales, profits and cash-flows. How long will it take to recoup your costs? What can you do to improve the business?

1. Negotiations

The previous two steps should have given you a good indication of how much the business is worth to you. Contrast that with how much the vendor is seeking. Examine the vendor’s valuations and verify their representations as to the value of their business. Consider the challenges you see the business facing in the future and how difficult it would be to overcome them. These are all factors you should be contemplating in negotiations with the vendor.

That being said, buying a business is rarely this easy. There are still many risks. The business you buy might not have performed as well as the previous owner represented. Perhaps it had a bad reputation you did not know about. This is why it is important to seek professional advice from business advisers, accountants or solicitors. If you would like advice on your business purchase, or you would like to get in touch with someone who can advise you, email Straits Lawyers at info@straitslawyers.com or call at 08 8410 9069.

Please note that this article does not constitute legal advice and Straits Lawyers will not be legally responsible for any actions you take based on this article.