9 Steps to Buying A Business
17 Jul 08
Richard O'Brien - nzbizbuysell
9 Steps to Buying a Business
dreamt of being your own boss, of owning your own business - here are 9 steps to help you on your way.
1. Self-assessment.Build a profile of the key things
you enjoy doing and your strengths - your ideal business will contain many of
these. Also list the things you don't enjoy doing and any weakness. When you
are looking, you will be asking yourself; is this something I'm interested in?
Have I the appropriate skills, knowledge, and ability? If not, are these
available within or outside the business. Determine how much you are prepared
to risk, the hours you will work, and its impact on your lifestyle. Write these
down, they will help you stay focused in searching through the many
2. Determine your budget.Get a feel for how much you can spend. This
will be determined by your cash reserves, equity you may borrow against, the
bank and/or vendor finance. Exercise care in taking on too much debt, and
ensure you allow for working capital and some cash reserves.
3. Select an accountant and a solicitor.You will need professionals
to help. Get recommendations from your bank manager, business advisors and
business friends. Check out the Yellow pages. Interview several - have they the
necessary experience in your area of interest, do their resources match your
needs, are you happy with how and what they charge. You are selecting a costly
but critical resource - you need to be dealing with someone whom you like
working with, and who will add value to your business.
4. The searching.Contact key brokers who operate in your area
of interest. Regularly check what's on offer through Internet sites (
www.nzbizbuysell.co.nz ) , newspapers and business magazines. If you are seeking
something specific, then get to know the appropriate trade associations, and
tell them you are interested in buying a business. Look to advertise for what
you want - ask your accountant or anyone else who may have contact with
potential business sellers? Be patient - it can take time.
5. Discovery.You have found something that looks interesting, and fits
your criteria. Ask the key questions: is it in a growing or declining market,
at what stage is its business cycle, is it well located and operated, does it
have good systems and resources, and does it have the potential you want? Look
at the financials - are they healthy? Do you have a vision for where you could
take this business? Is it you - does it fit your profile? The more work done
here prior to making an offer, the greater the savings on fees.
6. Facts, facts and more facts - due diligence.So it's good enough to
continue with? You may be required to sign a confidentiality agreement to
proceed with your due diligence. Now is the time for the in-depth financial
analysis. Do your projections; check the going rates, the market conditions,
the strengths and weaknesses of the business? Consult your solicitor and/or
accountant to draw up an offer (there are a number of ways to value a business,
your accountant will assist with this). Remember you are buying a business, not
a job! - Usually your offer will be conditional upon certain aspects being
satisfied. On conditional acceptance be thorough, check everything; call in an
advisor, an industry specialist, and your accountant and lawyer. This will cost
(be specific, ask for quotes), it will be cheaper than getting it wrong.
7. Decision time.Prior to going unconditional, gather all your
facts, information and projections. Present any legal aspects to your
solicitor, and all financials, including projections for the bank, to your
accountant. Then present your low-risk business proposal to the bank, to get
the okay on some suitable finance. So it feels right - this is your decision,
you're comfortable with your advisors advice, and the bank is fully satisfied
with the business, and the conditions of your deal - then its time to go
unconditional and complete the purchase.
8. The next day.You're in business. Time to draw-up a takeover
plan. It will cover the handing-over from the out-going owner, managing the
affects on culture and staff, and how to maintain continuity with suppliers and
customers. A new entity will need to be established, suppliers accounts, bank
accounts, insurances and staff contracts, and of-course then there is your new
business plan to do.
9. Enjoy your business.Congratulations! You have a business, and a
plan - manage, monitor and implement your plan by working on your business.
Don't try to change it over-night, learn the business first. It will be
rewarding and sometimes tough going. Enjoy the process and it's rewards - good
luck and every success in your new venture.