If you are considering buying a business, this checklist can help you with your initial research:
- How long has the business been in existence? Is this a factor contributing to its success?
- What are the lease rental conditions? Is the lease transferable – and at what cost? Would a change in location increase or decrease the current sales or turnover level?
- What is the market for the business’s goods or services? What and where is the competition?
- Are three years of profit and loss figures available for scrutiny by your accountant? Ask your accountant to validate sales and expenses against source documents. As purchaser, you should put together your own profit and loss statement, cash flow and profit projection based on the figures you receive from the current management.
- What is the purchase price break-up – and is it realistic? The purchase price should be broken down into:
a. Stock at value (Note: Is the current stock saleable?)
b. Depreciated value of fixtures and fittings, plant and equipment
d. Debtors (Your purchase contract should specify that debts are finalised by the outgoing owner at settlement)
- A successful business operator should have expertise in the following:
a. Sales and marketing
b. Customer service
c. Administration and management
d. Financial control, budgeting, cash flow planning and money management
- The level of working capital required to operate the business should cover or have the necessary support in place:
a. Initial purchase expenses, including stamp duty, lease assignment, legal expenses and finance costs
b. Stock replenishment
c. Guarantees for rental bonds and suppliers’ guarantees
d. A buffer to cover subdued trading conditions and seasonal influences
The checklist above covers only some of the principal considerations a purchaser should think about.
When purchasing a business, engage a professional, independent accountant and solicitor who you trust, to ensure your rights and interests are protected as much as possible.
For more advice on purchasing on a business, visit the following state government sites: