Published on 15/11/2018 by Anybusiness

5 Things To Look Out For When Buying A Business

Many Australians long to be their own boss, and we can understand why. The lure attached to being able to set your own hours, reap the full benefits of your work and answer to no one is strong, and with good reason. Finding the right business at the right time in the right place can set you up for life, becoming a strong foundation on which you can build a rewarding and financially stable life.

However, it's not something that happens apropos of nothing. Buying a business is a major undertaking, and the significant capital investment required means that decisions must be made carefully. Whether you're a serial investor looking to expand your portfolio or a potential business-owner looking to become their own boss for the first time, you need to know how to recognise a healthy, profitable business. As part of your due diligence, be on the look out for the following five aspects when making your shortlist.

1. Lean and agile

If you were building a sports team, you'd be on the lookout for athletes who were in peak physical condition – no fat and all lean muscle. The same principle applies to buying a business: You want a company that's in the best shape of its life. This means looking for a business that doesn't come with significant debts attached or unnecessary expenses baked into the business plan. While making changes such as switching to a more cost-effective supplier or replacing expensive telephone systems with cheaper and more flexible cloud communications software can be done, is it really the first thing you want do upon taking ownership?

2. Focus on profit

While every entrepreneur wants to buy a business that's cash-rich with zero debt, these companies are few and far between. Especially in certain industries, many businesses for sale will have some form of pre-existing debt, and while you should always take this into consideration an even greater concern should be its profitability. Even a business that has significant debts could still be considered a valuable purchase should these debts have been used wisely to develop the organisation.

What's more, this debt doesn't always have to be bad. Under the right management, careful leverage of a business' assets and strategic selection of loans can significantly enhance the growth of a company, giving it the jump-start it needs to build steadily and rapidly.

3. Know the lease

The location of a business will always have an impact on its performance, but this is especially true for smaller businesses that rely on road accessibility or foot-traffic to drive sales. As such, any prospective buyer should take the time to get to know the lease. Crucial questions include what is the remaining tenure, who is responsible for maintenance of the premises, and – more broadly – is the market moving in a direction where a rent rise is likely? Little details like prohibitions on street-visible advertising or setting up signage or seating on the pavement should also be noted.

4. The reason why the business was sold

Just like anything second-hand, it helps to know why the original owner is selling it. Whether it's a fridge or a business, no one sells something without a reason. Dig into why: Is the company in a sunsetting or contracting industry? Is the business failing to keep pace with competitors? Or has the owner simply been running the shop for too long and is looking to get out of an otherwise healthy business? Hopefully it's the latter, as signs of a potential future downturn could quickly sour the joy of being a new business owner.

5. Their customer base

A thorough understanding of a business' customer-base is the most important ingredient in developing a detailed picture of a company's health. Red flags such as relying on a few large accounts or customers with shrinking order sizes can give you advanced warning of potential financial trouble. Look for a business with a diversified and decentralised customer-base with low-turnover.

If you're ready to buy your next business, or just have a few questions about the process, get in touch with the business brokering specialists at Any Business today.

Anybusiness

Mary is the founder of AnyBusiness.com.au. She has a degree in Business from Monash University and been helping showcase businesses for sale for over 10 years. In the course of running her own business and working daily with business owners and brokers she has developed a keen sense of the Australian market for businesses for sale and shares her knowledge on this blog and others such as female.com.au

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