Buying a business is a life-changing decision, both professionally and personally. It is a decision that you will probably be living with for many years, so it is important that you approach the buying process in a methodical, well thought-out way to ensure you get the best outcome. The following Tips have been developed to assist to make good decisions when buying your next business.
Our 'Top Tips for Buying a Business' cover the following topics:
1. Making the right choice
2. Get professional advice
3. Buying a franchise?
4. Expect some warnings
5. Request the seller to stay on for training
6. Raising the funds to get into business
7. Getting finance approval
Making the Right Choice
There’s a lot to consider before you invest in a business. Don’t be discouraged by the vast number of different types of businesses on the market. Your approach should be methodical:
- Understand your skills and how they may best be utilised.
- Decide on an appropriate geographical area, unless you are prepared to relocate.
- Consider how your business may impact your lifestyle and desire for flexibility and a home life.
- Picture yourself running your own business.
- Rule out the type of businesses you do not want.
- Narrow your search to businesses that may match your skills, are within your geographical area and match your lifestyle needs.
- Once you have narrowed your search then make enquiries about the businesses that remain in your consideration set.
- Visit the businesses, write down all your questions and ask them all.
- With every visit you will get closer to understanding which business is right for you.
Get Professional Advice
It is important to assemble a professional team of advisers if you need assistance in the process of purchasing a business. Finding a competent commercial lawyer and a good accountant are of utmost importance. A good lawyer will assist with the preparation of your legal structure and can review the legal documentation you will need to consider.
Your chosen accountant (one that specialises in small business advice or business acquisitions) will help you to understand the financial side of the business.
When getting your legal advice remember that lawyers often see their role as to advise their clients on how to get ‘the best deal’. Understand your position in this process, keeping in mind that a lopsided deal, one that’s only good for you, the buyer, will most often result in ‘no deal’ for the seller. Every deal has to be of benefit to both parties – the buyer and the seller.
Buying a Franchise?
Any genuinely professional franchisor (The franchisor owns the overall rights and trademarks of the business and allows its franchisees to use these rights and trademarks to do business) will insist that you obtain independent legal, accounting and business advice before you sign the Franchise Agreement.
When choosing a law firm to advise you on the purchase of a franchise, it is recommended that you choose a firm with real franchising experience. A franchise specialist law firm should ensure:
- You are informed of the terms and your obligations under the Franchise Agreement and the Sale of Business Contract.
- Understand and discuss the best structures for your business.
- Discuss the most cost effective ways to protect your assets.
Expect Some Warnings
During the process of buying any business, you will no doubt come across people whom you talk to about the business that will warn you not to buy, to consider other businesses or to “just keep working in your job”.
There will also be warnings provided by your lawyer and possibly by your accountant. Their role is to provide these warnings and highlight everything so that you can make your own informed decision.
The best course of action for the buyer of any business is to only trust information that you can verify.
Your business broker is obligated to provide you with information without misrepresenting any significant facts.
Request the Seller to Stay On for Training
If you’re buying a small business it makes sense for the buyer to negotiate or arrange for the seller to stay on for a training period. This training period is often inserted in a clause in the Sale of Business Contract. The training period is an important transitional time allowing the buyer a smoother introduction to the business, its customers and the administration.
Raising the Funds to Get Into Business
There are a number of ways of raising funds for getting into business. The options for finance include:
- Using your own funding
- If you have a large enough lump sum of available cash, then using your owns funds to establish your business can help you to save money on any potential interest and also provide you with ultimate control over your business.
- Getting a bank loan and finance
- Banks have a range of loans available for new business owners, including variable and fixed rate loans, credit card facilities, lines of credit and other forms of finance.
- Finance Broker funding
- Many of our clients choose to obtain their funding from a Finance Broker. A broker may be able to search around for the best deal with the most favourable terms on your behalf. Talk to your Amplify Business Broker for information on Finance Brokers that may suit your needs.
- Equity Finance
- With equity financing, private investors provide you with funding for your business, in return for a share of the business ownership.
- Preferred Franchise Lending
- Some of the more established Franchisors that have a successful track record may be able to offer new franchisees preferred lending arrangements that have been established with a bank.
Getting Finance Approval
Don’t be daunted with the process of getting finance approval. There are some simple things that you can do to make the process of getting finance approval simpler.
- First of all your financier will want to understand what kind of security you may have to support your application. For example you may have equity in your home, an investment property or some other investment that can be leveraged.
- For the purchase of all existing businesses you will require the latest available Profit & Loss Statements and Balance Sheets.
- You may be required to provide personal income figures for any co-borrower (for example your spouse if he/she is not going to be working in the business)
- You may be required to provide a business plan with estimates for the year ahead.
Speak to your Amplify Business Broker about the process of obtaining finance and how to best prepare your application. We also have the ability to assist you with securing your finance.
We at Amplify wish you every success in your endeavours to find a suitable new business.