Buying a Business
Buying an existing business can be a risk, especially for the first-time buyer. In my opinion, far too much emphasis is placed on the vendor's accounts. They will only give you half the story - for example, accounts don't tell you that a road is being planned which will run directly through your premises, they don't tell you that a new hypermarket is about to be constructed a few yards from your shop, selling the same goods discounted below your wholesale purchase price. Accounts tell you only financial facts from the past with no guarantee they will continue. There is no mention in the written record of customer loyalty to the vendor. An unscrupulous businessman will sell you the business and then take the customers with him to a similar venture a few yards down the road.
Despite all the above disadvantages there are some distinct advantages to buying an existing business. Less time is likely to be taken to reach profitability when you purchase a going concern, less money has to be spent attempting to make the public aware of your business location. Existing trading links such as wholesalers and manufacturers' representatives will continue, saving a great deal of time and effort trying to source them.
As a rule of thumb, use all the help you can get. This would include solicitors, accountants, local planning authorities and your local Chamber of Commerce.
Take the following points into consideration when buying a business:
- Can the vendor supply three years' audited accounts?
- Investigate the true reason for the sale.
- Be sure to write an inventory of the fixtures and fittings on the first occasion you view.
- Stock at valuation following a stock-take should be paid for at the same time that the keys are handed over and not before.
- Does the existing net profit pay the bills, cover your basic survival income requirements and leave enough to allow some re-investment in the business?
- Watch out for trends. High closing stocks will push up the profit figure and push up the price.
- Set a ceiling on the price you are prepared to pay and do not exceed it.
- If you are buying stock, check its saleability and the price you are being charged.
- Calculate the time it will take to recoup the asking price.
- Shop around - check the list which follows to ensure you are getting value for money.
- Establish and investigate all commercial threats to the business.
- Rent or buy? What steps will you take to ensure you retain the existing clientele?
- Look for hidden costs, for example, faulty or noncompliant electrical fittings, non-compliant fire fighting equipment.
- Check for bad financial business practices on the part of the vendor. Blacklisting by suppliers can take a long time to shake off and can ruin your business before you start.
