Embarking on business ownership can be highly emotive, but the successful purchasers are disciplined and follow 10 important steps. Most don't know how to conduct ALL of these, so be sure to leverage the experience and know-how of Hanrick Curran to support you into your new venture.
1. Determine your ideal business
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 weaknesses. 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, determine which of them are not negotiable, they will help you stay focused in searching through the many possibilities.
Running a business is tough enough when you know what you're doing. But when you own a business you're not passionate about, well, that's an unhappy situation waiting to happen. And an unhappy owner is usually an unsuccessful owner.Make sure you look for a business that fits your ability, interest, and passion. When the details of operating the business gets you down, the only thing that will make you show up the next morning is the love of what you do.
2. Understand your boundaries for business size
Now that you know what kind of business you want to own, you have to decide how big a bite of the apple you want to take.There are three primary questions that must be answered:
a) What size business will your management skills allow you to handle? Quantities to focus on include, but are not limited to: employees, sales volume, geography, and number of operating units.
b) How much can you 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.
c) Will you need a partner or financial backer? How will you respond being answerable to others, or being controlled by others if you go down this path?
3. Finding a business to buy
Contact key brokers who operate in your area of interest. Regularly check what's on offer through Internet sites, 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 a potential business seller?Since this stage could be very long - months, even years - this is where the impatient usually fail. Deciding to buy a business because it was the best of a bad bunch at the time is a recipe for failure. Be patient, be purposeful and only progress when your non-negotiable items are met.
If you plan to buy an existing business, carefully analyse both the advantages and disadvantages. One advantage is that a good business history can increase the likelihood of a successful operation and ensure that finance is easier to obtain. Potential disadvantages can be overestimating the goodwill figure and a poor public image inherited from the previous owner.
As a prospective business owner you should determine the current worth of the business and its future prospects. Some important considerations are:
- Vendor - reason for sale of business
- Sales - patterns, trends, customer base, current suppliers
- Costs - fixed and variable costs, staff costs
- Profits - analyse financial records, future cash flow and profitability
- Assets - identify and check all assets, including intellectual property and leasing arrangements
- Liabilities - outstanding debts, refunds and warranties
- Purchase agreement - review carefully
- Tax - GST, Capital Gains Tax, stamp duty implications
- Legal issues - leases, business structure
5. The Qualifying Process
When you are selling a product, you qualify your prospects early in the selling cycle to make sure you're not spending time with someone who cannot, or will not, buy. It's the same thing here. The buyer qualifies the seller to determine if this person can be relied upon to perform, as well as continually qualifying the business opportunity. The seller must qualify the buyer's ability to perform financially. But often sellers will also qualify a prospect with regard to whether they want to hand over their baby to this person.The facts and figures are what they are; you just have to find the information. But the interpersonal aspect of this step is a dance. If you don't know how to do this dance, take some lessons before you get on the dance floor.
6. The 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 Hanrick Curran to draw up an offer (there are a number of ways to value a business, Hanrick Curran 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, your lawyer and Hanrick Curran. This is an investment, but it will be cheaper than getting it wrong.
7. The Contract
The keys to success here are to:
a) Find a lawyer who has business sale experience (Hanrick Curran can refer to an industry specialist); and
b) Negotiate with the seller to let you pay for, and create, the contract documents. To use a tennis metaphor, it's better to be serving than receiving.
8. The Closing
It ain't over 'till it's over. MANY sales get all the way to the closing table, after hundreds, maybe thousands of hours of work, millions of spoken and written words, and thousands of dollars spent, only to have the whole deal fall apart when the parties merely sit across the table from each other. There are lots of reasons: New information surfaces that should have been found, or divulged, in the previous steps; one of the parties' gets cold feet; plus thousands of others.It ain't over 'till it's over. Don't take a victory lap until someone drops the chequered flag. And if you're the seller, that's when the cheque clears the bank, a day or two after the closing.
10. The Big Day
After the dog caught the car he was chasing, he asked, "Now what do I do with it?" Sometimes becoming the owner, after a long purchasing process, can be a little anticlimactic. Will you be ready?
For information on any step of this process please contact Matthew Beasley of Hanrick Curran on 07 3218 3900 for a no obligation initial discussion.