5 Questions To Ask When Thinking About Buying A Business

The current times have brought a lot of changes in the way the commercial sector and its major players have been leading the trade circles. Entrepreneurship is no longer seen as a risk fuelled proposition by the working professionals. In fact, more and more Kiwis are considering following in the footsteps of those who dare to dream big, such as Bill Gates, Richard Branson, Warren Buffet and many more. With the burgeoning entrepreneurial scene, investing in a business for sale in New Zealand is becoming a preferred choice because of the high volume of returns. Putting money in an established brand name which has viable goodwill and extensive customer base in the market is overshadowing acquiring other assets.

A lot of baby boomers are now in the process of selling their enterprises as they are retiring and the economy is looking up. However, buying a business is not similar to clinching a high profile business deal. It is much more complicated and needs a lot of analysis, reviewing and evaluation to find the best fit for your experience and skills. There are various instances of buyers getting duped by outgoing owners how do not disclose about debts or liabilities on the business. So whether you are a first-time buyer or a veteran investor who is seeking to expand his/her empire, you must fetch the answers to these prominent questions before taking the leap.

1. Is Owning This Business Meant For Me?

There is no use crying over spilt milk. It is better to take precautions and salvage yourself from debt and heartbreak by avoiding some common mistakes while buying a business for sale. The first thing to consider when buying a business is to know whether you are cut out for the job or not. If there is no match between your experience and qualification and the industry of the company on sale, then you must back-off. It is quite possible that you may have landed a great deal at a throwaway price, but if you can’t distinguish between apples and peaches, you can’t be a fruit seller.

Take some time off to think over your decision of becoming a business owner and dig deeper to understand what you are looking for in a satisfying career. Don’t just hop onto something because you are fed up of your present job. Create a career goal and identify your strengths and determine how they can be utilised in the best possible manner. Find the appropriate industry and business that suits your requirements both financially and personally and then move forward.

2. Will There Be Demand For this Business In Future?

If you found something that you would love to own and build further, then the next step is to identify the feasibility of the venture. Examine the market and the industry trends for the products and services being offered by the company. Survey the target consumers to determine the demand for the products and the gaps in delivery and service in the market. It is beneficial in the creation of an ideal product which fulfils the desires of the customers and is a cut above the competitors.

Moreover, study the offerings of the competition and check whether it is better or worse than the one you wish to own. Lastly, assess whether there is a sustained demand for the offering in the market or not. Based on your inferences, you can take a call on the future profitability of the company.

3. How Will I Finance The Deal And The Initial Capital Requirement?

There are many cases where seasoned entrepreneurs had to let go of a lucrative deal because they could not manage the finances. Before getting enticed by a money-spinning prospect, it is wiser to take control of the finances. If you are planning to apply for a business loan, you should be aware of the fact that besides the asking price you would need initial capital investment in the company to start trading.

Also, the business would not begin generating profit from day one as the cost of investment needs to be recovered first. Apart from these money matters, you need to consult a banking official or a lender to get an estimate of the amount of loan that can be acquired and what all documents are needed for the process.

4. Why Is The Seller Selling This Business?

It is definitely not possible to snoop around the office of the company, so you must upfront ask for the reason behind selling. If the answer seems unsatisfactory, you must probe further. This is the time when you get in touch with the suppliers and delivery managers, the employees and business partners or stakeholders to know about the true nature of the sale. If it is distress or urgent sale, then you need to tread the path carefully and check for any hidden skeletons in the closet.

The seller may try to hide tax liabilities, debts, and bad credits. Also in many cases, the businesses have failed to take off under the new management because the success of the venture was tied to the specific owner such as a chef in a restaurant or a designer in a fashion boutique. Make sure you are not making a wrong decision.

5. How Do I Conduct Due-Diligence?

Due-diligence is the most significant part of the deal as it makes the buyer aware of the condition of the business related to finances, debts, liabilities, profitability, credibility and much more. It is conducted when both the parties have agreed to move further with the purchase process and have signed a non-disclosure agreement to keep each other’s trade secrets confidential.

When undertaking due-diligence, the buyer must check for pending legal disputes, contracts with employees, suppliers and landlord, customer base and all company-owned business assets. The financial checklist must cover a record of all the financial documents for the past three to five years, GST returns, lease papers, franchise agreement (if applicable), and list of suppliers and loyal customers.

Endnote

Though the capability and management skills of the new owner play a significant role in the eventual success of the business, the evaluation of the business for sale in New Zealand is essential for determining a solid base which acts as the perfect launch pad.