How To Make Sure You Are Buying A Healthy Business?

Not every business is born out of innovation or is built from the ground up. Many entrepreneurs make it big by investing in an existing business that allows them to earn profits instantly. It helps them to do away with the effort and stress related to starting a business and invest in consciously scaling up an established company.

However, buying a business for sale in New Zealand should not be taken lightly. Entrepreneurs need to ensure that they are buying a healthy business to confirm success. It needs a meticulous examination of the entity to avoid getting into something that leads to declining sales or ineffective products. So, here are a few tips that make identifying a high growth entity quick and easy.

1. Visit the Office or Physical Store

After you have shortlisted a few businesses for sale, you need to start your due diligence process. It involves analysing and assessing the business on various parameters to determine its viability in the long run. The first step to checking the profitability of the business is to pay a visit to its office. Do not inform about your visit to the seller. You can also do it anonymously, posing as a customer and meeting the staff members.

Utilise this opportunity to understand the position and visibility of the office or store. You will also get a fair idea about the foot traffic in the area, the number of customers visiting the store and the support and assistance provided by the employees. You can judge the popularity of the business through your observation and get an idea about its customer service.

2. Understand the Motive of the Seller

The next thing to do is to set up a meeting with the seller and ask all the pertinent questions. Make a list of questions that you need to ask the outgoing owner about the business and examine their body language and sincerity while answering. Also, you will have to sign the non-disclosure agreement during the meeting to get concrete details about the business and analyse its paperwork.

It is the best time to ascertain the reason for the sale from the owner. Also, ask for any problems or challenges that are plaguing the business to know the status of the entity. Get an idea about the future of the company as envisaged by the founder and its growth capabilities during the discussion. Through this interaction, you will get to know whether the seller is trying to dupe you or offering a genuine business proposition.

3. Evaluate the Financials of the Business

Once you get access to the financial statements, credit history, income tax returns, bank statements and other details, you must ask an accountant to assess the financial health of the company. The professional is the right person to determine the profitability based on the income statements, cash flow statements and balance sheets of the past five years. They are also helpful in identifying if the profits accelerated suddenly in the past few months to make the financial condition of the business look better.

Thus, this is the most significant part of due diligence and must involve a deep appraisal of the financials. The accountant must evaluate the assets, debts, equipment, goodwill, USP, earnings, losses, frauds, etc. All these will help in calculating the health of the business.

4. Speak to the Customers

Identify some of the customers and interview them to gauge their connection with the brand. Many loyal customers indicate that the company has been performing well and taking care of its clients. Check with the patrons about what is working for the business and why they purchase from the brand. It will help you understand the competitive advantage of the business and customer satisfaction levels.

Read the customer reviews and ratings online to know the sentiment about the products in general. It will give you an insight into the positioning of the brand in the market and its reach. When you grasp the strengths and weaknesses of the business, you will be able to understand its growth path and future potential.

5. Engage With the Employees

A business is only as good as its employees. Thus, businesses must work on skill-building and empowerment of their staff members to make them competent, capable and confident. In addition, they need to be focused on the vision and mission of the company and must align their personal goals with them. Therefore, it is vital to know how the business you intend to purchase has been training its employees and what is their calibre.

Ask them about the work culture and their satisfaction levels in terms of work and salaries. Also, access their records and contracts to understand how they have been performing and which ones are an asset for the business. You will want to keep them onboard even after the acquisition. So, check if they plan to move or stick with the company.

6. Evaluate the Status of the Industry

The health of the industry in which the business is operating holds significance when you are planning to invest in it. Engage with industry leaders, business veterans, entrepreneurs, investors, and experts to identify how the sector will perform in the coming years and what would be the impact on existing businesses.

You should also attend industry conferences, events and seminars besides reading business journals and relevant articles that showcase industry data and insights. Keep the global economic trends in mind while pursuing your choice. Do not make haste if you find a lucrative business. Instead, ensure whether it is running in a fast-growing sector or an unstable environment. A healthy business can also fail if the industry plummets and goes through a downturn. Thus, industry research is important.

7. Inspect the Legal Liabilities

You need to hire a lawyer to complete the purchase process. So, it is a good idea to get them involved early on and ask them to investigate the legal aspects, such as verifying the licences, permits, intellectual property, trademarks, patents, lease contract, supplier contract, applicable tax laws, etc.

The lawyer should also check the zoning and environmental laws that are applicable to the business. It will help you to become aware of the regulations and how they may impact your expansion plans. They must also check for pending lawsuits or litigations that have been kept hidden by the owner.

Conclusion

If you are looking for a business for sale in New Zealand, you need to be ready to scrutinise the entity to determine its health. Thus, keep the points mentioned above in mind while assessing the growth potential.