Buying a business? What to look out for!

Hamish Mexted Business Strategy & Planning, Odds & Ends

Over the last couple of months we’ve seen an increase in the number of businesses changing hands – why? We’re still trying to figure that out for ourselves!

Normally what happens are people come and see us once they’ve bought the business, and then we have to try and dig them out of strife. By running through not only the numbers but the growth potential, transferability, payback period and much more, we’re able to assist you in making a more informed decision.

Our top 5 tips to keep an eye out for:

  1. Staffing

This is often a factor that is overlooked. Especially in a service industry, All Postsstaffing levels have such a big impact on sales continuing or improving.

You’ll also want to know what work the vendor does in the business and whether you can afford to replace them or complete the work yourself.

  1. End of Year Adjustments

When completing annual accounts, adjustments are always made. These adjustments can skew the data. The adjustments are heavily dependent on who the vendor is, and what they’re wanting to achieve.

  1. If buying, calculate your own purchase price

When we’re assessing the purchase of a business, we’ll complete our initial analysis and then from this, a recommended purchase price will be calculated. This will give you an initial indication of whether the vendor is asking for a fair price.

If it is a lot higher, question the vendor where this number is driven from.

  1. Trends

Getting a good insight of the trends at play is a great way to get a quick overview of the business at what’s been happening. Having as much historical data available as possible will help give this trend and allow you to identify the SWOT factors (Strengths, Weaknesses, Opportunities, Threats)

  1. Payback Period

How long will it take for you to pay back the purchase price on the business given the projected profits? This number is the one that scares most of our clients. During the rush and excitement of a new purchase, people can look past the actual impact of lending. Make sure you’re aware of this number and whether you’re comfortable with it.

 

If a business purchase is on the horizon, let us know – we’d be more than happy to help!

 

If you’d like to run through what’s discussed in this article, or anything at all, let us know. We can grab a coffee