Guidance on Buying a Business Are you a First Time Buyer and Considering buying a Business? The below Frequently Asked Questions will give you confidence in moving forward and finding your ideal business. 1. Why Buy a Business? It is vital that you have a clear picture of why you are buying a business, and what you intend to achieve by buying a business. Take the time to clearly understand this. The below three points will assist you in asking your self the right questions: • Are you wanting to work full time or part time? • Where do you want to see yourself in 5 years? • What income will you need to draw?
First important step is understand how much cash you have available and then secondly look at what property you may have to borrow against. Should you be looking to raise finance, then chat to your bank and other financial institutes and understand their loan requirements. For eaxmaple many banks will need at least 30% cash and the ability to provide surety against the balance of the loan.
Businesses can be valued in a multiple of ways and this can vary depending on the type of business, the business location, and the current economic environment. When engaging with the broker ask them to breakdown how the business purchase price was calculated. The most commone method is a multiple of the Net Profit (EBIDTA).
The failure rate of a start up business is exceptionally high. If you choose a business correctly you will be buying an established business with a solid revenue stream, that is tried and tested.
An inspection of the business should only be done once you have a good basic understanding of the business (see question 4). Sellers are generally very concerned about confidentiality, your broker will set up a meeting, very often this may be after hours with the seller. Ensure you are well prepared for this first meeting, ask the right questions. Your broker can quide you on the type of questions. It is important for you as the buyer to make a good first impression.
This is a vital part of the process and it is best that a broker guide you through this process as it can be quite an emotional time for both buyer and seller. The broker will prepare a Letter of Intent so that you can commence the process in a structured way and allow for a detailed due diligence period.
How do I know that what I have been told about the business is true? The due diligence period is vital, and this is the period where you as the buyer verify that the information provided by the seller is true and correct. Should you as the buyer not feel comfortable with this process, you can appoint a 3rd party to do the due diligence for you. Just ensure that they look at the business holistically and not just at one section.
How can I be advised of any new businesses available as soon as they are listed? The best businesses are often sold as soon as they come on the market. Pre-register with your broker and get headstart on new businesses as they are listed.
What type of business broker should I use?
Ensure that the broker as well as the company they represent are reputable. Ensure they are registered with the EAAB. Ask for the Fidelity certificate. Ask the broker about past businesses they have sold. Build a repore with the broker, they will be a key cog in helping you find the right business.