Buying a business, whether as an entrepreneurial venture or to expand an existing company, represents a momentous occasion. This kind of purchase can provide opportunity to commence operations with a well-established entity that is poised for growth or already thriving.

The process of buying a business is quite involved and demands a comprehensive and meticulous approach. You can’t rush things, no matter how excited you are to get going. Like a pair of shoes, you need the right fit. Unlike a pair of shoes, you can’t return a business if you decide it’s not for you.

For those contemplating the process of acquiring a business, the involvement of a seasoned accountant is a crucial first step. To guide you forward, presented below is a step-by-step manual aimed at keeping the process on track.

How to buy a business

Step 1: Define your resources and objectives

If you have never been in business before, you need to be certain you are ready for the amount of work and responsibility involved.

Running a business takes a lot of time and effort. You will need:

• Clear goals around what you want to achieve, strategies to achieve these goals and the time or resources to make things happen
• To know your product and/or services inside and out
• The willingness to manage and lead a team
• An understanding of the basics of tax and accounting
• Capital to keep the business running
• Resilience and determination.

Buying a business isn’t a quick path to easy wealth. It’s a big decision that requires a long-term outlook and full commitment to make it work.

Now, let’s talk about money. You can’t buy a business if you don’t have the funds. That’s where a skilled accountant and a reliable loan broker can help you plan how to finance the purchase by finding the right funding sources for your needs.

Step 2. Find the business that is best for you

It’s important to make sure the business you buy will perform the way you need it to. Some top-level questions you need to ask include: 

• Does the business have the potential for success in the future? Past performance is one thing but you need to use it to make money going forward.
• How is the business suited to your skillset?
• Will it help you expand your existing customer base or bring on a new demographic of buyers and are you equipped to deal with either scenario?
• Is the business in a good location or does it have a good presence if it is online only?
• Is it a well-established business, or is it just starting out? How is it regarded by existing customers and partners?

Step 3: Research

Take the time to review details about the business, including:

• Key revenue drivers
• Missed opportunities
• Competitor benchmarks
• Customer demand
• Past financial performance
• Staff costs
• Overheads.

Again, an accountant can help you analyse the information you receive so you can make better-informed decisions.

Step 4: Valuation

Every feature of the business will help determine what it is worth.

While it’s easy to determine the financial value of inventory, assets or equipment, there is also the less tangible ‘goodwill’, which reflects how customers, staff and suppliers feel about the brand. This can affect the long-term success of the business so check reviews and speak to people who can give you an idea of how the business is perceived.

Don’t take the vendor’s word for it; arrange an independent valuation to arrive at the sum you are prepared to offer.

Step 5: Due diligence

Once you have a more general idea of how this business might perform under your governance, you need to complete due diligence and look into:

• Financial records
• Business operations
• Legal documents.

Due diligence covers details such as:

• Licenses and permits
• Contracts and leases
• Agreements
• Status of plant, equipment and fixtures
• Assets
• Inventory
• Liabilities
• Tax returns
• Business activity statements (BAS)
• Records of accounts receivable and payable
• Balance sheets
• Profit and loss records
• Cash flow statements
• Sales records.

Our Business Services team specialises in the above. The assistance of an accountant and lawyer will help you during this process as it is lengthy and requires an experienced eye.

Step 6: Make your offer

Once you have completed these steps and are sure the business is right for you, it’s time to put in an offer. Generally, you will have a representative involved who will help you match the vendor’s expectations so the final outcome feels like a win/win.

If your offer is successful, you will need to have contracts drawn up and signed, which can take some extra time and negotiation.

Buying a business can take several months. Remember to be patient… rushing things can lead to mixed messages and decisions that don’t serve you for the long term.

AFS & Associates are your partners in providing peace of mind. Get in touch if you would like some more advice about how to buy a business or need support to complete financial due diligence.