Mar162015March 16, 2015November 20, 2023by Alex Den

How not to Buy a Business?

Want to buy a business? Wait…Think and then decide!!

Entering a new business can be done in two forms: Converting your idea into a business or buying an existing or running business. In case you have an idea about a product or service that is unique, and you are confident to sell to the market, you should consider opening a new venture. But, in case you feel that you want to invest in a setup with an existing customer base you should consider buying an existing set-up.

Here it is very critical to have clarity in mind and honesty in thoughts before you buy a business in Australia. You must be confident of having the skills to run the show as a leader. The activity you are interested in might be a hobby for you but converting it into a business will involve a lot more connected jobs which might also not give you enough time to perform your favourite activity at times. Are you ready for this change? Many such questions must be answered before taking the first step.

Along with knowing all the important points to be covered while buying a business, it is indeed very critical to know how not to buy a business for sale. Whenever you are planning to buy a business it is always best to have a lot of businesses to choose from, there are websites like Businesses2sell where you can find 10,000+ businesses for sale in Australia. We at this moment share a few such important aspects that should not be a part of your business purchase process:

Do not buy a business that lacks your interest, skills and knowledge

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Just because you are eager to start your business & manage your start up does not mean that you would choose anything. Go for something that interests you and enhances your essential business skills. Do not compromise on the basics. A business that does not excite you will not result in a successful venture. Not only your interest, but the business should be matching your skillset and knowledge too. For example, how do you run a retail store without understanding the shelf life of articles or the temperature they are to be stored?

Make a wrong choice out of excitement

Do not let the excitement take over your judgmental & analytical capabilities. Ensure to keep your thinking cap on while finalizing the deal. A decision in haste can go wrong even if taken by an experienced person. Maybe at times, a deal looks too lucrative to you, that you might end up not doing the required due diligence. So, make sure you keep an eye on all the aspects before finalising anything and keep a holistic and comprehensive perspective intact.

Buy without knowing the reason to sell and conducting due diligence

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An owner can have enough & more reasons to sell his business, but he might reveal none of them. He might sight reasons like retirement, or settling abroad, but you must probe and enquire for the actual reason to sell.

At the same time, you must conduct the due diligence to your satisfaction. Just because a business has been showing year-on-year profits in the books does not mean it has no problems involved. You should keep a strict check on all aspects of the business and look at how it has grown in the past

Do not ignore the image of company/ brand in the market

You are planning to buy an existing business, a business that must have run already for a considerable period by now. It must have registered its name in the minds of consumers. The market will surely carry an image of the brand. You must research the market to know the brand perception & the company’s image. Buying a business with a bad name in the market is a foolish decision to make. You don’t want to run into losses and lose your precious money as you start your business career.

Do not cross your limits… financially

This is the most common mistake done by eager business buyers. They raise loans or debts, in order to purchase a business, that otherwise is out of their reach. This should not be done. Plan for the purchase in advance and wait till you have sufficient funds to purchase the business of your choice so that you can manage small business finances. Do not go over your budget because if the business runs into losses, you could suffer major debts then.

Team arrangement

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Do not be a one-man army in this process. Hire a team of experts to help you deal with all these new business strategies and tactics so that you can make the business successful together. Also, don’t commit the mistake of relying on the seller’s broker or advisory team. Hire your broker or depend on a support system like Business2Sell to show you the right way to purchase. They not only support bringing the buyer & seller to one platform but also create a win-win situation for both.

Do not buy for a minimal income

The perspective of a business buyer should be to earn as much as on the investment being made. At no time, he should compare his earnings from the business to the current earnings from a job. You might choose to draw a fixed salary for managing the business as an owner, but the actual earning is the profit, i.e., what you would be taking all the risk and headaches for. You must look at the profitability and value your business offers in advance before you invest in it.

Buying without knowing the correct price of the business

Any business deal entered into without study of the financials might prove to be fatal. Buyer must do a financial analysis of the profit & loss statement to decide on an appropriate price to pay. Other than financial statements, important ratios, asset valuation, goodwill, liabilities and cash flows must also be reviewed.

Do not blindly agree on what is asked for

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Any business deal entered into without study of the financials might prove to be fatal. The buyer must do a financial analysis of the profit & loss statement to decide on an appropriate price to pay. Other than financial statements, important ratios, asset valuation, goodwill, liabilities and cash flows must also be reviewed.

Do not blindly agree with what is asked for

Try to put your offer first. Do not view the price quoted by the seller as a benchmark. Evaluate and analyze the deal using your expertise, and knowledge and with the help of experts to narrow down to a mutually agreed price.

You must analyze the aspects beyond company financials like customer relations, suppliers, infrastructure cost and expense and even the employee fixed cost.

Do not miss the inquiries

It might happen that you find all finances in place and a good business of your interest to buy. Still, there are a few important inquiries to be made or for that matter some important questions to ask. What is the USP of the company? What factors affect the sale and demand of the product in the market?