10 things you must consider before buying a business

The idea of beginning a business from zero and going through the initial stages without an income can be an intimidating one, which is why it can be alluring to purchase an existing one instead.

But before your enthusiasm gets in the way of your objectivity, give this some critical thought; the world of business is full of examples of disastrous business acquisitions. What steps can you take to ensure that this does not happen to you?

Before entering into any agreements, there are 10 important factors that need to be considered, all of which will be discussed in this article. You will improve your chances of making a successful acquisition if you have a solid understanding of these and continue to keep them in mind.

1. Reason for sale

Determine the genuine cause for the sale of the firm if it is at all possible to do so. This can be a challenge at times. Is there a valid explanation, such as the owner's impending retirement, a recent divorce, or the fact that they have been overextended? Or is there no way to save the company from bankruptcy?

Your explanations for purchasing the firm will surely be affected by the reason for sale, and it is also possible that the reason for sale will have an effect on the strategy you devise for taking over the organisation.

2. What are you buying?

Instead of purchasing the firm itself, invest in its assets and trade.

Determine in detail what assets you will be purchasing as well as the total amount that must be paid; are they worth the money? Purchasing goodwill does not qualify as a tax-deductible business expense. Is the owner the exclusive recipient of all the goodwill, or does the firm itself benefit? Goodwill can be lost very fast, particularly in the event that a business takeover is poorly executed.

3. Restraint of trade

Simple information, but you'd be amazed at how many buyers try to save money on professional guidance and end up making a mess of the situation as a result.

A customer of mine closed his company, moved a few kilometres away, and reopened it since there were no restrictions placed on his ability to compete in the market. Can you guess what took place?

4. Due diligence

Before moving further with the company, you are required to perform an in-depth analysis of it. Do not let yourself be misled by restricted or limited information; you possess the upper hand because you are dangling money in front of the dealer.

It's possible that this will cost you, but you shouldn't let that make you penny-wise and pound foolish. In any event, it might not cost as much as you think it will, particularly if you are able to handle some of the work on your own. A competent accountant will maintain a checklist of items that need their attention.

My customer is currently employed in the industry, and they are interested in purchasing an existing company. That level of research and investigation is unparalleled; he has uncovered a wide range of information.

5. Impacted staff

Staffing is the most significant challenge facing modern businesses, and this is especially true for smaller companies with smaller workforces, as the loss of even a single person may have a devastating effect on the company.

A change in the ownership of a company nearly always results in worker turnover, which can be a significant problem in an industry where it might be difficult to find qualified candidates.

6. Real estate

Whether you want to buy or lease the building where your new company will be located, you should seek professional guidance before making a decision.

If you are renting, how many more months are there on the lease? Are the premises suitable? Is this the best spot possible? Are there any repairs or maintenance work on the building that you are responsible for making good?

7. The handover

When looking to acquire a business, you should expect to pay a premium price for one in which the current owner is willing to stay for some time and assist you in becoming familiar with the operations of the company.

Even a very simple company can be difficult to navigate, and because there are so many moving parts to consider, an adequate transition period can be really helpful.

8. Key relationships

Establishing and maintaining relationships with people—including employees, customers, and vendors, among others—is necessary to the growth and maintenance of a successful business. Tradespeople, professionals, and vendors of goods and services are notoriously difficult to work with in today's society, so it might be challenging to get things done.

When you're in the market to buy a company, you need to move swiftly to identify the influential people you should get to know and make sure are on your side. It is a significant aspect of goodwill but one that is frequently disregarded.

9. Working capital

The amount of operating capital needed to run a business is often grossly underestimated by prospective buyers of businesses; in most cases, the available cash or borrowing capabilities have already been utilised in the process of paying for the company.

Have your accountant put together a straightforward cash flow forecast that emphasises your most pressing cash requirements.

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10. How much should you pay?

Regrettably, the valuation of a small business is famously challenging, and the primary reason for this is the dominant role that the business owner plays in the process. If you get rid of the business owner, you frequently get rid of the firm as well.

Many people buy themselves a job by investing a large quantity of money in a tiny firm, but they end up in a worse financial position as a result.

In many cases, the amount of money that the purchaser has available to spend might be a deciding factor. This has always seemed unusual to me, but unfortunately, it is the way that many commercial purchases are made. There is no easy solution to this problem; thus, it is recommended that you seek the guidance of an experienced accountant and be ready to withdraw from the negotiation if required.

If you require help with your bookkeeping, you can give us a call on (03) 9571 5333 or email us on info@hillyerriches.com.au.

In conclusion, owning and maintaining a business can bring enormous rewards and a sense of fulfilment, as well as the opportunity to develop money, but, doing so is fraught with risk. Take your time, engage in a substantial amount of research, and surround yourself with trustworthy experts. In doing so, you lessen the likelihood of negative outcomes and position yourself favourably for achievement.

Three keys to saving money when starting in business

A company is a living, breathing thing; it is an entity that, just like a person, you can choose to love, tend to, and help it flourish, or you can choose to ignore it and finally allow it to perish. If you own a company, you are aware that you are responsible for nurturing it just like you would a young kid. You have a responsibility to tend to it and make sure it has all it needs because if you are unable to do so, your company will also fail.

Beginning a business, much like beginning a family, requires a serious commitment of one's financial resources. Every dollar counts, and there are only so many resources available to you if you are anything like the other new business owners out there.

Despite this, it is possible to launch and cultivate a highly successful company by being resourceful with the money you have available and by using your start-up capital in an intelligent manner. If you start your company by adhering to these three money-saving guidelines, you will be able to run a financially efficient company that has a good chance of expanding and being prosperous.

1. Utilise free marketing

Use social media

Utilize all of the free social media channels that are accessible so that you can get the word out about your company and everything that you do for it. Create pages on LinkedIn, Facebook, and YouTube to share content with the world about who you are, what products and services you offer, and how you are unique in comparison to other businesses in your industry.

Remember to go through all of your contacts and add them to your social media contact lists. This includes the business cards you have saved, the people in your email address book, as well as your family and friends. Send friend and connect requests, as well as invitations to everyone you know, so that you may rapidly establish an online presence for your company. No one will toot your horn for you if you don't do it yourself.

Mention your business

When you meet new people, don't try to hard-sell your business or be forceful with individuals; instead, make sure that you weave your business story into every conversation. Explain what your company does and the benefits it offers to its clients. This includes when you are in a social setting as well as when you are speaking with possible clients and suppliers. Always be prepared to provide someone with your business card, and make an effort to receive a card in exchange whenever possible.

Create a cost-effective website

It is not necessary at all for you to spend tens of thousands of dollars on the development of a full-fledged website that includes all of the bells and whistles. Just make a website that is straightforward yet effective, and use it to tell people about your company, the variety of goods and services you provide, and the reasons why you are the best at what you do rather than anybody else. There is an abundance of the free website development software and tools available online, which you can use to design a website that is polished and professional in appearance and which can be up and operating in a matter of hours rather than weeks. Caution is advised, however, because sending the message to the market that you run an inexpensive and unattractive firm will be communicated if you create a website that seems cheap and shoddy.

Purchase a low run of business cards

Make an investment in a business card with a low print run but a good quality. Having a business card that appears to have been printed at home and is of poor quality is one of the most embarrassing things that can happen when you are just starting out. Someone once gave me a business card that appeared to have been ripped out of a sheet of cardboard with perforated edges. It gave off an unprofessional appearance and, needless to say, did not make a favourable first impression on me. When looking for a marketing strategy that won't break the bank for your new company, consider investing in business cards with a limited print run but good quality. The majority of businesses who sell business cards online are able to give quality products at reasonable prices.

2. Have minimal staff

Pay only for what you need

Employ people on a casual hourly rate who are either independent contractors or part-time employees. This will enable you to pay for staff members just when you actually want their services. If there is a lull in activity at your place of business and you are out and about meeting prospective new clients, the last thing you want to do is pay a high salary bill to your team while they are doing nothing productive with their time.

Another advantage of employing casual personnel is that you may schedule their shifts on a rotating basis to make the most efficient use of their time and only pay them for the time that you require their assistance in running the business. It is possible that you will not be required to pay any holiday leave, sick pay, or annual leave if you spend a casual hourly rate. Regarding this matter, we ask that you verify with your local authorities.

Request help

Request assistance from your loved ones and close acquaintances with your startup venture. Inform your network about your company and encourage them to check it out. In many cases, members of a family, particularly those who are already retired, would leap at the chance to take on a new task and break the routine of their day by assisting another family member in the development and growth of a profitable business.

Hire offshore contractors

You should outsource all of your infrastructure and support to offshore vendors. You may offshore nearly anything in today's world, from the production of goods to the hiring of a virtual assistant who can assist you with your business's infrastructure without the expense of employing a full-time staff member who receives a salary and wages.

There is no end to what you are able to offshore in today's world, from the creation of efficient websites to the manufacturing of your entire product line in another country.

You will not need to spend as much time or money on it. The world of business is global, and with its expansion into a worldwide phenomenon, corporate back-office assistance has also become a global phenomenon. Embrace it so that you may start your firm off on the right foot financially.

3. Save money on location and equipment

Use your home

Consider operating your business from the comfort of your own home in order to cut costs. If you want to run a lean firm, especially in those initial vital months, you need to really examine this money-saving strategy. It is a measure that you must seriously consider if you want to run a lean company.

Because the technology for small businesses is becoming more reasonably priced and internet connectivity is becoming available in almost every part of the world, it is now possible to practically run a national or even a global business without ever leaving the convenience of your own home office.

Share or lease

If you do not want to run your company out of your house, you should give some thought to setting up a shared office arrangement or investigating the possibility of renting or leasing a serviced office on a short-term basis. If your customers prefer to come to you, having a shared office or a serviced office provides you with the look and feel of a professional "storefront," which is vital for your business. The majority of these coworking spaces also provide full secretarial service, which includes answering the phone under your company's name, taking and delivering messages, and mailing mail. If you want to save money, you should avoid signing expensive long-term leases for office space. If you're looking for a low-cost yet professional option for your new company, you might want to consider sharing an office or business premises or using a serviced office.

Rent equipment or outsource to conserve cash

Instead of purchasing expensive company equipment, pay for its temporary use or lease it instead. This will save you a lot of money. Producing your product without investing a significant amount of real cash in the plant and equipment necessary to do so is essential to the success of this strategy, particularly if you are just beginning a manufacturing business.

Even if you are only producing a small quantity of a product, you may almost certainly still outsource the manufacture to a country in another continent. Instead of making a personal investment in capital equipment, you can choose to buy, lease, or rent the necessary equipment, or you can even contract the manufacturing out entirely.

I know quite a few business entrepreneurs who got their start in manufacturing by contracting out the production of their goods to a more well-known manufacturer. They even hire another party to handle the shipping of the packages. If you want to keep your production costs to a minimal, this is both a good concept and a vital approach for you to follow.

When you're first getting your company off the ground, you want to be careful not to make the error of quickly running up expenses and exhausting your financial reserves. The owners of the vast majority of new firms give up within the first year because they overlook these important principles to operating efficiently and reducing costs as soon as possible. When you first start out, it is important to save money everywhere you can.

Five sectors of the economy are open to new ventures

In Australia, growth is not necessarily a good indicator of the health of a particular industry. According to what Patrick O'Loughlin has said, despite this, there is evidence to suggest that the moment to invest in one of these five rising stars is right now.

Owners of successful businesses have the ability to make astute strategic judgments at the appropriate moment in time, which is their secret to success. A good number of them scoff at the idea that they might get lucky; rather, they attribute their professional successes to carefully assessing the market and seizing significant chances before anybody else does.

To achieve financial success, it is essential to make investments at the appropriate time and location; in certain cases, this may necessitate moving into a new field of business or a different industry sector than the one in which one has previously been employed.

Why diversifying is a smart idea right now

According to the NAB's 2019 Q2 Quarterly SME Survey, the SME business confidence that was built up by the strong expansion in the employment market in 2017 has been completely destroyed. The Q2 study confirmed the disappointing findings from the previous quarter, revealing that circumstances for small and medium-sized firms are the worst overall.

It is possible that your company's profitability has decreased as a direct result of the decelerating growth of the Australian economy, particularly if your line of work is connected to one of the areas that is experiencing this trend, such as the real estate or construction sectors.

It's possible that the solution to your financial woes is not to give up on your company or to keep plugging away at it, but rather to search elsewhere for ways to recoup your losses, specifically in one of the select few markets where growth is still occuring.

The sectors seeing expansion

According to the 2019 Australian Job Market analysis that was published by the employment marketplace Seek, there are five primary industries that account for more than 48 percent of recent yearly job ad increase.

These industries, in the order of the total number of job postings, are:

1. Services and goods
2. Technology for Information and Communication
3. Medical and Healthcare
4. Resources, energy, and mining
5. Innkeeping and tourism

These are the industries that, in light of the current instability in our economy and the findings of the NAB study, which indicate that there is no sign of an impending improvement in conditions, present the most promising opportunities for the launch of new small businesses over the course of the long term.

If you are currently the manager of a company, we have provided you with some thought starters in the following paragraphs so that you can get a head start on investigating new opportunities and boosting a bottom line that may be in danger of falling.

Another method to obtain frequent doses of insight and inspiration for ideas for start-up businesses is to subscribe to the newsletter that is associated with this blog.

Remember that this is in no way an exhaustive list; you will need to perform additional study in order to choose a specialised market that aligns with both your personal interests and your professional objectives.

Services and goods

The retail and hospitality industries both provide enormous opportunities for the launch of a new company.

According to a survey by Seek Employment, small businesses that are interested in expanding into the industry of crafts and services should first seek to the electrical and automotive trades because of the high need for jobs in those fields.

Because certain professions are always in demand, regardless of the state of the economy, small businesses have the opportunity to serve these industries by supplying them as specialised retailers.

Technology for Information and Communication

Because of the rapid pace at which technology is advancing, the information and communication technology industry is one that astute entrepreneurs should focus their attention on.

There are now a lot of job openings available in the fields of software engineering, security engineering, as well as business and systems analysis. Despite this, there is a significant demand for supporting jobs in specialised marketing and communications because of the nature of this kind of work.

The most exciting part? Because most employment in information and communications technology (ICT) can be done remotely, this industry is ideal for people who want to become "digital nomads."

Medical and healthcare

Not only does working in the healthcare business give you the opportunity to make a difference in people's lives, but the industry is also projected to have a growth of 16.1% between 2018 and 2022, which indicates that demand is going to keep climbing consistently.

To start a small business in the healthcare or medical field, it is not necessary to attend medical school, which is a fortunate development. Instead, you might get some training and start a small business, or you could broaden the offerings of the firm you already own by providing services such as massage treatment or acupuncture.

These services can also be included into an existing spa or clinic business, or if you're seeking for more flexible options, you can take them with you and provide them on the road.

Resources, mining, and energy

Although it may appear that there are no opportunities for small businesses in an industry like mining, there are actually several different sectors within this sector that astute business owners may take advantage of.

A significant portion of the opportunities that are available to small and medium businesses in the mining, minerals, and energy industry are related to mining equipment.

Leasing or supplying safety equipment and power supplies to the mining industry, such as generators, will be in high demand in areas such as Queensland and Western Australia.

Innkeeping and tourism

The hospitality and tourism industry in Australia stands to benefit significantly from the current state of the Australian economy, which is showing signs of weakness. This holds especially true for the tourism sector, which is anticipated to experience consistent expansion over the course of the next two decades.

Opportunities for small and medium-sized businesses exist in these sectors in the form of travel agency, tour guiding, and the establishment of venues in key tourist hubs. It is beneficial to pay attention to trends related to tourism. If you are aware of when and where tourists are visiting Australia, you will be able to market particular products at the appropriate periods.

There has never been a better moment to diversify your company's offerings by entering any of these markets than right now. You can rapidly fill in any skill shortages with training or research, and examining a sector that is seeing growth can be rewarding in and of itself. So, what exactly is it that's stopping you?