Preparation is the KEY
Buying or selling a business has more intangibles than buying bricks and mortar therefore it is essential that people do their homework. Far too often however, they do not. As a result many vendors get a lower price for their business and potential buyers miss opportunities.
It is a constant source of frustration to business brokers to see how few businesses are groomed for sale. Many sales are "killed" by bank managers, accountants and solicitors due to lack of information or proper presentation.
Businesses are bought and sold on their cashflow or profitability, yet the most common problem with selling businesses is the lack of a good set of accounts. I accept we cannot all be accountants, but detailed record keeping is not difficult. Most businesses do GST returns every two months so the opportunity should be taken to do a reconciliation three times a year with some analysis of sales, expenses, profits and trends.
The second most common problem is the lease. Demolition clauses, no rights of renewal, short remaining terms and arbitrary landlord's rights diminish the saleability of a business. Do not wait for a buyer to appear before you fix your lease. Negotiate with the landlord now and accept that it might cost you something. Sometimes the problem cannot be fixed, but it is better for all concerned to know that first, not later.
Other ways to groom your business are to have all maintenance up to date, with everything clean and well laid out. Itemise and value your plant and chattels. Do a resume on the history of your business plus its potential, together with reasonable sales projections for the next twelve months. Curb excessive drawings so the business shows increased profits. Last but not least, a sale is easier when things are looking up and the vendor is feeling good. Do not underestimate the importance of presentation and maintain that good presentation until you get a sale.
Buying a business is buying a package. What you pay for a business reflects such things as competition, potential, tax benefits, working hours, profits and the ease with which the purchase of the business can be financed. Lenders are most concerned with the ability of the business to repay any loans.
Anyone contemplating the purchase of a business must do as much homework as possible. Thorough preparation of cashflows and budgets is essential, while a clear idea of what security is available to a lender is a prime requirement to obtain finance. It is normal to have 33% to 50% of the ingoing, either in cash or equity in another property.
Often your professional advisors will not have an intimate knowledge of the business you are looking at. Further, many are biased against those contemplating the purchase of a business, be it a lunch bar, dairy, hotel, motel or retail shop. This is because they have in the past had clients get their fingers burnt by not being prepared.
Owning and running a business is an exciting and rewarding experience. DO NOT TAKE RISKS! Deal through a business broker who is experienced in business sales, buy a business that is free from obvious problems and do your homework before seeing your professional advisors. Do not expect them to make decisions for you. It's your life - it's your decision!