Here’s six areas to drill down on when investigating the purchase of a new business:
1. Books
Take a close look at the books. Go back at least three years and compare them against tax returns. Ensure all tax obligations (PAYG, GST and superannuation) are up to date.
Be aware of tricks, such as running down stock to artificially boost the bottom line.
Keep your eye on the bottom line and don’t get distracted by potential and opportunity. Some cash businesses may even run extra money through the tills.
2. Value
Break down the asking price to assess value for money. For example, you need to check the current market value of equipment included in the sale and whether it will need upgrading in the near future.
If the business premises are included, you will need an inspection and valuation. Check on domain names, email addresses and any intellectual property rights.
3. Customer base
What is the market like? Are there any competitors locally (or online) that may pose a threat?
Talk to those in the industry (including suppliers and customers) as they may know of planned or rumoured new businesses that may have an impact.
4. Goodwill
What is the reputation of the business? Do some thorough online searching and ask around.
To what degree is the seller’s personality and/or personal relationship with clients a factor in the business’s success.
5. Staff
Will senior staff stay on? Will the owner stay on for a transitional period? You should also make sure all the relevant employment records are complete and up to date.
6. Approvals
Check with your local council that the business has the necessary approvals to operate as it does — for example, if it trades late at night or has footpath dining.
While there, you can also check the locality for any recent development approvals or applications.
