So you’re thinking about buying a business? Buying a business from somebody else is likely to be one of the biggest financial decisions you will ever make. It makes sense therefore, to invest time and money to ensure that you acquire an asset that lives up to your expectations. One of the original American Oil Tycoons, J D Rockefeller once said:
“Some of the best business deals I ever did were the ones I walked away from”.
The important starting point is to recognise that the majority of business owners have an over-inflated view of what their business is worth. This will often mean the starting price for the business is too high. This is why you need to do a significant amount of research before buying, known as Due Diligence.
When looking at purchasing a business you need to consider:
– Have you completed your Due Diligence and received adequate professional advice?
– Do you understanding what it is that you are buying – Goodwill, Plant, Stock?
– Will the business provide a fair wage for the time and effort put in by the owners?
– Will the owners receive a return on the capital they are investing into the business?
Throughout the process the critical decision to make in evaluating the business is whether it is “a good deal”. By that we mean the investment must produce an adequate return, given the nature of the business and the degree of business risk undertaken. Not every business will provide a return required by the owners, so it is crucial to assess and understand this before making the decision to purchase.