The right business varies from person to person but an important consideration is whether that type of business is suitable for you and your lifestyle. As a prospective purchaser you should consider the following:
- What do you want to achieve?
- Do your personal circumstances make buying a business the best decision for you right now?
- Are you suited, physically, psychologically and financially to that business? Do you enjoy working in the industry that the business is in?
- Do you have the business skills, experience, time, resources, vision and commitment to make this type of business a success?
- What type or size of business are you looking for and where do you want the location?
- What can you afford? Do you have finance in place?
- Do the numbers add up? Profits – analyse financial records, future cash flow and profitability
- If it is a share sale, what are the liabilities – outstanding debts, refunds and warranties?
- What are the tax implications – GST, Capital Gains Tax, stamp duty implications?
- Is the vendor reporting all his income? If there is any cash component that is not being declared it should not be taken into account in determining the price of the business as it can be difficult to prove with any certainty.
- What is the company’s unique selling proposition? (Image, technology, low-cost provider, topnotch service?)
- Who are the key employees?
- Total number of customers? Which are key?
- Does the business depend on any copyrights, patents, proprietary data bases, customer lists, etc.?
- What’s the inventory’s value? How often does it turn?
- How valuable are the assets?
- What’s not included in the sale?
- What costs are involved in running the business – fixed and variable costs, staff costs?
- What’s the monthly rent? Is the lease assignable?
- If you plan to be an absentee-owner, will the business provide a reasonable return on your investment, given the risk?
- On the other hand, if you will be an active owner, will it provide the return on your investment and compensate you adequately for the time you’re investing?
- Are there any easements, exclusive rights, or right of ways that impact the business?
- What is the business zoned for? Is the area hazardous?
- What do the customers have to say?
- How does the business market itself and generate enquiries?
- What are the sales projections? Is the owner responsible for a large part of the sales?
- What part of the business drives the largest part of revenues?
- Will your spouse support you?
- Are there any other skeletons to worry about?
- Why is the vendor really selling the business?
- Build a relationship with the seller and be thorough in your due diligence.
- Any distributors for the product? What are the terms?
- What are the sales patterns and trends?
- Who are the current suppliers? Is there a monopoly on supply?
- Who are you customers? Do any of them make up more than 10 percent of revenues?
- Who are key competitors? Do they have advantages? What’s their market share?
- How much vacation does the vendor take each year? Who runs the business when the vendor goes on vacation?
- What salary does the vendor take home?
- Would the vendor stay on as a consultant to the business?
- Is there potential for developing new markets?
- What are the entry barriers to the market?
- What is your exit strategy?