| The Reality of Buying a business and what to look | | | | its hard to manipulate something in the past if you |
| for Before you Sign. | | | | had no intention of selling later on, believe it or not |
| So you have decided to take a big step and | | | | unscrupulous sellers have been known to |
| invest in buying a business, having decided what | | | | manipulate returns, especially if they are struggling, |
| type of business is suitable for you. | | | | and need to sell. |
| The banks have said yes, to lending you the | | | | Take these to your Accountant and tell them to |
| money, you have looked around and found | | | | analyse them as you are looking at buying the |
| something that seems to suit your needs, its a | | | | business, a few dollars spent here will save a |
| small shop (doesn't have to be, but for this article | | | | great deal later on if everything turns to custard. |
| we will assume it is) and its in a good position area | | | | They should either reinforce what you may have |
| wise. So you are keen to put in an offer. | | | | thought or explained that everything is in order |
| It could be a take away, cafe or corner dairy, | | | | and it seems a genuine sale. Do not be afraid to |
| doesn't matter, it is basically a cash flow | | | | discuss any queries or doubts with them after all |
| enterprise, meaning its cash taken over the | | | | you must have an idea of things by now from |
| counter with very few, if any accounts owing. | | | | your own readings and calculations, if you think |
| The first step is to see how the enterprise has | | | | something is not quite right or differs from what |
| been performing so you have asked to see the | | | | you had thought, now is the time to discuss it. |
| accounts, that is the profit and loss for the last | | | | Right, it looks good, the Accountants seem |
| few years. It is rare that the sellers will give you | | | | pleased, a few minor points to note but all in all a |
| the Balance Sheet as it often contains personal | | | | clean bill of health and see no reason for not |
| information like the debt structure used, but they | | | | putting in an offer. |
| should provide the assets schedule, this is the list | | | | Stop, before putting in an offer, there is one |
| of items that you will possibly be buying. | | | | more job to do, and I think this is the most |
| The sellers have told you its a little goldmine but | | | | important job of the lot, it doesn't involve |
| because of ill health they have to sell, and they | | | | negotiating figures this comes later. |
| can not put the effort in to make it what it | | | | This step will make or break the deal. |
| should be any more. | | | | Offer to work behind the counter for at least a |
| Every thing looks good, you feel happy with what | | | | week for nothing, helping out if need be, longer if |
| they have told you and you are convinced you | | | | possible, you need to witness what cash is |
| could make a go of it. And the price is within your | | | | passing over the counter and the type of |
| budget. | | | | customers you may be getting, nothing like a bit |
| Now comes the reality part of doing business, | | | | of reality to confirm what the sellers have been |
| what I tell my Clients when in this situation. | | | | saying. |
| Number one, don't get tunnel vision, they are | | | | If they refuse, you have to ask why? What |
| selling for a purpose, what is the real reason for | | | | reason? Offer to sign a confidentially form or tell |
| selling? | | | | them, if you like what you will see, you are a |
| Is it health problems? are they loosing sleep at | | | | buyer. If they still refuse, are they hiding |
| night because they cant pay bills and getting | | | | something? Walk away. |
| demands for payments which is affecting them | | | | I have seen this happen and advice not taken, |
| both physically and mentally? or have they a | | | | cost a lot of money that they could not afford. |
| genuine reason, its very possible, but don't be | | | | So don't let it happen to you. |
| afraid to ask, its too late six months down the | | | | Remember Financial Accounts are historical and |
| track to have found out the real reason.. what | | | | deal in the past, we need to know what is |
| caused their health problems. | | | | happening now, things could have dramatically |
| Ask to see the Income Statements for the last | | | | changed and what better way than a hands on |
| six years or so, or the length of time they have | | | | approach to see what is now happening. |
| been in the business, they should have them. | | | | This may seem a draconian approach and a bit |
| Make comparisons of the sales figures and costs, | | | | over the top to investigating the purchase of a |
| is it growing or are they loosing money, do not | | | | business, but its your money, your house on the |
| believe it when they tell you they have taken a | | | | line, even your marriage is not immune when |
| lot more cash out for personal use than what is | | | | business fails, do everything in your power to not |
| showing, so the sales have been understated, | | | | buy a lemon. Who are you going to upset in the |
| therefore the 'real profit is more than what is | | | | long run? |
| showing in their returns' they may have | | | | Good luck with the purchase, there is still a lot of |
| exaggerated. | | | | work to do, if it was easy every one would be |
| If they have to file regular sales tax or GST type | | | | running businesses. |
| returns regularly, ask to see the older ones too, | | | | |