The pros and cons of buying a business

Tuesday 16 February, 2016 | By: Darrell Giles | Tags: business banking, financials;

So you are thinking about buying a business – but have you thought about why you are thinking about buying a business.

Mark Moller, manager of business banking for Auswide Bank, said the reasons can be many and varied.

“Your current employment doesn’t provide a stable income and you are buying a job; you are looking for a lifestyle change; looking for a sideline income; or you are genuinely interested in that industry,” he said.

“Generally speaking owning a business is very time consuming so it would be helpful if you buy a business that you have an interest in be it food, fitness or sport.

“Tapping into an interest of your own also helps as you have knowledge of the industry and related products.

“A lot of successful business operators started out by building a business around their interests.”

Mr Moller said there was also the question: should I buy a business or start a business?

There were pros and cons around buying a business and listed some for consideration, including:

Pros – Premises already set up; existing customers and contracts; easier finance as bank’s prefer to see historical trade; existing plant and equipment; utilising existing owners experience

Cons – Business may be too expensive; may have a poor reputation; old equipment which may need replacing; customer and staff loyalty, will they remain; there really is no business once current owner leaves

“Buying a business can be very expensive so it is important to conduct checks and balances to ensure that what you are buying is worth it and the business is sustainable,” he said.

“Do some research into the industry and demographics of your area.

“Is the business in an industry which can expand and grow as technology changes; does it have a limited customer base in your area; are there a lot of competitors in your area; how big is your area?

“If able to speak to staff, clients, competitors to get a feel for the business and reputation; perhaps work in the business for a couple of months to gauge how the business operates and if actual to what is on the financials appears realistic; is it a seasonal business and are you seeing it in a peak period.

“Get a second opinion, take the figures provided to an accountant and ask their opinion on the value of the business. Obtain a break down on the value of plant, equipment and stock this way you know how much goodwill is in the purchase price of the business.”

Mr Moller said if the premises where the business operates from were going to be rented, speak to the owner to understand how long the lease has to run, whether you can negotiate a new longer lease agreement and if the owner will renew the lease on expiry.

“Generally, for commercial tenancies owners want three months in advance for a rental bond consider that when organising funding for purchase or it may leave your working capital short which can be disastrous when taking over a business.

“There can be many pitfalls to buying a business so don’t rush in a buy the first one you see.

“Make decisions from the head and not the heart.

“However if you make the right, considered decision the upside of running your own business is unlimited.”

 

About the author:

With more than 20 years’ experience in business lending, Mark Moller is here to help your business grow. Mark understands that a strong relationship between the business owner and the bank is crucial to a business’ success.

During his career in banking, Mark has worked in many locations including Weipa, Darwin, Gold Coast, Hervey Bay, Kununurra, Blackwater and the Sunshine Coast and as a result has experience with very different local economies. With a personalised service you just don’t get from the big four banks, you have the comfort of knowing that Mark is a phone call away and has the experience and knowledge to service your financial requirements.

 

Join Geoff Lee, business banking manager for Auswide Bank, for a CCIQ-Auswide webinar, Merchant Beware, on February 23. Register here

 

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