Planning to Buy a Business? – Look out for the Warning Signs.

Sacking the boss and buying your own business is a dream for many, but if you don’t ask the right questions it could easily be a nightmare.

Ask yourself whether you are buying a business to get a salary, a lifestyle or do you want to build up a business?

Whilst passion is a great starting point, it is just one part of the puzzle. – There are many failures because people don’t do their homework.

There is the man who bought a licenced liquor outlet without enough capital, the newsagency buyer who had no idea about the hours needed to put in and someone else  buying a café restaurant without understanding the myriad of legislation requirements relating to health, food handling, licencing, employment and taxation matters.

Some of the problems can show up at a first glance at the business’s records. Are sales falling because new competition has appeared? Is there a cash shortage in the business and what are the reasons? Is the owner drawing too much, are suppliers being paid too much and are customer receipts falling behind?

Scrutinise the balance sheet with the help of an accountant or a good business coach or business consultant. All the figures need to be crunched. Understand all the costs in the business from purchasing goods, salaries, leases, insurance and the various other overheads that every business incurs.

It is easy to get carried away with the romance of running your own business. Be prepared to walk away from the deal if the current owner is not forthcoming with information on the business.

The current owner might say “look, I know the financials say this, but here is the real figure”.

“Buying a business is not unlike investing. Only buy a business that you understand, or be prepared for surprizes”!

Last, but not least, develop a strategic business plan with professional help for the next 3 – 5 years that also includes an exit strategy.