Here’s what you need to consider when buying a business…

Here’s what you need to consider when buying a business…

Buying a business could be easier than starting one from scratch. When you buy a business, you have the advantage of being able to analyse the business’ past sales and performance history.

If the business has specialised equipment, it may be cheaper to buy the business with its existing equipment instead of starting from scratch because new equipment may be a lot more expensive to buy. You must make sure that the equipment is not outdated or old because you will end up having to buy new equipment any way then.

These are other factors you should consider before buying a business:

1. Do you have what it takes to be an entrepreneur? Not everyone can run a business. It takes commitment, courage and business acumen.
2. Do you have to take over the previous owner’s lease? If so can you run two sites simultaneously if you already have a business, or is the lease overpriced?
3. Have all the expenses been accounted for? You don’t want to find out after you’ve bought the business that they owe their suppliers money that they have not declared in their due diligence. You have to get a good lawyer who will commission a due diligence (an audit) to make sure you don’t get any nasty surprises later on.
4. Have you considered the law? Some merges and acquisitions are prohibited by the Competition Law of South Africa. The South African law encourages fair competition so if you try to buy up all your competitors so that you can be the only company customers can buy from, you will be contravening the Competitions Act.
5. Request a handover process. Instead of paying for the business and moving in the next day while the previous owner disappears forever, negotiate that the business owner sticks around for three months and hands over the business with formal training included.
6. If you’re taking on the previous owner’s employees, be transparent. Their relationship will be with you very soon, not the previous owner, so take the reins and initiate communication with them. Be transparent at all times, let them know what is happening and how it will affect them.
7. Is the business profitable? Only once you have had the due diligence will you know for sure whether the business is profitable, and just how profitable it is. Sometimes it makes sense to buy an unprofitable business, depending on whether you can turn it around.

Remember, when buy a business, you must get a good accountant and lawyer to do the due diligence (the auditing of the business) – this is one time, you really don’t want to skimp on the costs of paying professionals.