What makes a business a good buy? Here are a few essential items to put on every buyer’s checklist.
Best business buys
After last week’s list of 10 good reasons to sell, there have been some requests for the other side of the equation – what makes a business a good buy.
One suggested by a reader is when the seller proclaims: “I have just received substantial income tax bills that relate to income not returned in the company I am selling!”
For buyers who are not accountants, this translates to the business being so successful the owner is in debt to the tax office for the tax owed on substantial extra income he has pocketed. While this is an excellent selling point, there are other things that a potential business owner/operator should tick off before signing up for the bargain of a lifetime.
Profit is to business as water is to plants, so buying a business that is highly likely to produced sustainable profits into the future should be high on everyone’s shopping list. After this item, the business buyer’s shopping list tends to get much more personal.
But here are a few critical requirements that should be checked off on everyone list.
The business is one I understand and can provide the required leadership, energy and inspiration for many years to come. There is a reason that so many successful people say that it was their passion that was the source of their success, it is because without passion the temptation to do what is easy instead of what is right can be hard to resist.
The business is located where my family and business partners and I are prepared to live for many years to come. The boat-hire business on the remote island may look more like play than work, and be selling for a song, but the life of a business owner goes beyond business hours.
If life does not go to plan, then I will be able to sell the business for a reasonable price without much difficulty. The key words here are difficulty and reasonable. Given that the average time to sell a business is about six months, it is important to consider how the business operation would continue in certain circumstances, perhaps key person insurance and business continuity insurance need to be considered.
The business entity does not carry any major obligations from its life prior to my ownership. A business is a legal entity in its own right, it carries its past into its future regardless of ownership. Subsequently a key thing to check for is potential legal obligations to the tax office, customers, suppliers and various other authorities.
The business is selling at or below a reasonable price for this type of business. Quite simply, you need to know what the going rate is for particular businesses in particular locations. Use sources such as the BizExchange Index which provides a quarterly summary of private business valuations in Australia.
These five requirements should be on every business buyer’s shopping list, but there are also plenty of other questions to ask before taking ownership of your next business. A more detailed Buying a Business Checklist is available on the BizExchange website.
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