What to look for when buying a business

A quality business is also a major investment that lets you build a saleable asset for the future.

Want to run your own show? Good for you – but there's a lot to weigh up in buying a business. Here are five essential points to consider to know if you're making the right decision.

Buying a business is an exciting step, and one that can do more than provide you with a healthy source of income. A quality business is also a major investment that lets you build a saleable asset for the future.

However buying a business is no Sunday picnic. No matter how appealing a business may look and how keen you are to get your hands on it, don't rush in. There are plenty of duds around – and there is no shortage of sharks trying to hawk fundamentally flawed ventures.  

This is why it's smart practice to invest plenty of time researching a business opportunity. Here are five key issues to address when you're thinking of buying a business.

1. Is it a growth industry?

It's absolutely essential that any business you buy has strong prospects for the future. And that means being part of a growth industry.

Technological and structural change is impacting whole industries – the struggles faced by Australia's car manufacturing industry is evidence of this.

Mortgage broking is one industry enjoying consistent growth.  According to the Mortgage and Finance Association of Australia, mortgage brokers are responsible for 52.6% of new lending in the residential home loan market. In the last four years, mortgage brokers have doubled the value of their new lending.

As Australians become increasingly time poor it's likely mortgage brokers will continue to expand their market share.

2. Does the business have a strong brand?

In small business, brand is everything. A well-known and trusted brand lets your business compete with the big end of town. And in a competitive commercial world, this can underpin the growth and expansion of your venture.

Yes, it makes sense to look at the turnover and revenue of a business but remember, these figures relate to the previous owner's efforts. If the business has a strong brand you don't need to rely on the goodwill of a key person, and this gives you far greater likelihood of achieving similar or better results when you're at the helm.

3. Know exactly what you are buying

Ask the current business owner for a list of everything that comes with the business like plant and equipment, ask to inspect the items and check everything is in working order. Review the depreciation schedule for their written down value.

Enquire too about the level of support you will receive as you transition to taking over the business. It is common practice for the current owner to stay on for a set period to show you the ropes and introduce you to existing customers. Some vendors will expect to be paid a wage during this period.

One of the advantages enjoyed by Mortgage Choice franchisees is a high level of support including mentoring and an accreditation program.  This support doesn't end once you are established in the business. Mortgage Choice provides ongoing professional development and in-field support to help your business reach its full potential.

4. What do your experts say?

You don't have a team of experts? Now's the time to pull together a team of advisers to guide you through the process of buying a business.

Never commit to a purchase without seeking the advice of someone you trust who has relevant business experience. Your accountant is likely to be a good source of support here. Certainly don't commit to the business until your accountant has examined the numbers. This is critical.

Never sign a contract of sale until your solicitor has advised you. If you feel under pressure from the business owner to bypass any of these measures, walk away from the deal.  

5. Is it really for you?

If everything about the business is looking positive at this stage, ask yourself this key question: is it really for you? Does the business fit your personality, your temperament and your interests? Is there scope to build the business up into something bigger and better? And ultimately can you afford to buy it?

These questions can involve some soul searching, and it pays to be honest with yourself. Buying a business could turn out to be the best thing you've done. But if you have any doubts upfront, give yourself time to think the decision through.

For more details on buying a business in a growth industry – and the support that's available to you as a Mortgage Choice franchisee, call us today on 1300 650 330.

Posted in: Business tips

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