Buying a business can be a great way to secure an established revenue stream while skipping the turbulence that comes with launching from scratch. While buying a business can fast-track your way to becoming your own boss, it’s essential to remember the purchase process can be complex.
In this article, we evaluate how to find balance between emotions and finances when searching for a business, and explore the key steps to achieving a positive purchase outcome.
Finding balance in emotions and finances
If you’re considering purchasing an existing business, first ask yourself – why?
Whether it’s security, income, family time or control over your own destiny that you seek from becoming a business owner, it’s crucial to identify these desires and expectations. Becoming a business owner involves having to satisfy personal and financial goals. While it may be a hard pill to swallow, these can’t be separated. Coming to an understanding with this principal will lead to a more positive outcome on your search for a business that blends with your lifestyle and fulfils your goals.
“There is no point buying a business that you love if it will send you broke, and there is no point buying a business that makes a lot of money but you hate it, because you will send it broke”.
Finding harmony between financial security and your personal goals is the biggest obstacle on the journey to business ownership. Our experienced team at Southshore Finance understand the emotional and financial aspects need to be balanced in these priorities and can help to guide you as you navigate these transformative decisions.
Get your finances in order
Once you have made to decision to begin searching for a business to purchase, there are several steps you should take to first determine your financial capability:
- Make sure that any payment deferrals under COVID-19 have been cancelled and payments are up to date.
- Close/reduce limits on credit cards and other personal facilities as these can have a significant detrimental impact on your “capacity to borrow”.
- Build up your cash reserves, whether that be held in an offset account or by making additional debt repayments.
- Most importantly, seek a no obligation assessment of your finance capabilities from an experienced commercial finance broker. Having a clear picture of your borrowing capacity will be invaluable at the negotiation table.
It is essential to remember that it is not possible to get a pre-approval of finance for a business purchase, unlike a property purchase. There are just too many variables in business funding which make a pre-approval unworkable. However, it is possible to determine the boundaries that you are operating within, which is recommended to ensure that you are investigating businesses within your reach.
Find a business for sale
Employ the services of reputable, professional business brokers, and also seek advice from as many other knowledgeable sources as possible, such as your commercial finance broker, accountant, lawyer, and others that you may know that have experience in business.
While there are many great websites, directories, online forums and even Facebook Groups dedicated to buying and selling businesses in Australia, always check with your professional team before any approach.
Conduct due diligence
A vendor may not release pertinent information until the offer has been accepted, making due diligence problematic. It is critical to have the right team on your side during this time to recognise and raise with you any areas for concern. Any issues should be addressed in the Offer to Purchase and the contract dependent on resolution.
Offer to Purchase
It is important that the ‘conditions’ are correctly worded and provide you reasonable protection. Typical conditions include due diligence, finance, lease on premises, plant and equipment to be in good working order, and transfer of IP. A good business broker will prepare an Offer to Purchase that provides protection to both vendor and purchaser, but it is vital to remember that the business broker is employed as an agent of the vendor. If in any doubt, engage the services of a good commercial lawyer.
At Southshore Finance, our business finance specialists can help to guide you through the process of buying an established business. Our expertise includes outlining the finance possibilities available to you and establishing your financial boundaries given your personal circumstances. For an obligation-free phone consultation, contact us today.