HOW TO GUIDE Buying a business : simplebooklet.com

Thinking of buying your own business but don't know where tostart? Our guide will take you through the entire process fromdue diligence and determining the value of the business tofinalising the sale and managing your new business. Learn howwith Congdon Fuzi today.Buying a business requires thorough research. It's important thatyou have a deep understanding of the business and its financials.Proper due diligence is necessary for an accurate valuation andto avoid any unexpected issues in the future. Let’s look at an overview of the due diligence process and eachof the stages you’ll need to work through. HELLO THERE I’M PAUL CONGDONTheAuthor

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Proven conceptWhen you buy a business, you can see straight away whether it’sa viable business or not. Unlike new companies that need time toensure their product or business model works, an establishedbusiness has already undergone this important stage. When youbuy an existing business, you can avoid this step entirely, assomeone else has already built the business.PROSLower initial operating costsWhen buying an existing business there are lower initialoperating costs. You can avoid the expenses associated withsecuring a location, gathering supplies, and finding your firstemployees, which leaves more cashflow to focus on aligning thebusiness with your vision and leveraging existing momentum.Lower-risk financingEstablished businesses are typically regarded as lower risks tobanks and potential investors. This is due to their proven trackrecord, which provides insights into future performance. Thismeans lenders often consider them to be safer bets forinvestment.Intellectual property valueWhen you buy a business, it’s common to also buy the intellectualproperty. Sometimes, the intellectual property can be worth morethan the business itself. Think of technology companies as anexample.

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Higher upfront purchasing costsWhile buying an existing business may mean lower operatingexpenses, it's important to consider the financial aspect of buyingone. When you purchase an existing entity, you're not only payingfor the customer base, branding, equipment, and intellectualproperty, but also the substantial time, effort, and investment thatwent into building the business.Buying a business can sometimes cost you more than starting anew one of the same kind, particularly for well-established andprofitable businesses.CONSLack of company knowledgeWhen you build a business from the ground up, you gain a realunderstanding of how it works and the dynamics of the industry itoperates in. However, purchasing an existing business presents adifferent set of challenges. The need to quickly learn and adapt tothe way the business runs can take time and effort. Adding intellectual property into a business can enhance its worthand potential for growth. By leveraging the acquired intellectualproperty, companies can gain a competitive edge, expand theirofferings, and explore new opportunities in the market.With the increasing importance of intellectual property in today'sdigital age, recognising its value and managing it can lead tosignificant business advantages.

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Employee resentmentWhen buying a business, an important but often missed issue isemployee resentment. Often, employees feel connected to thebusiness and the way in which they work. Meaning, they may bereluctant to embrace new leadership or changes to the way theydo things. Seeing this and working with employees throughchange management is important for the new owners of thebusiness.Unknown risksDiscovering hidden problems during the due diligence process isimportant when buying a business. However, no process is perfect.Whether intentionally hidden or not, there is always a possibility ofbuying into a problem. It could range from simple equipmentreplacement to complex issues like a legal action. Once thepurchase is completed, these problems become yours to resolve.

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Before making your decision to buy a business, it is important to conduct duediligence. This process involves conducting thorough research to ensure that thebusiness you are considering is a smart choice. By doing so, you can accuratelyassess its value and minimise the risk of any unexpected setbacks. Let's exploreeach aspect of the due diligence process in detail.When it comes to buying a business, being well-informed about your industry isimportant. To ensure you make an informed decision, consider these questions.Who are the target customers?Knowing your potential customers is important to the success of your business.Understanding their preferences and needs will help you structure your offeringseffectively.Do the target customers align with the business's current demographic?Ensure that the business you're considering aligns with the needs and interests ofyour target customers. A strong match will increase the likelihood of success.Who are the primary competitors and how are they performing?Researching and analysing the competition is important. Understand your rivals'strengths and weaknesses to position your business correctly within the market.By answering these questions, you will gain insights into the potential growthopportunities and success. Discovering your industryUnderstand the real potential of the businessUncover the true potential of the business you’re looking at. Don't leave potentialprofits on the table. Evaluate the business's longevity and explore the opportunitycosts of your investment. Is there a better option for you.

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It’s important to work through the finances and assets of the business. Think of itas a financial health check. Doing this confirms that you are paying a fair price forthe business and it provides valuable insight into its performance.Financial Statements: Start with a review of the financial statements from the pastfew years. This will give you a clear picture of its financial stability and future.Physical Assets: Then assess the value of tangible assets such as machinery,buildings, property, and inventory. This will help you determine the overall worth ofthe business and its physical assets.Other Assets: Next take into account the value of intangible assets such asintellectual property, copyrights, and patents. These assets can significantlycontribute to the overall value and potential of the business.By carefully working through the finances and assets, you will be in a much betterposition to make informed decisions. And you’ll be a lot closer to understandingwhat the business is worth.Evaluate Finances and AssetsVerify the seller and their claimsIt’s important to ask for evidence to support the seller's claims. Don't simplyaccept what the seller says without the right support to valid the claim.

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As you work through your due diligence it’s important to assess potentialcompliance issues. By doing this, you’re able to make better decisions andavoid future complications.To start with carefully examine all documents regarding leases, insurancepolicies, and any other legally binding agreements. Make sure they’re validand current. As well as the documents above make sure you also have any othercompliance documents in place that may apply to your particularcircumstance. There are unique aspects to every business and purchasesituation.By working through your legal and compliance process you can continuewith confidence knowing you have reduced your risks and created a pathwayfor easier transactions.Review legal information to ensure compliantConsider the seller’s liabilitiesWhen buying a business, it's important to carefully consider the seller'sliabilities. Outstanding debts and obligations can potentially decrease thevalue of the business. It's also important to be aware of any employeeentitlements or other liabilities that may be transferred to you as the newowner. Make sure to ask about these factors before making a decision.Review current customers and suppliersLooking at the current customers and suppliers is important. It's importantto evaluate the state of your relationships with them. A business with asubstantial customer base and trusted suppliers has a competitiveadvantage.

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Understanding the business profile involves looking at key aspects of thebusiness to determine if it’s managed well and is in good health. To do thiswork through the following factors.Market conditions: Evaluate the performance of competitors and the overallmarket to understand where the business sits in the market.Sales information: Look at, and ask plenty of questions regarding the salesreports and forecasts to understand how the business generates revenue.Business history: Explore the history of the business. When did it start, whydid it start and what has changed from that point until today. What lessonsdid the business learn along the way.Procedure documentation: This is a really important part. Work out if thebusiness has complete documentation covering its processes, procedures,and workflows. If not then this knowledge simply resides within the ownerand employees.Business plan: Understand whether the company has a working businessplan to guide the way it runs it’s business.Evaluate the business profileEmployeesYou need to remember that when you’re buying a business you’re bound bythe relationship that each employee has with the business. For example,you’re now responsible for long service leave, redundancy and the particularterms of each employees contract. Therefore it’s really important that you work through and understand eachemployees contract and the nuances within.

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It’s important to understand whether you’re buying the company or the assetswithin the company. An easy way to determine the difference between the two iswhen you’re buying the company you’re buying everything that sits within thecompany. When you’re buying the assets you’re buying an itemised list of assetsthat sit within the company.Remember, if you’re buying the company you’re also buying the history of thatcompany in terms of risk and potential claims. Buying a company v buying the assets of thebusiness

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Your next step is to determine the value of the business. Of course the seller willhave a number that they have calculated, but it may not be in line with the truevalue of the business. There are several ways to determine the value of a business. Remember, you don’thave to pick just one, you can use a combination to arrive at an accurate and truenumber. Let’s look at 5 different valuation methodsCurrent market value: Look at the state of the industry and comparethe business to others within the industry.Return on investment (ROI): Work through the business forecast andpast performance to determine how likely it is to meet expectationsand decide if the asking price is fair.Business asset value: Calculate the worth of the business based on itstangible (equipment, client base, property) and intangible assets(intellectual property, brands, reputation).Cost of starting from the ground up: Look at how much time andmoney it would take to start the same business from the beginning asa guideline for valuation.Future profits: Consider the potential for growth and profitability. Abusiness with a proven track record of high profits is usually worthmore than one with narrow margins or minimal profit history.

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Assets: All the assets of the business, including buildings, land,equipment, inventory and cash in the bank.Liabilities: These include debts and employee entitlements. Goodwill: The value of a business’s reputation. If the business is viewedpositively, it can increase the value compared to one that has a negativereputation.Commercial lifespan: If things continue as they are, how long can thebusiness be expected to remain operational. WIP: The active, outstanding contracts and projects the new owner will inherit. It’s often a good idea to ask a third party to look at the business you’reconsidering. An accountant, business advisor or broker can conduct anindependent valuation. They’re trained in this discipline and they can beobjective in the way they look at the potential business. Here is a look atwhat they’ll be reviewing: Get an independent valuationCheck the contractA performance clause that clearly states the minimum takings ofthe business in the period leading up to the sale and settlement.A condition that guarantees all representations made by the sellerare accurate, written or otherwise, as well as one that ensuresimportant contracts are transferred to you after purchase.A restraint of trade clause that prevents the seller from opening asimilar business in the same market for a certain number of years.A material adverse change (MAC) clause that enables you toterminate or renegotiate the transaction if circumstances negativelyimpact the business before the sale. We would suggest you ask your solicitor or lawyer to look through thecontract to ensure that you understand the details of the contract.There should be a particular focus on the following areas:

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Clear ownership of the business, with no restrictions or limitations.The right to transfer ownership of the business to you with noissues.It’s important to ensure that the business is free for you to use. Checkthat there are no potential issues with other entities having copyrights orintellectual property related to it. Make sure the seller has:Make sure you have the right to the business namePay for the business in stage It’s quite normal to structure the payments of the business you’re buyingover a period of stages. This allows the payment process to proceed at apace you’re comfortable with against a set of agreed milestones.

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Now that you’ve worked through your due diligence, it’s time to finalisethe sale. Let’s walk through each of these steps. 1. Make an offerWith due diligence done, it’s time to make the decision, whether to buy ornot. If you decide to go through with the purchase, you’ll need to make anoffer and begin negotiations. Once you’ve agreed a price, make sure youhave a contract drawn up to formalise it.2. When you sign the contractMake sure both you and the seller have a copy of the signed contract(and any other signed documents). After signing, you’ll need to pay yourinitial deposit. Again, make sure you get receipts from the seller. 3. After signing the contractImmediately after signing the contract, you’ll want to submitapplications for the transfer of the business name to you. You’ll alsowant to ask that all licences, permits, certificates and other registrationsbe transferred. 4. Create and measure business goalsOnce the sale is finalised and you own your new business, it’s time to startlooking to the future. Lay out your goals for the business, and make themclear and specific. Then, start working towards them and track yourprogress.

HOW TO GUIDE Buying a business

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