Buying a Business
Buying the right business can give you an established pool of loyal customers, seasoned staff and a healthy revenue stream — all without the hard work of building a business from scratch.
Unfortunately, not every business lives up to that ideal. An ageing business can be plagued by outdated assets, antiquated systems and hidden costs. Even worse, a change of ownership can see customers defect, goodwill evaporate and sales dry up, turning that revenue stream into a trickle.
That's why it's essential to understand exactly what you're buying and to make sure your new business is the right fit for you.
Step 1. Find the right business
There are dozens of business brokers in Australia, each with hundreds of listings on their books at any one time. So how do you know which is the right business for you?
Here are some of the things to look for:
- A distinctive value proposition that stands out from the crowd.
- Strong and growing revenue, with a fat book of forward sales if possible.
- Good cost control with healthy margins.
- Established and well-documented systems. Too many businesses are dependent on the knowledge and skills of the founder.
Step 2. Check under the hood
Once you've identified a prospect, detailed due diligence is essential. Naturally you'll want to see independently prepared financials and tax returns for the last three years. It's also a good idea to talk to staff, customers and suppliers to find out how the company is regarded and pinpoint any problems.
You'll also need to see a detailed list of assets and liabilities, along with copies of leases or other contracts, and details of any government licenses or permits needed to operate the business. Remember, too, to check whether the business is involved in any current or potential litigation.
Step 3. Do the numbers
It's important to do detailed financial projections before you buy. Put together a profit and loss and cash flow forecast for two years ahead, using conservative revenue assumptions. Be careful to include all the expenses of running the business, including finance costs.
Step 4. Arrange finance
If the numbers stack up, you're ready to arrange finance and go ahead. The more complete your business plan and financial projections, the easier you'll find it to secure funding. But don't forget to allow for working capital — too many new business owners start out under-capitalised, creating cash flow pressures from the beginning.
How to give yourself the best chance of success
- Choose a business that closely matches your professional experience. While many people dream of a sea-change as a café-owner or boutique retailer, the truth is that inexperienced operators face real obstacles in achieving success.
- Don't be afraid to negotiate on price. Remember, the price you pay decides your return. Pay $1m for a business that nets you $250,000 a year and you'll be earning a return of 25%. But pay $1.5m for the same business, and your return drops to 16.7%.
- Forecast your cash flow needs and create a safety net, such as an overdraft, ahead of time. It's always easier to arrange finance when your business is flourishing, rather than when you're under pressure and time is running out.
Talk to us
Our experienced Relationship Managers can help you make the right choices for your new business. Here are some of the ways IMB is different:
- You’ll receive personalised service from a team who are part of the community where you live and work, not a faceless call centre. Our Business Banking specialists have decades of experience helping businesses just like yours through good times and bad.
- We offer a full range of business solutions — from EFTPOS and overdrafts to leases and debtor finance — all at very competitive rates.
- We’re also one of the few commercial lenders to offer 15 year loan terms, so you can manage your repayments to suit your business cash flow.
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The information presented is of a general nature and is not intended to be relied upon as a substitute for financial advice. Lending criteria, terms and conditions, fees and charges apply.