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Tips when buying a small business.

Updated: Jun 4

Swimming with sharks. Tips when buying a small business
Swimming with Sharks

When buying a small business what are the most important things you can do?

  

Buying Business Tips

  • Rule 1# Do your due diligence

  • Rule 2# Do your diligence then refer back to rule 1#

 

These essential rules will hold you in good stead with any business you may be considering to buy. The following are some important sub areas of due diligence you will also want to consider when buying or merging with a new business:

 

Identify the challenges and create opportunities within your own businesses existing culture, staff and roles. Consider ways to improve the existing culture, staff and roles within the new business you are considering to purchase by implementing the best from both businesses.


  • What are the costs and how much time will merge the two businesses require?

  • How will you retain your existing business and new business clients, while also minimising the risk of loss of these clients?

  • How will you be adding more value to existing and new clients than they received previously?

  • What potential new supplier relationships will there be and how will these impact your existing relationships?

  • Do you require non complete clauses (restricting the seller) within the business purchase contract? This should document timeframes and territory restraints.

  • How is the business valuation calculated? (Past earnings continuation, profit & loss, business tax returns, depreciation schedules etc..)

  • How will you purchase the business? i.e. Your funding mechanisms. Will the purchase be made with cash, vendor finance, personal borrowings etc. and will there be any milestone payments?

  • What is the best structure of the new business, taxation reporting, payroll and compliance?

  • Will you retain continuation of your own business branding or new branding? This goes across social media, logo's, business cards, signs etc.

  • Where is the preferred business location and sub locations and how to cost effectively maintain the existing footprint and service existing clients?

  • Do you need to update or change your technology, software and business process across both businesses?

  • What is your exit strategies for the new business?

  • What is the expected income, profit and loss, assessing the effort required and cost viability of the exercise vs. organic growth of existing business?


This above list is just the tip of shark errr iceberg when it comes to the different areas one needs to consider when purchasing any new business.


When I purchased another financial planning business the purchase was within the same industry that I knew, even then I've found the process both daunting and exhausting. I would expect even more due diligence would be required if the business was to be in a different industry than one's own.


In my experience the buying a small business involves all the above areas or diligence and implementation plus changing licensees, software, locations, residence, business structures, business accounts, changes in location i.e. moving to cairns from Sydney. It's been a massive task!


Very importantly the transition required increased communication with clients and staff and promoting the positives or the expansion. We also had to refurbish the existing premises and much, much more which has been now rolling out over the last 12 months.


12 month gone, with hindsight and on balance, I am happy with the progress the team, our clients and I have made.


The next 12 months our focus is on delivering even more value to clients; giving them greater convenience and reducing clients costs. This too is our business marketing approach because our clients are our greatest advocates and helping them achieve their goals sooner is do what we do and helps us achieve our goals sooner too.


This post was written by Me, as such they are my personal views and not financial or general advice.


You should always seek independent financial advice when it comes to choices about your personal finances. This is one area of your life where it’s worth paying for it to be done right.


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