Small Business Resource Power Point Series Factors in Buying a Going Concern
Be your own boss Many, many, people dream of owning their own business - but few actually realise that dream. If you’re one of the few, this PowerPoint will highlight some of the issues surrounding the initial start-up, with the main focus being on acquiring a going concern.
Buy or Create? So you want your own business. There are two basic choices – buy an existing one, or start up your own. This PowerPoint focuses on the first option, acquiring a going concern.
The plus side Provided you act with diligence, in buying an existing business you have the comfort of knowing the idea behind the business has been proven. Also, if the business has survived its first two years it’s arguably got over the ‘danger’ time, when most new businesses fail.
Immediate Cash Flow An established business should be generating a continuous, steady, cash flow. The amount of capital required to see you through the start-up period is more definable than is the case with a new business.
Loans & Finance Raising money to start a business is notoriously difficult. For an existing business however, raising capital can be more straightforward as there is a track record with supporting information.
Customers & Suppliers An established business will have established customers – even a hot dog stand has it’s regulars! The same goes for suppliers, you will not have to waste valuable time hunting around for the right suppliers.
Growth Potential How big will your business grow? Past accounts and reports will at least give you an indication of what to expect from the future. Forecasting is important not only for expansion, but for simply staying in business.
What Type of Business? This is a question only you can answer. It will depend on your skills, background, experience, interest and hobbies. Do choose something you have some knowledge of though, then go and find out more!
Finding your business Newspapers are a good source of businesses for sale, as are special interest magazines. Of course there’s always the direct approach too. Find the business you’re interested in and ask the owner if he’s considered selling.
How much can you afford? Are you going to sink your own money into this business? Banks usually like to see some ‘commitment’ from you, but there are other options available too. Don’t forget you still have to live! Your business must generate enough money for you to survive.
Finance Without doubt the biggest sticking point for most people. Options include: Bank loans Asset Sale Investors Credit cards
Bank Loans Only ever get a loan from a reputable company, now matter how much easier other sources seem. Local Councils often run small business clubs, and other members are a good source of advice on which banks to approach.
Asset Sale You could consider selling part of the business - a building say - to a friend then have them lease it back to you. Just make sure you have an agreement covering the lease in writing in case your friendship should sour!
Investors Generally more appropriate for a new business start-up, but it is possible to obtain investors for an existing business. Be cautious about involving family members as investors.
Credit cards Yes, but only with extreme care! Ensure the balance is paid off in full, every month, as interest payments can soon spiral out of control.
Pitfalls Pitfalls to watch out for: Undisclosed debts Overstated profits Overvalued stock Debtors who can’t/won’t pay
Dodging the Pitfalls Most importantly, use a lawyer experienced in business acquisition to guide you through the buying process. Also hire an accountant to investigate the businesses books.
Check out Why the seller wants to sell All debts you are taking on Any shareholders that exist Assets and stock All contracts for concealed liabilities
Conclusion Obtaining your own business is a lot of hard work and stress. Thoroughly researched and attentively done however, striking out on your own is sure to bring a great deal of satisfaction and hopefully, financial success!
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