Before You Leap
You invest a great deal of money when you purchase a business, it is important that you know what you are buying.
- Is the location good? (i.e. access, parking, visibility)
- What is the sales pattern year by year and month by month?
- Is the pattern seasonal or related to some business cycle?
- Do the records show that the rate of turnover is in line with what the current owner states?
- Is the stock old or unsaleable?
- Has the stock level been run down?
- (A low level of stock will mean you need additional finance to build up to a reasonable trading level)
- Will you be able to continue buying from existing suppliers?
- Will you be able to increase sales with current resources?
- Are new developments going to commence or open in a nearby location which could affect your trade?
- (Visit your local council planning division – Remember that any new business is an extra competitor)
- Is the business:
- Remaining static?
- What are the unique competitive advantages of the business?
- Do a small percentage of customers represent a large percentage of sales?
- Will you have the same level of expense?
- Is the business going to give you sufficient income?
- Is the depreciation claimed for reasonable?
- Do you understand the terms of the lease?
- What would a shift in sales have on your costs?
- Is the stock figure shown a true value?
- How have they valued the stock?
- Are the profits equal to the risk?
Milage May Vary
This is by no means the total list of questions you need to ask yourself however it is a starting point. You need to get professional assistance to ensure that you understand the ramifications of all actions taken.
Important questions to ask :
- Why do I want to buy this business?
- Will it do what I want?
- What is the real price?
- Am I prepared to pay this price?