A fairly common method of having a change of lifestyle and generating an ongoing cash flow is to buy an existing business. This option can work well for some people or it can be a very bad idea. Before getting into the mechanics of how you should go about buying a business, it’s important to be very sure that you and your partner are suited to running a business and you are comfortable operating the type of business you are thinking of buying. A serious reality check is needed before going any further.
If you believe that you have the personality, skills and desire to operate an existing business, the following hints are a useful check list.
- Check out the existing competition in the area. Is the market over serviced with similar competing businesses? If there are any new developments planned, are they likely to contain more competitors? Your vendor may be selling because there may be a major competitor moving in. Are price wars a regular event? They can seriously erode profits.
- Get a copy of the last few years financial records and have your accountant check them. Ask for your accountant’s assistance in assessing the business opportunity as it is an area where an accountant should have some useful knowledge.
- Check the operating hours. If long hours are involved, are you prepared to work them or will the business have to pay for additional staff to assist you.
- Are there particular skills required to run the business? Do you have these skills or can you acquire them? Be wary of getting into a business where you don’t have the necessary skills or your personality may be unsuited to the job. A reality check is really important.
- Remember that many popular holiday areas have major peaks during tourist seasons and quiet times during off seasons. Don’t be carried away by big sales during Christmas and Easter. You have to cover operating costs 12 months of the year.
- If plant and equipment are part of the sale, make sure it is in good working order.
- Have a solicitor check any leases involved and make sure there are no nasty surprises and you have security of tenancy and a reasonable time left on the lease. Ensure that there are no problems in transferring the lease or any licenses involved.
- Check with the local Council to ensure that there are no changes planned on or near your site that might adversely impact on the business.
- Be sure you pay a realistic price. Ask your accountant’s advice on the price. If it’s too cheap, find out why. There could be some problems.
- Make sure you have enough cash to cover unexpected downturns.
If you’re moving to a new area that you don’t know well, discuss your plans with the local Chamber of Commerce, Tourist Association or ETC (if there is one).
Remember there are plenty of people who have bought an existing business expecting that it would give them a reasonable profit only to find that it is a financial or lifestyle disaster. It’s easy to loose money if you are operating in an area where you don’t have a good knowledge of the business and industry.
If you are considering buying a business as part of a Seachange, have a look at our “Seachange” Section, as there are some useful tips for you to consider.