Buying a business can be a daunting task as it’s one of the biggest purchases you’ll ever make. We talk to lots of businessmen and women who are experienced in buying physical businesses such as convenience stores, newsagents and restaurants so we thought we’d share some simple tips to help you along the way. Key steps in the process are planning your finances and undertaking due diligence.
It’s massively important to do your “due diligence” before commiting to a purchase. This means investigating different parts of the business so you know exactly what you’re buying.
We would suggest doing the following:
- Get the last 3 years financial accounts. Look at the trends in sales, gross profit margin and profit. Think about what costs are in the profit & loss and whether you’d need to add extra costs (ie insurance), or whether you could save on costs (maybe salaries).
- Get the last 4 VAT returns. They’ll show you more up-to-date sales and purchases. Think about whether the trend is good or bad compared to the historic performance.
- Get till receipts. Many businesses won’t declare their full takings on their accounts. Don’t take their word for it – check the last week’s or month’s till receipts. Maybe spend a few days in the business and observe customer numbers.
When to walk away
The golden rule when considering all of this is that if you’re unsure, walk away. There’ll be other opportunities. Make sure that the business you invest your cash into is everything you think it is, and don’t leave anything to chance.