Buying a Business

Most of the businesses for sale with us are valued on the following;

• The amount of money they earn.
• The desirability of the industry.
• The associated risk factor.

Higher prices will be paid for businesses in more desirable industries that are operating in a market perceived as low risk. These types of businesses are in strong demand. Therefore the value of the business will be greater than for one in a less sought after industry and perceived to have a higher risk factor attached to it, despite the fact that both businesses may make the same amount of money.

Most small owner-operated businesses are valued according to the cash surplus available to the owner. Depending on the industry this will vary. The amount will depend on factors such as the industry, location and length of time in business.

Larger businesses are valued on either a return on investment (ROI) or a price to earnings ratio (PE). Once again this will vary depending on the industry and the amount of net profit generated by the business.

When you have your first meeting with one of our business brokers they will give you an overview of values of businesses within the industry sectors of interest to you.

Some industries are very sought after and newly listed businesses sell quickly. To ensure you are aware of new listings we can send you an automatic email with details of any new listings that match the criteria. You can set up your alerts here:

If you are serious about buying a business you should make an appointment with one of our specialist business brokers who is knowledgeable in the industry sector that interests you. Our business brokers specialise in the sale of businesses in which they have prior industry experience thus giving you access to industry-specific knowledge. Your broker will ask specific questions in order to find the business that is best suited to your requirements. And dont forget to search for businesses for sale by using the LINK search bar.

You will be asked to sign a Deed of Confidentiality before receiving confidential information on any business you are contemplating buying. This protects the owner of the business by ensuring information you receive will be treated as confidential and not passed on to other parties. Business owners want to be assured that the information given out to a pre-qualified buyer will be treated in confidence.

Once you have decided to buy a business you will benefit from an initial meeting with one of our brokers and they will have your name in mind when any new business becomes available.

When you initially look at a business certain information will be supplied. However in some cases the owner of the business will be reluctant to reveal too much about the business until an offer is made. Many aspects in the operation of a business are commercially sensitive and confidential, thus a business owner would not be wise to disclose all until a prospective purchaser has indicated a serious intention to purchase by making a conditional offer.

A conditional offer is normally subject to the purchaser performing due diligence, a process whereby you as the purchaser requests, for scrutiny, specific information on the operation of the business. The owner will supply this information under due diligence. The buyer must maintain the strictest of confidentiality through this process and must not disclose any information to other parties with the exception of any professional advisors they are using in the process.

The due diligence process is for the benefit of the purchaser, giving you time to complete the verification process. If satisfied with the end result the agreement proceeds and you become the proud owner of your new business. If however you are not satisfied with the results of the due diligence, then the owner is advised accordingly and the agreement comes to an end. The deposit money held in trust is refunded in full.

Before you begin looking to buy a business the first step is to work out what money you have available. There is no point in looking at businesses for sale that are beyond what you can afford. Calculate how much cash you have available and what other assets such as property you could borrow against.

When dealing with a business broker tell them how much you have to invest, then they will direct you to suitable businesses within your price range. The business broker will also know which businesses for sale are more suitable to finance, or if the current owner is prepared to finance some of the purchase price. If the broker knows what funds you have available, this will help them to help you.

With some types of business it can be difficult to borrow money using just the business as security, due to the difficulty a bank may have in securing its loan. i.e. a retail stores asset is the stock which it is constantly selling off. Therefore the bank would not have any actual security. If you have a house or investment property you may be able to use this as security for a mortgage to buy the business, thereby requiring very little actual cash.

Once again, buying a business through a broker will help you in this process. The business broker will explain the process to you and guide you through it.

The business broker will prepare the contract of sale for you. This is the document used for making an offer to purchase the business and needs to include special conditions to protect you throughout the process. Likewise the owner of the business will want to know that the confidentiality of his business is protected through this process.

The agreement used contains conditions that protect you, the purchaser and also the owner of the business. The document details information regarding the business along with the price you are offering and the special conditions relative to the offer. At this stage you will also need to pay a deposit. If you are buying through a licenced Real Estate company such as LINK the deposit is held in a trust account until the agreement becomes unconditional. If the conditions upon which you are prepared to buy the business are not met then your deposit is refunded in full without any deductions. The trust account is audited and operated under very strict legal requirements.

Before signing the agreement it may be advisable to have your lawyer review the agreement. When choosing a lawyer it is important to use one familiar with the process of buying a business. Business brokers are not qualified to give legal advice and likewise lawyers are not experienced in selling businesses. Your lawyer will be looking after your interests just as the lawyer for the seller will be doing for their client, and the agreement must be workable for both parties. Ultimately the lawyer works for you and you must have a say in everything that is done.

Once you have signed the agreement it is then presented to the business owner who will either accept it or make the necessary alterations before returning the agreement to you for your acceptance or further alteration. This is called negotiation and the agreement may go back and forth several times until both parties are in agreement. This is the work of the business broker who will liaise between both parties and often, through experience, bring solutions that can result in both parties reaching agreement.

Gathering all the information you need to make an informed decision should start with the basics.

Price - is the business within your budget and can you fund the purchase?
Location - is the business suitable for you and is it in a good area for this type of business?
Lease - how long is the lease and are there rights of renewal (ROR)?
Rent - how much is the rent and other associated outgoings?
Staff - how many employees (full-time or part-time)?
Income - how much money will you earn? How long has the business been operating?

We are often asked what the perfect business is. There is no perfect business as each business and industry has its own unique set of challenges for the owner. It is important to buy a business in an industry that you relate to and believe you can learn and be comfortable with. We have sold businesses where the owners have moved into an industry with no past experience but they could relate well to that industry. Look to buy a business with an eye towards what you can do with it, how you can improve it and how you can use your ideas and enthusiasm to make it more profitable and productive.

A new owner can sometimes see potential in a business that the current owner can't see simply because of the new owner's skills. Whatever the type of business, make sure that it will be fun for you and you will enjoy what you do.

It is important to have a business broker who is knowledgeable in the industry you want to buy into. Our brokers specialise in business categories that they have experience in, thus giving you a business broker knowledgeable in that industry and experienced in the process of buying and selling a business.
When you make contact with our company, ask for the broker who specialises in the type of business you are seeking to buy.

Once again, confidentiality is paramount and your business broker will arrange a time with the business owner for you to inspect the business.

A physical inspection of the business should come at a time when you have considered the financial information given to you, are satisfied with this and wish to proceed further. Remember however, that the owner of a business will be very sensitive about your visit. On the one hand they will want to provide you with all the information you require, yet on the other hand they will not want staff to know why you are really there. Please respect this sensitivity and have the courtesy not to embarrass the owner.

There are four main reasons:

• There is a large failure rate in new business start-ups whereas an existing business has already shown that there is a need for that product or service.
• Financial records on the business are available so you can see if it is making a profit and what spare cash you should have to live off and pay your financial commitments.
• The existing owner of the business will in most cases stay on for a period of time to train you. This enables you to learn a new industry and to share their knowledge and experience.
• It may be easier to borrow money as the business has an established track record to cover debt servicing costs.