Basics of buying a business?

[Piston Broke]

Being under a franchise will substantially reduce those risks, however, you will need to understand what you are buying into and the contractual arrangements that you will be forced to comply with.

And it may substantially reduce profits.
As they get paid first, and basically you work for them .

I agree that franchises can be a safer option, but if you are buying an existing business, with a proven track record of turnover and profits for a number of years, then there is a good deal of safety in this.

Any potential buyer needs ensure that they have undertaken their business plans and know how much time and money they can devote to it.
No different to buying IP's.

This is easy to say, but in reality it's not that simple or easy.
chilliblue it's very different to buying an IP.
And it's very easy to fudge numbers on a P/L and balance sheet.
An experienced operator will look at the proposition as a whole and make sure everything "fits" in with everything else like a jigsaw puzzle.
Most people will fudge one piece, but wont make it fit with the others.

Passion? Unless you have a passion for managing & operating a business & dealing with people you'll fast realise life is very short.

 

[Aaron Sice]

Perhaps another thing to consider when purchasing a business that is often overlooked is the value of IP (Intellectual Property).
I know a number of business that are astoundingly successful and would look great on the books but would fail miserably as soon as the owner walked out the door.
I'm amazed at how many people look at a business and say to themselves, "sure that guy has been in business for 15 years and does OK, but I could do so much better so I'll buy it". They seem to overlook all the trial and error the last owner went through over the years perfecting his offering.

great post and kudos.

IP in my business is huge - all people would be buying from my biz is a "client roll", much like an REA's rent roll.

 

[Dazz]

no matter how many millions you make, you will always be answerable to someone.. Be it the bank manager, the tax office or the missus..

OK, I'm racking my brains and have come up with this ;


A bachelor of the landed gentry esquire kind, Commercial Property Landlord with no mortgages to speak of.


He'd have to go close to being pretty much "boss-free"....

 

[willair]

Selling a branded product to the motor industry. But he was good at it and everyone liked him.

Thanks,i think that's half of it if you are good at what you do,but as my old accountant has always told me,if a business is that good why are they selling in the first place,or they know something you don't...willair..

 

[Bird Dog]

great post and kudos.

IP in my business is huge - all people would be buying from my biz is a "client roll", much like an REA's rent roll.

Cheers Aaron..

One other classic example I've seen with this is Merger's and Aquasitions. All too often I see that 1 plus 1 does not equal 2. The acquirer fails to recognise the intrinsic value of corporate IP and are left bleeding 12 months down the track when all the good staff have left. It happens all the time in IT..
The trouble you would have when insuring your business would be to accurately quantify "your true value" to the business? It's near on impossible.

OK, I'm racking my brains and have come up with this ;


A bachelor of the landed gentry esquire kind, Commercial Property Landlord with no mortgages to speak of.


He'd have to go close to being pretty much "boss-free"....

Perhaps.........but might you still be tied to Lizzie....

And this still doesn't disqualify the ATO ....or the highest power in the land...Mrs Dazz....

 

[Dazz]

as my old accountant has always told me,if a business is that good why are they selling in the first place,or they know something you don't...willair..

Hi willair,


There's oodles of valid reasons why people sell thriving businesses ;

• Death in the family
• Spouse has contracted cancer
• Place is too small for them
• Banks are calling in some guarantee due to some change in policy
• Retirement - cash in the chips and go
• Change of CEO - new broom gone wrong

Was your old accountant wealthy ??

 

[BayView]

A mate of mine was selling his business once and a couple of prospects got too hung up in accountant's figures, looking for fraud, looking for nits with a fine toothed comb, that they let a good opportunity pass.

Good point SF.

This would be akin to paralysis by analysis with property investors (who haven't bought yet) I suspect.

I think that when analysing figures of an existing business, you certainly need to factor in a bit of "fudging" of figures, but tax returns are a good indicator.

 

[willair]

Hi willair,


There's oodles of valid reasons why people sell thriving businesses ;

• Death in the family
• Spouse has contracted cancer
• Place is too small for them
• Banks are calling in some guarantee due to some change in policy
• Retirement - cash in the chips and go
• Change of CEO - new broom gone wrong

Was your old accountant wealthy ??

Yes he is Daz,he spend most of his working days out the back of Inala on a old grape farm living in a fibro house raised 5 kids all went on too uni so in that way so he was very rich ,sold that to developers ten years ago then moved down too Tasmania prior too the boom they had down there very smart man nothing in comm property he just likes rentals properties on corner block inner city blocks ,,and because he was very good at timing property was only onesideline he would buy problem properties are turn them around,we use his daughter now as our accountant they become part of the family over time..funny part was the last few times we used him he would not take any money off me for his fee,he would just do the paperwork and have a feed with us have a talk for a hour then leave,afet all he saw when we first started and now..

How about yours Dazz is your accountant in that ball park

 

[WinstonWolfe]

A mate of mine in Brisbane bought a remote telecommunications tower installation and maintenance business from a bloke in Darwin. As the work was all over Australia, didn't matter where it was.

The guy had to sell because he was once out installing a new microwave dish on top of a remote mountain in central Australia. The helicopter made 1 more run to drop parts off after dropping the guy.

After that, the helicopter had mechanical problems and couldn't get back out to the mountain an hour later as planned. It took 12 hours to get another helicopter. It was a 40+ degree celsius day and the guy only had a 1 litre container of water. He ended up suffering kidney damage from exposure and dehydration, and was unfit to keep doing the job.

That business has been extremely profitable for my mate, but he spends a hell of a lot of time away from home.

 

[Dazz]

How about yours Dazz is your accountant in that ball park

Good story willair - thanks for sharing.

Nah, my accountnat is a bit doey and as dry as a cracker biscuit. Got about as much personality as my left sock. He does the books OK, is hopeless on most advice issues and is no good as a sounding board.

We've had him for over 10 years now, and he's seen us grow from being pip squeaks to smallish operators. He's pretty sharpish at setting up companies and trusts when we want to purchase something, but I think the quality of the docs and what the deeds allow leave a little to be desired. All up - he's rubbish.

He collects little replica bicycles and displays them on his office shelves. We thought about buying him one once, called him up over it and asked if the expense would be tax deductible. He said no - we said you'll get jack squat then. Never even had a coffee with him....

Had a chat to the "legal trust" head duck from Chan and Naylor....now there was a guy you could get stuck into. Impressed the hell out of me, but didn't take it far enough to actually scrutinise the paperwork, so couldn't go ahead.

Quite sad really....

 

[Sunfish]

as my old accountant has always told me,if a business is that good why are they selling in the first place,or they know something you don't...willair..

My original post was meant as a warning against getting too hung up on what the professional worriers (lawyers, accountants) are paid to say to you. True! the owner may have picked up on coming changes and (reasonably) want to get out, but that is why I also said you shouldn't "go looking" for a business. You should be taking advantage of opportunities of things YOU can see ahead.

If you've got the smarts (not sure how you get them first time round) you only take advice about the contract and the accounting as they pertain to you from these people.

My mate had bought a multi-million hobby farm and wanted to retire to it. Question answered. LOL

 

[reeco]

Awsome share BV.

I'm going through the motions now. You know what the say about running a business. It's not rocket science...it's harder.

I'm one of those silent partner types, who aren't silent...

 

[Ridin-High]

Reeco i much prefered your previous display picture, it was like a moose or something

random i know

 

[joycenmat]

This is great. I got allthe advice and could see exactly the point you were all trying to outline. I know a business is made of more than numbers there is also the IP attached to it.

I am leaning towards after more IP properties under my belt getting into buying businesses. I am proficient at MYOB and can read statements etc.

I am pretty practical i would always investigate and research a company. A bit like ethnography. The only way to get a good view of something!

I always look at businesses for sale and businesses that stayed sufficient during the GFC and ideas that are taking off. I researched numerous franchises and have had numerous ideas taken up by someone else only to see them become sucessful. (still not keen on a franchise due to all the restrictions)

I would love the opprtunity to have a mentor! I guess this site is the replacement guide.

In a year my boss wants me to run his company and then from there i will move into buying my own, preferably with someone else running it.

Even buy a business, spend a year or less on the business, then have it sufficient enough for someone else to run, i reap profits and then move onto another.

 

[chilliblue]

Good luck and if you need any help just PM.

 

[reeco]

Reeco i much prefered your previous display picture, it was like a moose or something

random i know

Cheeky bugga a guy with a Afro but close enough.

Best of luck JM. FlyingSolo is the best port off call if your looking for more info. The forum there is pretty neat. It's a blog and website also, so there's a wealth of information on top of all those that hang in the forums offering advice

 

[joycenmat]

Thanks Reeco. I just looged in and am having a look now. Also going to my local library and just researching.

I want to reseach trusts and also joint ventures.