Buying an Existing Business

Buying an Existing Business

When researching to buy an existing business it’s important to do a comprehensive review of the business’s accounts, operations and systems, reputation and the industry, or commonly referred to as ‘due diligence’ process. When we are helping our clients research a new business investment some of the common questions we ask in terms of financial health of the business include:

• Financial statements: Have you received certified copies of balance sheets, profit and loss statements and tax returns from the last three years? Don’t rely on statements generated from Xero or other accounting software programs.
• Valuations: Has a valuation been completed for the plant, equipment, and stock that the owner intends to sell? Are there any outstanding debts on these items? What was the valuation method and who did it?
• Bank Records: Do sales and purchase records reconcile to bank statements?
• Forecasting: Have you done a future cash flow projection and profit forecast based on past years results? What are the sales patterns year-by-year and month-by-month? Is there a seasonal pattern? Are you going to be buying in low or high season?
• Risk Management: What is the client to sales ratio? E.g. Do a small percentage of clients represent a large percentage of sales? And what is the risk to profits if those clients move on with a change in business management? Are there any large one-off sales that are unlikely to be repeated in the future that could impact profits?
• Prepayments: Has the existing owner received any pre-payments that should be turned over to you at settlement?

If you are looking to buy a business we urge you to get in touch with our friendly team so we can assist you with your research before locking in a large business investment.