Don’t start a business. Buy an existing one!
Don’t start a business. Buy an existing one! Here’s what you need to know
Starting a business from scratch can be daunting indeed, so why not just buy an existing one? Not only is it safer, but you won’t have to go through a lot of laborious process necessary when starting from the bottom up.
Contrary to some belief, business legitimacy is not actually a crippling issue, especially since you can easily safeguard your investment by using personal properties securities register (PPSR). PPSR is a national online register that can provide information to help limit your risk when buying personal property.
There’s no doubt that buying an existing small business is a lot less risky, because unlike a start-up:
- The business already has a location, perhaps its own building, if it’s rented, perhaps there’s a few more years left on the lease;
- The business has an inventory and equipment;
- The business has employees, some of whom you may choose to keep
- The business has customers, most of whom are likely to stick with you (unless you bought a professional service business or practice); and
- Most of all, the business has a track record, you’ll be able to track its business books, tax returns and other records and get important insights on how much money you’ll be able to make.
That’s not to say that risk doesn’t exist. Although using personal properties securities register will ensure that you’re getting a legitimate property, things like good sales and complete success cannot be guaranteed. If you are negotiating to buy a business and you think that you’re getting a good deal, stay wary, there might probably be something heading down the road that might blow the business apart once it hits.
When checking a prospect’s business, consider the following:
Local business reputation.
Don’t put all your faith on the provided hard data. Check the library and assess the local newspapers going back at least three years. Is the business famous or active in the community? Has it been written up because of its good reputation? Is there a bad publicity? Visit the local police station and see if there are any complaints by or against the current owner.
Talk to the locals and hang out at the library, coffee shops, public parks or senior centre to talk to the old timers who are more familiar with the area.
Owner’s discretionary income, or ODI.
This is what’s left with the seller once the payment of his employees, suppliers, overhead expenses, rent and taxes are settled. If you don’t like the current ODI, or if you see that it’s declining yearly, watch out! The business might be going downhill. If it’s good, hold back on purchasing for a few months just to see if the ODI numbers are precise.
Political and demographic changes.
Consider the location. If lots of business owners in the vicinity are looking to sell their businesses, there might be a good reason. How is the community? Is the population skewing younger, or older? Is the population increasing, or declining? Visit the local Planning and Development Office to check if there are any planned zoning law changes that might change the “permitted use” of the business’s location.
