Preparing To Buy A Business
Buying a business is a considerable investment and one that comes with its fair share of risk. But getting to be your own boss can be deeply rewarding, too. Here are a few tips from the team at Spinach on preparing to buy a new business.
Think About Your Motivations
Ask yourself: Why do I want to buy a business? Everyone’s probably looked at their boss at some point and thought, ‘I could do this better’. But when you’re the one sitting in the driver’s seat, you begin to realise that things aren’t so simple. Maybe you’ve had enough of your job and want more financial independence. Perhaps you’d love to spend your time doing something you’re really passionate about. Maybe you want to maximise your potential and be more tax efficient. The benefits of owning a business, though, can come at a real cost. When you’re running your own business, you’ll probably end up working longer hours, including on holidays and weekends. That’s why, before you leap such a significant investment, you want to thoroughly understand your motivations for buying a business and whether they’re worth the costs.
Be Sure That You Understand The Business
The single most important thing when it comes to buying your own business is that it must be within your sphere of knowledge. For instance, if you’ve never worked in dentistry, you shouldn’t buy a dentistry business. Your new business needs to be something that you understand inside out. This doesn’t mean that it’s impossible to succeed in an unfamiliar field, but it is unlikely. The people who have made this work have usually been very confident and laboured extremely hard to succeed. In addition, if you already understand your business’ area in detail, a lot of your due diligence is done for you, saving you time and effort!
Learn Basic Accounting, Too
One thing you need when you’re looking at buying a business is a basic understanding of accounting. For instance, you should be able to look back on the month and know whether your gross profit has gone up or down. While getting advice from an accountant is important, you should be able to have a basic understanding of what you’re looking at before you get to buying. If you’re engaging a specialist to assess every business you look at, browsing will quickly become very expensive. Plus, when you outsource your accounting to an external accountant or software like Xero, you won’t understand the business’ books in as much detail as if you were making your own spreadsheet. An understanding of accounting will also help you avoid overpaying for your business.
Make A Business Plan
A business plan is critical if you need a loan for your business. It will help your lender understand the extent of your knowledge and your future goals. Ideally, you’ll want to work with your accountant to make a cash flow forecast, too. Your business plan will explain what you’ll be doing, and your cash flow forecast will show the outcome of your actions. Your business plan shouldn’t just be a one-off. It’s your map for what you’re working on and how you’ll get there, so you should make it an ongoing process, year-in, year-out.
It’s easy to look at a few businesses, lose your patience, and rush into buying a business. But this isn’t an urgent process. It’s more important that everything stacks up. Do you understand the business? Do the numbers add up? Are you paying the right price for it? Are you passionate about the product or the service? Once all of these things are aligned, choosing the right business will be a breeze. Once you’ve decided on a business, then you can get in your lawyer, accountant, and financial advisor to make sure you’ve not missed anything important. Found the right business and need the capital to make the purchase? Spinach can help. We’re a business loan provider who will give your company the financial energy it needs to get growing. To learn more about how we can help you with your dreams of business ownership, get in touch with us at 0800 774 622 today.