Finding a business for sale may seem like a simple way to become a prosperous business owner however there are many pitfalls to be aware of. There are numerous financial, administrative and profitability factors to consider when you are buying a business. It is advisable to wait till you have the right skills to select a successful business and manage it properly.
When you are looking for a business for sale South Africa has a wide range of options to choose from. The business that you choose to buy will depend on your budget as well as your capabilities. When you are deciding to purchase the business or not here are a few questions that you should ask the seller.
Why is the business being sold?
It is important to determine why the seller is willing to part with the business. It is unlikely that someone is going to sell a business that is highly profitable. It is important to determine whether you have the skills and capital to resolve the challenges that the business is facing.
What about the financials?
When finding a small business for sale it is important to review the current audited financial statements. You should look at the most recent statements as older statements can be misleading. Without access to current statements there could be changes in the business that you are not aware of. You can double check the financial information by reviewing interim and bank statements.
Determining the cost of the business can be challenging however, there are numerous methods that you can use to do these calculations. While you can try work out the cost yourself it is advisable to ask your accountant for advice too. Once you have worked out what the business is worth you can compare your figure to the seller’s asking price. If the asking price is higher, you could try to negotiate a deal with the seller.
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On what does the income of the business rely?
If you are thinking of buying a business, review the profits of the business in detail. Does the income of the business rely on a few main customers? It is also important to check if any customers have agreed to special terms which will affect the cash flow of the business.
When looking at businesses for sale that relies on technology or equipment, it is important to assess the condition of the equipment. The maintenance and repair work will also need to be taken into consideration when you are deciding whether the company is a good buy or not. It is advisable to ask for expert advice when assessing technology and equipment.
The locations of the business
Location is another factor that is a vital when assessing a business for sale. Review the business’s lease agreement to check for any special conditions. Take a look at the duration that still remains of the lease agreement. It is also advisable to check the conditions of renewing the lease with the landlord. As location is a crucial part of the success of a business this will be an important part of the sale.
The stock and assets of the business being sold
Whether you are looking at a big or small business for sale, you have to go through the stock to assess its value. The value should be determined by its cost price. The stock handover should only take place on the day that the business ownership is transferred to you.
Stock that is in a bad condition should not be handed over to the buyer. The deed of sale should include the minimum quantity of stock that will be handed over the buyer once the sale is completed. When you are considering businesses for sale, moveable assets should be included in the deed of sale and it is important to check that all the listed items are handed over when you purchase the business.
What about the staff and employees?
When buying a business, it is also important to review the employment contracts that the business has committed to with their staff. Check what benefits the staff receive such as medical aid or bonuses. It is also important to take outstanding staff leave into account.
While there are steps that you can take to assess whether you are buying the right business, it is also important to consult with experts. Experts can use their professional skills to help give you advice on the various aspects of the business. You may want to talk to your accountant, bank manager or tax advisor before you buy a business.
With South Africa’s beautiful scenery and interesting wildlife, tourism is a good sector to invest in. Mining is another sector that entrepreneurs can benefit from investing in. Improving the infrastructure and education in South Africa is another area to consider.
Although buying a business can be daunting, if you research each business thoroughly before selecting one to buy, you could land up being a highly successful business owner. Not only will you get to be your own boss, but you will also enjoy financial freedom.