Investing in a pre-existing business might seem like a no-brainer. The most difficult thing about starting a business from scratch is that you don’t have to go through the set-up stage. The early days of running a new business can prove extremely challenging, which is one of the reasons lots of folks looking to invest in a business that has already been established.
Having a customer base and fully trained employees is a positive. However, just because the business looks like it is operating smoothly, there are a lot of things you should look for before spending your hard-earned money.
A lot of people will need to borrow money if they are starting a new business or if they are buying an existing business. Getting a loan approved for a startup venture can be difficult because most bankers consider these types of loans as a major risk. Although taking over a pre-existing business is a risk, most banks think it is a low-risk investment, especially if the business is doing well.
Banks will have access to the pre-existing company’s past revenues and profits, which will provide them with important information on whether or not the business is currently successful. These financials will also give them enough information on whether the company is likely to succeed down the line. If they are satisfied with these financials, the chance of getting the loan is far greater.
Pros and Cons: Existing Staff
During the negotiation stages, you might not be allowed to speak with the current staff members about the takeover in case it impacts the sale of the business. It might be exciting to take over a business with a loyal, hard-working team already in place, but that doesn’t mean you will be able to retain them. Some employees might have enjoyed working for their previous boss, so they might not be keen on the takeover. To make matters worse, they might opt to work for one of your competitors. Retaining quality staff members is a challenge most business owners have to face. If you walk into your new place of work, and everybody hands in their notice, you are going to struggle to train new staff members. If you are new to the industry, you might not know how to train new employees. It is important that you do everything possible to keep these hardworking staff members, but there is no guarantee they will want to work for you after the takeover has been completed. Employees who have worked for the company for several years might feel disappointed that they were not informed about the sale of the business.
You might also have to let some staff members go. If you walk into the business on your first day and find out that you have a team of unmotivated lazy workers you’ll have a serious problem on your hands. If this is the case, you might be forced to terminate their contracts and be forced to employ new staff members. Hiring an employment agency to find new workers can cost a pretty penny, and training new employees can take a lot of time and hard work.
Updating Company Equipment
Just because you noticed modern equipment in the business, doesn’t mean it is included in the sale. Make sure you are aware of all the assets included in the sale and find out if there is any money owed.
You might need to spend a fortune on replacing old equipment. Even updating new equipment can burn a hole in your wallet, so you will want to examine each of the company’s assets thoroughly before agreeing to the deal. If you have already spent a large amount on the business takeover, you might need to find more money to improve the business’s current equipment.
There are several brokers that can help you throughout the process. For example, if you are interested in buying small businesses for sale on the Gold Coast, a broker in the area should have information on the different businesses for sale. Before buying a pre-existing business, you should consider hiring an independent appraiser to estimate the actual price of the company. Don’t just take the owner’s word for it, hire a professional service to figure out what they think the business is worth.
Will The Seller Help You Through the Transitional Phase?
If the seller is looking to get out of the business as soon as they put pen to paper, you might want to know why. If the business’s customers have a personal relationship with the current owner, then you might find it difficult to retain them. If the owner stays around during the transition period, they will be able to introduce you to the different clients to help you build a healthy relationship with them.
You will be able to watch them work, which is extremely important, especially if you are unfamiliar with the industry. They will be able to show you how to figure out the books and provide you with lots of helpful tips. Even if you plan on doing things differently, watching someone who has plenty of experience in the job might be key to your success. They might give you the confidence to run the company, especially if this is your first time running a business by yourself.