Top five things to think about when you're buying another business

Margaret Paton

Keen to bolt on an established business to your venture? It could be a good move if you follow these tips.

Aim for synergy

Find synergies between your business and the one you’re looking to buy, says Gary Lay, a consultant business broker and licenced estate agent at Wollermann and Associates in Melbourne.

He advises to “picture yourself running the other business”, and to ask if you have the necessary skillset to do so.

“You want the businesses to complement each other – to offer a similar type of product range so that you’re in the same sand pit, basically,” says Lay.

Wollermann and Associates recently helped an online importer to team up with an elevated platform hire business that dealt directly with tradespeople.

“It opened a completely new market and saw 30 per cent growth within a year over the original business.”

You need to clearly understand why the previous owner is selling.

Bring in the experts

Don’t underestimate the value of paid professional advice when buying a business, says Western Australia-based Paul Adamson, who operates a franchised territory for Finn Business Sales, Australia’s largest broker network.

“The reasons for selling are always wide and varied and this needs to be taken into account in the due diligence process,” he says.

“You need to clearly understand why the previous owner is selling, the position of the business and complete a detailed analysis of all financials, contracts, documents, costs, etc.”

Your paid expert could be a buyer’s advocate, your accountant, solicitor and/or business advisor.

Keep the cash coming in

Lay says often buyers only see the purchase price, but not the need for working capital to continue to operate the business and provide an income.

Adamson advises to “explore ways to achieve economies between the two businesses such as savings on costs, roles and responsibilities, salaries, supplier discounts, vehicles and rent.”

Strike your path

“Buying another business can fast-track your business objectives”, says Adamson.

He advocates having a strategic direction and a clear plan to implement it, particularly regarding communication, objectives, vision, values and culture, for example.

“You’re buying an existing client base, leveraging off a good reputation and perhaps potentially achieving an additional footprint in a new local market for your existing business.”

Avoid the pitfalls

Adamson advises against ego-driven decisions, urging would-be buyers to “scrutinise your own decision-making process and match it against your own goals and values”.

He adds: “Buying a competitor or another venture doesn’t guarantee success.  Always have a plan and don’t let the new venture increase the risk beyond your capacity.”

Margaret Paton

Former Sunday Age staff journalist, Margaret Paton (formerly Jakovac) has written widely for corporations/government departments and more than 100 online/hard copy mastheads in regional NSW, Sydney, Melbourne and Europe.

style="font-size: 12px;">Image: Enrico Donelli, Flickr Creative Commons license 

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