Buying a Business – 10 Tips on What to Avoid

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Buying a Business – 10 Tips on What to Avoid

Posted by BBA
04 February 2020
 

It's hard enough to find the right business let alone assess whether it's a good acquisition. Here are 10 tips on what to avoid.

As exclusive business buyers advocates we have seen it all when it comes to buying and selling a business.

It’s hard enough to find the right business let alone assess whether it’s a good acquisition.

To help you, please find the following to be wary:

  1. If a business does not have current information in the form of a Business Profile or Information Memorandum then move on. It may mean that information is not available, never existed or the business has no records.
  2. If information on a business is provided on one sheet of paper, move on.
  3. If sold as a Walk In Walk Out (WIWO), whereby what you see is what you get, then move on unless this is exactly what you want. This may suit an experienced operator whereby other factors, rather the current trading business is the motivation to buy.
  4. Short term leases with no options provides little long term security
  5. A cash business where no trial is offered. Walk away. If a trial is offered be careful. It is known that vendors increase takings over the trial period which distorts results. Be careful.
  6. Cash businesses with no records of weekly sales. Move on.
  7. Businesses making a loss but with potential. You don’t pay the price of potential but you might buy a business because of potential. If making a loss, there will be no third party financing. Don’t buy someone else’s problem.
  8. Just opened. If a business has only opened for six months and now on the market, be careful. The owners maybe aren’t retiring, moving interstate or just had a baby. Maybe the business has not eventuated as expected and incurring accumulative losses. They want out of sinking ship.
  9. Shopping Centres and food court leases. These are typically for a short period and provide no long term tenure. There may be upgrading clauses or relocation demands when tenure is up.
  10. Where rent and outgoings exceed 10% of turnover, then be careful. If a franchise and royalty, advertising and other related costs are a percentage of sales and these costs exceed 10% of sales be careful. Remember these franchise costs are based on turnover and impact on your overall profitability.

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