Choose wisely and act carefully!

Purchasing a Going Concern has many Benefits
– take as much advantage of them as you can!

As a business purchaser you are usually paying for several things:

* Brand, Trade Mark, Reputation
* Client and Customer base, including a mailing list
* Systems and Processes – how we do things here
* Physical Stuff, furniture, fittings, etc
* Staff knowledge and relationships
* Supplier relationships and knowledge

To get the best value for the price you paid, you need to carefully preserve and then build on all of the above; disregard any of them and your new business will suffer.

The Worst Advice Ever for Business Purchasers:

Don’t worry about doing your Due Diligence

Let me explain to you just some of the plethora of ways not doing your homework can impact you on Day 1 – once the purchase is final and you take the reigns.

The general issues:

  1. Making sure you purchase items that are actually owned by the vendor – not for example assets held in the Director’s personal name or in some trust, or rented etc.
  2. Making sure the quality of what you are getting is sound:
    – is all the information in the database in good order,
    – are the furniture and fittings sound (or just freshly painted)
  3. Do the numbers match – the client list matches the debtors list, the stock-take is recent and accurate, is the profit able to be linked to cash-flow?
  4. Know what you are taking on – chat with suppliers, staff and clients about their expectations and any changes they might suggest (you don’t have to implement their suggestions – but they may have some good ideas)

Let me tell you a Business Purchase horror story!

I have recently come across the case of a business purchase where no due diligence was undertaken, the business was in trouble and its assets sold in a hurry this started out with plenty of goodwill between the vendor and the purchaser both willing to work together to transition a smooth handover.
Despite the commitment to maintain services to clients, it turned out that the vendor didn’t own many of the assets he had listed for transfer on the contract – the website was under license, the phone numbers related to overdue accounts and were not easily released, much of the software had been operated without proper upgrades, renewals etc. An independent valuation had been done to establish a realistic price for the sale transaction, but the valuer had not validated ownership and therefore had valued and included assets that did not form part of the business.

Additionally the vendor ran his business in a way that he invoiced in advance taking payments before services were delivered. This was not disclosed and left the purchaser faced with a moral obligation to deliver services they were never going to receive money for! Worse still, because the record keeping had been lax, who had paid what, who was owed what and even who was who turned out to be unclear.

All businesses have blind spots, as do business owners, just make sure you don’t get caught out by those that belong to someone else!

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