Business > ADVICE FOR BUYERS
You've made the decision to buy a business but what now? In our experience, buying a business is the most rewarding, and challenging, event you'll ever undertake. Running your own business puts you in control of your working life but it also involves a large amount of personal, financial and legal risk so it's important to get it right.
Over the years we've learnt a few things. Here are some of them:
1. Never take reported business earnings at face value.
A key element of the calculated value of a business is its earnings, or how
much money it makes. The team at Eagle1 typically uses Tax Return financials
to calculate an adjusted earnings of PEBITDA (Proprietor's Earnings before
Interest, Tax, Depreciation and Amortisation representing the income to one
full time working owner) or EBITDA (Earnings before Interest Tax,
Depreciation and Amortisation representing the income after allowing for
commercial wages for the owner's role in the business).
However, different business brokers will calculate and report earnings in
different ways so it is absolutely critical that you understand how these
earnings are calculated in each individual case so you can accurately
compare the opportunities and potential weaknesses that each business
presents to you. The key is to gain an understanding of what's behind the
numbers and try to be consistent when you compare each business opportunity.
2. Being cheap can be expensive.
Don't be tempted to reduce your transaction costs by cutting back on due diligence when buying a business - this is dangerous and can quickly turn out to be an extremely expensive undertaking, especially in situations such as a fire sale where due diligence clauses can be cut from the contract to provide security to the seller in return for a reduced sale price. Our experienced accountants can conduct due diligence on the business you are interested in prior to settlement, regardless of whether it is a contractual condition. In our experience it also pays to be prepared for this due diligence to turn up something unexpected.
3. Understand the total cost, not just the sale price.
The sale price of a business can often be substantially different to the actual cost of actually going through the process of completing the transaction. In cases where a business allows for extended trade debtor terms the actual funds needed to complete the transaction can sometimes be double the listed sale price. Costs you need to factor in include professional fees, stamp duty on the sale, a security deposit for the premises' lease as well as working capital and stock costs.
How Eagle1 Helps Business Buyers
In addition to only listing quality business opportunities the team at Eagle1 offers specific services to potential business buyers - regardless of the business you are interested in purchasing. We assist buyers with the identification, assessment and negotiation of a business acquisition. Eagle 1 will support you through the entire buying process from initial contact through to determining an appropriate price, negotiating the deal and managing handover.
Please contact us for more information on our services available for business buyers.
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