5 Important questions to ask before investing into a business
The prospect of owning your own business is incredibly appealing to Kiwi's, especially in the current environment, where discussion of entrepreneurship is frequent. With the rise of social media, stories of new business founders and successful start-ups popping up regularly in our news feeds, you’d be forgiven for thinking undertaking such a project is easy. There are numerous things to consider before you jump in the deep end. James Ashwin, Director of Kakapo Business Sales has pulled together five questions you should ask yourself, before taking the leap of faith.
1. Is owning a business right for me?
This is perhaps the million-dollar question and it can be difficult to really know the real answer until you give it a try. A good way to start though is to understand your ‘Why’ and your real motivation for wanting to get into business. Do you want a better work/life balance? More money? After 10 years in the same job you want a new challenge? Maybe you’re tired of helping build someone else's dream.
Though short-term rewards are certainly worth addressing, it’s important to dig a little deeper. What is your end goal? Think about whether you wish to be in business for a few years or a few decades, and how you’d go about opting out if things aren’t working.
2. What type of business should I invest into?
A number of factors are going to come into play when considering what type of business you should be looking at.
A key influencing factor will be your motivation for going into business. If you’re passionate about a specific industry, your answer is going to be much easier to define.
Your level of business experience will also come into play. How complicated is the type of business you’re looking at?
The final – and perhaps the most important – factor is economic. How much do you have to invest? Majority of purchasers will require funding which will determine the type and scale of business that you’re able to purchase.
3. How do I find the right business to buy?
When deciding on the right business for you, think about your strengths and weaknesses. If you find the process of actually running the business daunting or you feel under-skilled in certain areas, perhaps a franchise is for you.
If you’ve got the gift of the salesperson gab, then a product-based business might be a better choice. Or maybe you’re a stay-at-home parent and need to be flexible – an online business could be the way to go. The most important aspect is research. Be aware of any costs involved with the running of a particular business, staff requirements, and inventory requirements.
An online market place for buying and selling a business is a good place to start.
4. How will I finance my business?
Obviously you can’t go into business without being able to pay for it. For most people, financing a new business requires some sort of bank loan.
If so, you’ll need to consider what types of loans are available, your loan structure and your current financial position. A good start is to make an appointment with a business banker who specialises in business loans. They will be able to guide you in terms of how much you’re able to invest in a business and how much you’ll need to service it. They also help you access the best deal.
**For a list of recommended business bankers please email [email protected]
5. What do I need to know to do my due diligence?
Due diligence is a crucial part of any business purchase so it’s important to know what information you’ll need. Generally, Due diligence is completed after the sale and purchase have been agreed upon but before the agreement is unconditional. Done right, it will be the difference between buying a business that makes you money and taking on someone else’s disaster. It’ll make you aware of any liabilities, legal issues and profitability or lack thereof.
Obtain a list of the financial documents that you’re entitled to and be sure to request copies of each. Most importantly, review them carefully.
Due Diligence Checklist
1. Complete set of Financial Statements for the last 2-3 years
2. GST returns for last 24 months
3. PAYE for last 12 months
4. Lease documents
5. List of plant/equipment on lease
6. List of major suppliers
7. Employee details
8. Breakdown of purchase price (tangible assets, intangible assets, stock)
9. Period of assistance
10. Sale and purchase agreement
11. Franchise agreement (if applicable)
12. Any other relevant info about the business