Buying a business is a significant step and can be a life-changing decision. Perhaps you’re giving up a salary and job security to be your own boss and nurture your own future, or you’ve already been a business owner and you’re buying a bigger business. Perhaps you’re even considering going into a partnership in a new venture. All these entrepreneurial steps present calculated risks that are not to be taken lightly. However, proper preparation will give you a better chance of success.

Here’s a step-by-step guide to planning your new life as an entrepreneur, no matter where you are on the ladder. 
 

Researching the right business to buy 

• Experience If you’re starting out as a business owner, it’s advisable to go into business in an industry or business sector you know. This can be based on product knowledge, sales networks or service excellence, but prior experience in the sector will be invaluable. Alternatively, the experience you will have gained if you’re already a business owner will help you make a new venture a success.
  
  
• Location If the business is a destination or a retail store, rather than a services business, then location will be a major factor too, and knowledge of the area and catchment market might be an advantage. This is especially true if you’re trading up by buying a bigger business or going into a partnership – the more you’re going to be investing in physical infrastructure or a destination business, the more important location will be.
  
  
• Size and type The size of the business you can buy will be determined by the funds you have available, keeping in mind that there are several other costs apart from the purchase price. Then, deciding on a standalone business versus a franchise business is also important. A franchise has a larger potential client base and marketing support, but you may not have as much control over the business as you would have as the owner of a standalone business. If it’s not your first time at the business owner rodeo, you should have a good idea of operational, overhead and other business costs, and will need to be aware of your new cost base if you are buying another business or buying into a bigger one. 

Navigating the acquisition process

There are several financial and legal processes and factors to be aware of when buying any business. Here are some of the most important: 

• Signed business sale agreement This should have clear terms and obligations for both seller and buyer.
  
  
• Lease agreement If you are buying a business that has a property, or will need one after you buy it, the terms of a business lease are very important. Most landlords of business properties prefer to deal with a company structure rather than an individual.
  
  
• Bank account It may sound obvious, but no business can trade without a bank account. Your bank will ensure that you meet all business account requirements, and you can negotiate the best business terms on your account. 
  
  
• Ownership Legally, most bankers, funders and landlords prefer to do business with a company rather than a person, although your personal suretyship may be required for some aspects of your business funding and ownership. Ensure that the registration and ownership terms and the shareholding of your business are clear – especially if a new business venture requires a shareholding partnership or complex ownership structure. 
  
  
• Employees Any new business owner who buys a business with existing staff will have to continue to employ them without any interruption – a stipulation built into South African labour law.
  
  
• VAT registration Buying any business as a going concern means that you must be registered as a VAT vendor. If not, the South African Revenue Service will levy VAT charges for which you are personally responsible. There are numerous documents and legal requirements to registering for VAT, which a broker or your bank can help you with.
   

The pros and cons 

To sum up, what are the advantages and disadvantages of buying a business?

 
Advantages

• Processes and groundwork already exist.
  
  
• A market for the business already exists.
  
  
• Reliable income may be in place.
  
  
• An existing customer base will be in place.
  
  
• A larger business purchase or partnership will give you more access to capital.

Disadvantages

• Taking on any debt and investment costs.
  
  
• The need, potentially, for increased working capital to ensure cash flow.
  
  
• Staff morale may be low and transition to new ownership may be difficult.
  
  
• Renegotiating existing contracts or client relationships. 
   

Buying a new business or going into an entrepreneurial partnership may be the most significant decision of your working life, and a way to realise your dreams and life goals. Your bank will be central to helping you make the right decisions along the way. Contact us for advice and help to make your new business venture a success.