What you should know before buying that business
Not all businesses are started from scratch. Purchasing an existing business is also a decent way to leverage an established brand and functioning set-up to profit immediately. It can also be less risky than beginning from scratch.
Counsel Ronald Oine, an attorney at Tumusiime, Kabega & Co. Advocates, advises that before settling for an already established business, there are quite a number of things you need to look into.
Due diligence
He says that before you progress with the purchase, find out what you are getting from the deal by doing a thorough research.
“Do a health check of that business. Find out whether it is legally registered, and who the true directors or proprietors are,” Counsel Oine says.
This research ensures that the most important legal information is present and correct and removes any concerns you may have about a business’s ownership, for example, the legality of share transfers if any.
Understanding financial results
He opines that one should not be hoodwinked into expensively purchasing a business that generates no income.
With this, the Counsel says one who needs to buy any business should hire an accountant, who can review the seller’s business whether it is something worth investing in.
At this point, he says the question of what is the net worth of that business comes into play. Net worth is a performance indicator that shows the value of your business’ property after liabilities are paid.
Once all business debts are settled, the net worth includes what is left over. You can use net worth to determine the financial health, secure funding, or sell the business.
According to Mr Cuthbert Isingoma, a business broker, their entails helping entrepreneurs buy or sell their businesses.
Normally, you may start a business but reach a time when you may want to retire.
Or you may want to relocate to another place for example, or do anything else. As business brokers, they advise that instead of dissolving or liquidating that business, it is better to sell it off to another person.
“There could be another person who is interested in that type of business.
When you dissolve that business you lose a lot of things, like the clients you have built up and employees you had brought on board,” Mr Isingoma says.
He says that instead of losing all that, it is better to sell it because when you sell it to another person, he takes on all the assets and liabilities you had and continues the business in the same location. So there is no distortion.
He explains that when businesses are dissolved even the government loses out on a taxpayer who is the employer and taxpayers who are employees.
Mr Isingoma says that there are still other organisations like National Social Security Fund (NSSF), which lose contributors. So as business brokers they say if a business just sold off, everything keeps around.
He also says that before thinking in business think about the other people or entities you have been doing business with, for example, the advertisers and transporters. All those will be affected by your decision.
He went on further to explain that when you liquidate, you sell off the tangible items. But remember, there is the big thing which is the good will because you had built this business over time and your name, reputation and branding.
If you sell only the tangible items, it has been proven that you are selling only 15 percent of the business value. But if you let the business be sold to another person as it is, you get the maximum output of that business.
Mr Isingoma notes that many times business owners will tell you, my business is valued so much. But uou may find that he may be overvaluing or undervaluing it but when due diligence is done with other professionals especially certified accountants, they help you come up with the correct value.
He says they always ask the seller why they are selling that business. This is a very important question. When you do not know why one is selling that business, the buyers you reach approach may feel reluctant to buy because people hate problematic businesses. For example, where the seller has debts with URA. Brokers prefer passing on the correct information to the buyer, giving the reason as to why you are selling.
Other than that, Mr Isingoma says brokers know many people who are in business and have other networks for connecting to those who want businesses.
“There are very many people out there who need businesses to buy. But they do not know where to go,” Mr Isingoma says.
However, when he builds that apartment it locks in his money, because the return on investment is much lower than in business. So you find that, that person has gone for the wrong investment.
On the other hand, Mr Isingoma says brokers help you with negotiating. When they introduce the buyer to the seller, they ensure that there is a smooth transition in the process.
Mr Isingoma warns that many times if the seller does not involve the broker, there could be many things going wrong because the broker has experience in these transactions over a long period of time.
The broker may advise that if you are buying a certain business, do not pay 100 percent. They will always advise buyers to pay at least 75 percent as the first instalment so that the balance is paid over a period of time.
He added that this period for balance is for transition. That the seller must first stay in business so that he introduces the buyer to the workers, banks or other investors.
Source: The Daily Monitor
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