Five top tips for buying a business in 2015 | The National Business Review

Whether an acquisition is being made for a standalone business, or part of a larger growth or consolidation strategy, there are some important factors that should be considered when buying a New Zealand SME. Some of the more significant aspects any purchaser will need to consider:

1. Value
While there are countless opinions and rules of thumb used in determining the value of the assets of a going concern, there are not many individuals in New Zealand who are experts in business valuations. Accountants tend to use a largely theoretical approach and unless they are seeing a large number of transactions, they often don’t have much market data to use. A well-experienced business broker will often have strong comparable sales data, which is your best indication of what the market is paying. Avoid rules of thumb; they are invariably rough guides that can be wildly misleading.

2. Create a new entity
Always buy the assets of the business and not the shares if possible. The assets of a going concern can be sold in most cases as zero-rated transactions for GST purposes, with the added benefit of removing any contingent historical liabilities. The last thing you want to happen six months into a new business is to find a claim made against you from actions that occurred before your tenure. Purchasing the tangible assets and the intangible assets along with any stock and bringing these into a new entity is the safest method.

3. Get great advice
When you acquire a going concern, you invariably expose yourself to some risk. Be sure to engage competent, experienced advisors. Your legal and accounting team will play a very important role in due diligence and decision making. Don’t be afraid to engage a more experienced advisor if your regular accountant or solicitor is not up to the task, or does not have sufficient experience in these transactions. But remember your advisors are likely highly risk adverse and you must always make the ultimate commercial decision.

4. Understand your finances
Be realistic about your financial limits and do not stretch if it is likely to be a burden. Often good businesses are strangled by a lack of available working capital, as the purchase prices has been the only serious consideration of the buyer. Make a thorough repayment forecast and prepare it conservatively including debt servicing, working capital and any future capital requirements.

5. Understand the industry
No matter what business you ultimately acquire, it is very important that due consideration has been given to industry expertise. This does not necessarily mean being an expert yourself, but does mean building a team that has a depth of knowledge. Many successful businesses go through a period of contraction after being acquired due to a lack of industry knowledge and understanding. It is always important that the purchaser bring something to the table, whether it is marketing expertise or managerial skills. Very few New Zealand SME’s are truly pure investments, as most require hands on input from the shareholders.

Aaron Toresen is managing director of Link Business Broking, a New Zealand brokerage with 36 offices in four countries

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For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at info@buysellflbiz.com or 239.738.6227. Also, visit our Florida Business Exchange website at www.fbxbrokers.com and my personal website at www.buysellflbiz.com.