7 Factors To Consider When Taking Over an Existing Business

The densely populated province of Gauteng is a treasure trove of opportunities as it is home to the highly urbanised city of Johannesburg. The regi...

  • 7 Factors To Consider When Taking Over an Existing Business
    Lethabo Moodley Image Lethabo Moodley

    7 Factors To Consider When Taking Over an Existing Business

    • Updated: Wednesday 26th of August 2020
    • Strategy

    The densely populated province of Gauteng is a treasure trove of opportunities as it is home to the highly urbanised city of Johannesburg. The region is full of commercial ventures which are sustaining the economic engine of the country. There is no shortage of skilled and talented people who want to run small businesses and realise their professional dreams. However, starting a business from the ground up needs time, legwork and capital.

    Thus most aspiring entrepreneurs are grabbing the quick and easy way of business ownership by acquiring an existing business for sale in Gauteng. It allows them to start trading without getting into the trouble of arranging logistics, lease, set-up, infrastructure, recruitments, training, equipment, etc.

    However, picking the right business from the pool of listings is a tough task. You need to be vigilant about every vital aspect of the entity to make an informed decision. So here is a list of the seven most critical factors to consider when taking over an existing business which will help you to get started.

    1. Find Your Best Match In The Lot

    The trouble with youngsters is that they are only concerned about making money. It inhibits their ability to think rationally about their abilities and skills. Although an existing business has proven processes in place, running it while dealing with several external and internal challenges is not everyone’s cup of tea. Thus you must be absolutely sure about the industry and the size and type of business you choose.

    Find the best fit according to your experience, qualification and passion. Your interest in the field is a must. Otherwise, you will find the work boring. If you are inexperienced, then you can get trained by the outgoing owner and hire competent people to run the day-to-day business. However, you must put your heart and soul in becoming proficient in the domain to stay ahead of competitors.

    2. Dig Out All The Details About The Company

    After you have successfully shortlisted a few options from the listings, you must work on finding every possible detail about the business. You can collect the basic information from the website and the internet. The next step is to dig deeper and find out its target audience, organisational structure, hierarchy, history, inception, positioning, goodwill, etc.

    Due diligence is the most crucial aspect of the business buying process. Thus you should check all the financial documents, permits and licenses. You must find out whether the company is complying with all the state laws and regulations and has had any legal disputes in the past.

    3. Determine The Financial Health of the Business

    You will be making a huge investment while purchasing a business. Therefore you should thoroughly check the financial information provided by the owner. Identify the gross profit and cash flow of the business and understand the expenses and debts. Find out about the business loans and investments and money being spent on marketing and advertising.

    You should also check the payroll records and examine the long-term contracts signed with clients and suppliers. Assess the lease agreement and the share of target audience present in the surrounding areas of the business. Identify its unique selling proposition and how it has been attracting customers in the past and present.

    4. Recognise The Reason for Sale

    It should not be surprising that a highly profitable business may be listed among the various business opportunities in Gauteng. Sometimes, the owner could be selling due to health reasons, early retirement plans or relocation to another country. However, it is also possible that they may be selling due to declining sales. In the second case, if you notice that business has not been performing well in the past few years, then ascertain the reason behind it.

    If the poor performance is a result of mismanagement, then figure out if it can be rectified easily and brought back to its highly productive position. If the negative bottom-line is due to failed products and dying demand, then you should not bother to waste your time on researching about the company.

    5. Evaluate The Business

    You will need a professional accountant to evaluate the actual worth of the business in Gauteng and check with a broker about the current market prices. Favourable economic conditions and the growth prospects of the industry also make an impact on the selling price.

    However, you need to ensure that the seller has not inflated the cost and has priced it too high. You need a professional to assess the cost of both tangible and intangible assets as well as consider the depreciation of assets. Determine the liabilities and debts and check if you can sustain the business in the future.

    6. Find Funding For The Deal

    After you have understood the cost of the business and are ready to negotiate the price with the seller, you must secure funding for the business. You can apply for a business loan or check if the seller is offering to finance. If you opt for seller financing, then you will have to make down payment in cash. Also, if you fail to pay the instalments, then the seller can take back the business as it is used as collateral.

    Thus make sure you are aware of all the clauses before agreeing for seller financing. Financial institutions and banks are supportive when you are purchasing an existing business. However, they demand verification of all the financial documents. You can also approach venture capitalists or angel investors to get funding in return of equity shares.

    7. Seal The Deal

    With the funding amount available and the final price negotiated, you have to check if you have enough money that can act as working capital. If everything falls into place, then ask your lawyer to study the purchase contract. If you are getting the lease transferred, then make sure you get the new agreement signed with the landlord.

    Also, if you are getting any vehicles with the sale, then you must acquire all the paperwork for them. Make sure that the lawyer takes care of transferring the intellectual property, such as patents and trademarks, along with the deal. Analyse all the terms and conditions and read between the lines to make sure that you are not being taken for a ride.

    Conclusion

    Purchasing an existing business for sale in Gauteng is the perfect way to kick-start your entrepreneurial career. However, you need to make sure that the business you are buying matches with your budget and interests. Also, it should be a financially viable proposition.

  • Author Info Lethabo Moodley

    A business expert, Lethabo Moodley is a management consultant who has been working across domains since 2005. His rich experience includes a Masters degree in business administration from the prestigious Gordon Institute of Business Science and Doctor of Business Leadership degree from Unisa Graduate School of Business Leadership. He has been actively working as a consultant with the biggest firms in South Africa and his contribution in the growth of these organisations is considered invaluable. He has saved a lot of small businesses from going bankrupt and has renewed the lost success streak of the big fish in the market. Business2Sell is delighted to have him onboard for his insightful blogs.