What do you need to know before buying a business in WA? Here we cover the 4 things you need to know.
The New Year is upon us and with the holidays behind us, it is time to get back to business. Living in WA in particular means coming to grips with the economic outlook for our region, which is tipped to be “difficult but not dour”. A June 2016 report from St.George Bank states that, “The (WA) economy is now larger but growing at a very modest pace. Growth is based on exports rather than domestic demand. The outlook is difficult but not dour. Another tough year ahead is expected but the economy should expand courtesy of the export sector.”
What does this mean for someone interested in buying a business? Good news of course. There will be many business sellers in the market as expenses continue to rise and profit margins thin, making some give up. Buyers with smart strategies can capitalize on this and snap up valuable businesses just in time as the economy recovers and WA recaptures its 2014 strongest economy status in the country. What do you need to know before buying a business in WA?
What type of business do I want to buy?
One of the first things you’ll want to determine is what kind of business you would like to purchase. The economic outlook for WA seems to favor businesses dealing in the export sector. Mining related companies or agribusiness ventures might be the next goldmine for you to tap. Getting up to date with latest economic outlooks with short term and long term views will be instrumental in guiding you on the right path.
Why is the business on sale?
After having known what industry and what type of business you’re interested in? A visit to a business broker will yield a selection of potential businesses ripe for purchase. However, it is important to know why the business is on sale. Do the owners have a pressing personal need for funds, or is the business doing poorly (why)? Lack of a compelling answer from the seller is a potential red flag signifying problems ahead.
Customer concentration
How many customers does the business serve and where are they located? A business could have one or two major clients accounting for most of its revenue. These clients could be located in a foreign country where political and economical dynamics could alter their relationship with the business just as you’re poised to take over. The customers could decide to move on after the business owners hand over the keys due to a close relationship with the owners. All these are factors you’ll need to consider before signing on the dotted line.
The business’ financial health
How much is your potential business worth? How much is the seller asking for? You’ll need a thorough business valuation company to audit the business and give you honest and accurate financial reports that’ll determine your return on investment and aid in planning. An independent business valuation will achieve this objective.
Getting the right information will help you buy the right business and smoothen the transition from the original owners to you.
Mathieu Paul
Director – Business Improvement
P: +618 6315 2700
E: enquiries@insightcp.com.au
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
Liability Limited by a scheme approved under Professional Standards Legislation
Reference Links:
https://thediplomat.com/2016/09/economic-outlook-for-western-australia-difficult-but-not-dour/
https://articles.bplans.com/4-things-you-might-not-think-to-investigate-before-buying-a-business/
https://www.stgeorge.com.au/content/dam/stg/downloads/report/-centre/WA%20Economic%20Outlook%20June%202016.pdf
