Prime time to do it yourself in business

Poor economic conditions do not generally make for a good time to sell a business, but they may be good for buyers.
Rotorua corporate finance, business recovery and insolvency services specialist Peter Farrell, of Kelman & Co, told The Daily Post now could be a good time to buy a business, for somebody with the right skills, finance and resources.
"There are risks out there, but interest rates are still quite low and, if you have the finance and can find a business to complement your skills and situation, now is not necessarily a bad time to buy - and you might get a bargain."
Farrell said the majority of smaller business buyers were motivated by lifestyle choice, a desire for independence and a need for employment.
But he warned buyers they needed to consider whether they had the skills, experience, qualifications, energy and capital to make that business a success.
Strategy
It is also important to develop a strategy beyond the purchase.
"You need to have an idea of where you are going with it. How are you going to go about contacting all your customers? What are you going to do about staffing?"
Part of this is deciding on the most suitable structure for the deal.
"Will it be a purchase of assets or shares? Will it be a partnership or will you be a solo trader or a company? Your accountant should help with all that."
Buyers also need to assure themselves the business will be self-funding.
"Your earnings will need to cover the purchase price, finance repayments, your own income and a decent buffer."
He said it was important to get somebody experienced in the process to draw up the "heads of agreement" - a non-binding document outlining the main issues - and to negotiate the purchase.
Due diligence
This needs to be carried out to check everything is as it appears to be. Farrell said it was not just about problem-finding, but checking things such as sound employment contracts and intellectual property policies are in place.
"This is not an insurance or substitute for sound commercial judgement. But it does help minimise risk and provides further areas for inquiry or negotiation."
Farrell said due diligence varied for each business and sector, but needed to look beyond the firm to existing and potential competition.
Due diligence must be based on the most up-to-date data and Farrell advised buyers looking at businesses on the market for a longer period, to ask for new figures - including asset valuations, sales figures and similar.
Any problematic areas can be used when negotiating the price for the sale and Farrell said sound due diligence would also help reassure lenders.
He advised any paid employees looking to buy into a firm to find out exactly what is involved in owning a business.
"You have to think beyond the purchase itself."
Buying a business
- Get a good accountant and lawyer on board
- Understand why you are buying
- Know what you are buying
- Check you have the skills and resources to make the business work
- Pay the right price and check earnings will cover any financing costs
- Conduct due diligence
- Structure the deal correctly
- Don't over complicate the deal