When it comes to buying a business, here’s what you need to know:
- Refer to their track record which should show a profit for at least three years. Financial statements should be audited, but if this is not the case, an audit needs to be conducted by a mutually agreed auditing firm.
- Once a buying price is agreed upon, a due diligence audit needs to be conducted (this applies even if audited figures are available).
- Ensure there are no outstanding contracts, guarantees and obligations to other parties or any law suits, disputes or matters pending with SARS or other government departments.
- A careful check of all existing customer contracts is important to ensure no current customers are about to exit their contract with the company.
- The owner may try to hide creditors from you, so it is a good idea to advertise the sale of the business in the Government Gazette to get additional information about who the business may still owe money to.
- Call a number of creditors.
- Request a bank report and visit the manager.
- Look for trends in the debtor’s book. You don’t want to take on a debtor who consistently doesn’t pay or from whom it is going to be costly and time-consuming to extract payment.
- Get copies of lease agreements, title deeds and schedules of properties owned, as well as insurance policies and records of premiums paid.
- Ask to see standard contracts of employment for staff, pension scheme and retirement benefit information, and all information regarding bonus and incentive schemes. Interview staff.
- Check if there are there any licences required for the running of the business.
- Draft a restraint of trade against the owner of the business so they don’t sell to you and then open up in opposition across the road.