If there is an existing business in which you are debating on buying or even taking over from another family member, you should perform some detailed analysis and planning before proceeding with it.
Here are a few pointers to consider if you would like to buy an established business:
- Reason to sell – try to find out the seller’s history and why he/she is selling
- Business ins and outs – via understanding its sales trending/pattern, the customer base, the suppliers and their terms
- Costs involved – get to know the fixed and variable costs, staff costs (if any) should be considered too to evaluate the tax and super obligations
- Profitability – try to get hold of the business’ previous financial performances and see if it has a consistent surplus
- Business assets – intellectual properties and/or leasing arrangements should be factored in too. Don’t forget to check if any assets are excluded from the business sale.
- Legal arrangements – on items like leases and the business structure, these should be examined too
- Outstanding debts – it is important to avoid inheriting unwanted or unexpected debts
- Existing refunds and warranties – try to find out if the buyer would inherit these obligations
- Purchase agreement – it is crucial to review it to ensure it includes details of all your concerns
- Taxes – GST, Capital Gains Tax, stamp duties should be considered
- Previous owners’ story – it would be good to chat about what had and had not worked in the business
The factors listed above are crucial from the perspective of buying a business from a third party. Should you be thinking of taking over a family business, this scenario requires other considerations, and they are:
- Work-life balance – the possibility of your family life overlapping with your business
- Generation gaps – different work ethics and expectations might cause unnecessary family tension
- Family rivalries – you might come across frustrations from non-performing members, or even over-competitive family individuals
- Management control – sometimes, older members might not want to let go their reins
- Non-participation – contrary to the above, some younger generations might not be interested to join
- Future direction – making decisions may be stressful should there be too many ideas
- Leadership – it might also be difficult to choose the right person to take over the business
- Family disputes – managing disagreements might also be part and parcel of the deal
There can be a significant advantage in taking over a family business. Typically, those that take over a family business often have a longer term view of success and plan for returns over a longer period. At the same time, they typically have an increased responsibility for those who control and manage the business hence leading to the creation of stronger customer focus, better community relations and providing better benefits for employees.
The toughest challenge in owning a family business would be managing the balance between work and family relationships.