Caveat Emptor - let the buyer beware when buying businesses. By Steve Marsten.

2017 has only just started and yet January is almost over! We hope you all enjoyed Australia Day. There is positivity in Gladstone and investors are out and about looking at potential business opportunities. This week I want to bring some matters to your attention if you are looking at buying a business. Always remember that often sellers have been working their business for a number of years and have enjoyed the benefits of building their business up. Consequently, many have an emotional attachment to the business. It’s been their baby that they have often grown and nurtured over a period of time.

The problem is that they see value in their business that is not reflected in the financial figures that they have offered to the seller as part of due diligence. Now that’s not to say there isn’t any intrinsic value however one must be convinced that the business actually has some intrinsic value before signing on the dotted line.

Buyers need to be comfortable that what they are paying for is plant, equipment and fittings; positioning or premises; customer listings or confirmation that a market for the services and products exists AND a commercial managers salary is sustainable. You don’t want to simply be buying a job and you DO want a return on your investment over and above your commercial salary.

Recently, we received a set of figures from a seller's accountant. The Abridged Financials indicated that the business would operate at a LOSS once a Manager's Salary was factored in.  This was queried in light of the price being sought by the seller.  Clearly this became problematic and we advised our client NOT to go ahead.

However buyers can get just as emotionally attached to the purchase before the transaction is completed. Unfortunately, emotions do play apart with any transaction and as professionals, we do our best to keep the emotion away from the decision. We don’t like seeing people part with their hard earned cash on purchases that don’t stack up. Caveat Emptor is Latin for let the buyer beware!

At the end of the day a business is only worth what a willing seller and a willing buyer agree on. Patience is often the key to a good investment. At Sothertons, we work through the need to assess any intrinsic value in a business such as goodwill and provide our clients with practical business values so either a seller or buyer can make an informed decision. Call us on 4972 1300 to hear more about maximising the business  value or ensuring you are paying the right amount for your new business.