Affordability – What Can You Afford?
It’s crucial when looking at the type of business you want to buy to make sure you’re only paying what you can afford. No matter how attractive the business appears to be, if you overstretch yourself financially you’re likely to run into problems.
Use a professional advisor to help you work out what you can afford, and what kind of financing you should consider. The loan you’re able to get will help you decide what business you can acquire, but you have to take into consideration the terms that the financing will come with.
It is likely you may experience a drop in income as well. How long can you afford to be earning little or nothing? If you’re looking at a particular business to see whether you can afford it, look at its cash flow to get an idea of the money you will need to see you through. Does the cash flow have peaks and troughs – e.g. is it seasonal? Can you afford to cope with this, or will you need an overdraft for some periods.
And, as always, hope for the best but expect the worst. Unforeseen problems and expenses will inevitably crop up, and not having the cash flow to be able to deal with these could destroy your plans, and cause serious difficulties. For example, is the landlord able to raise the rent for the premises? Could you afford it if he did? Cash flow problems are the biggest cause of failures for start-ups, and newly-bought businesses are not immune either. Try and plan for the unexpected, therefore, and budget accordingly.
If you’re using a lump sum of money, or putting a lot of your wealth towards a new business, make sure that you have a good idea of the risks of the venture. Is the business really worth the risk involved?
Having the upfront cost for the business then isn’t enough. There are also fees for solicitors, accountants, and other professionals and any repairs, equipment, wages or suppliers you might have to pay for before you see any profit, and all the unexpected expenses that crop up. Taking all this into consideration then, how much does the business you want to buy really cost? Make sure it is as good as it first appears.
