What to know before you buy a business

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What to know before you buy a business

If you’re thinking of buying a business, who will you turn to for advice? Your bank? Accountant? Lawyer? Google?* What about asking your IT Provider for advice on buying a business?

As an IT engineer, I am amazed at the lack of IT-specific advice available online for buying a business. Talking to your IT Provider before you buy can save you a lot of heartache and money. For example, a common ‘due diligence’ recommendation is to ask a vendor why they are selling. “You may never find out the real reason, but it is worth asking”. Sometimes the answer to that question is this: the owner/s have found out they need to spend tens of thousands of dollars upgrading their IT systems for their business to remain competitive and decided to sell. Is that the kind of business you want to buy? Alternatively, have you negotiated a purchase price based on full knowledge of what needs to be spent on IT once you take possession?

Understanding what IT equipment, contracts, connections, etc are – or are not – being sold with a business is crucial for you to make a financially smart business purchase. So, what are the IT basics you need to know before you buy a business?

Buying a business

Basic IT Checklist when Buying a Business

  1. Equipment/devices
  2. Connectivity
  3. Licensing and Contracts

#1 Equipment/devices

  • How old is the equipment you are buying? Devices or software five years or older are.. well, old. Expensive to maintain and likely to die at any time. Have you factored in replacement costs to your first year of trading, or renegotiated the purchase price?
  • Does any equipment need to be upgraded? Have you factored this cost in to your offer?
  • What kind of warranties – if any – cover the devices? Are they proper business-grade or only ‘home user’ devices? Make sure you get what you pay for!
  • Are the business devices included in your purchase? Don’t laugh. I know people who have bought a business only to find out later the price did not include IT equipment: no PCs, printers, laptops, servers, switchboards, phones… nothing!
  • As well as getting an equipment audit, have an agreement in writing signed by the Seller itemising specifications for each device included in your purchase. A common business practice – particularly with franchises or practices – is to exchange new for old equipment/devices just before hand-over to new owners.

#2 Connectivity

  • What kind of Internet connectivity is available at the location/s of the business you are buying? Is Internet available? Again, don’t laugh. The local Exchange may not have the capacity for new connections. Whilst alternative connections can be available, the added cost may be prohibitive. Asking ‘what kind’ of connectivity is available is as important as asking ‘if’, particularly if your business modelling depends on fast up and down Internet speeds.
  • Is the current cabling infrastructure ‘business-grade’ and does it work well? Is the cabling legal? Does it need updating? Cabling can have a big effect on network speeds. If you need to upgrade cabling or network switches the cost of that needs to be factored into the purchase price.
  • Printer connectivity. Will the printer/s you are buying work with the software you use? This is important! Sometimes the only way to fix compatibility issues between software and printers is buying new printers or incurring hours of support fees from your IT Provider. Definitely information you want to know before you buy a business.
  • Do you need the IT systems of the business you’re buying to integrate to your existing IT systems? This is very rarely as seamless or easy as you expect. If you need this integration then extra due diligence may be required to establish compatibility.

#3 Licensing and Contracts

  • Are the devices you buying legally licensed?
  • Does the sale price include software licences? This includes Microsoft Office, Windows, line of business software, accounting software, switchboard software and more.
  • Is the business encumbered with legally-binding service , software, mobile, Cloud contracts, etc, that you will obligated to pay out? If Contracts exist, do they support early exit and what will that cost you?
  • Do devices have current software? Compatibility issues with specialised applications often occur when upgrading servers or Windows operating systems. Your IT Provider can let you know what is current, end of life and what you would need to or spend to get the systems you need to operate your business.

The above points cover the basic IT information you need to consider before buying a business. Please use this list as an aid to speak with your IT Provider. Or give itro a call and one of our engineers will be happy to help you get a better understanding of what you need to know about IT before you buy a business.

*Google ‘buying a business’ and you’ll immediately get access to millions of websites with advice on how to make a smart decision. Most encourage you to research legal and tax matters, finances and sales (risk, assets, liabilities), business assets (stock, equipment), location, goodwill, demand, employees, competition, inventory, legal documents (legally binding contracts with customers and suppliers), if processes exist, licenses and permits before you buy a business. For example, Business Victoria: http://www.business.vic.gov.au/setting-up-a-business/buy-a-business/checklist-buying-a-business

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