Jeremy Tauri: Do sums to invest

Work out what you want to gain from your investments.

I've had a lot of enquiries this week from people looking to purchase their first business.

Some are seeking self-employment, some have an opportunity from a retiring business owner and others are looking to inject capital in exchange for shares to assist with growth. Whatever the reasons are for buying a business, a few steps need to be taken before you make the offer.

Can you raise the finance? Unless you have some spare cash lying around you may need to borrow to fund the purchase. Banks will want some security and generally do not fund solely against the assets in a business. You'll also get some idea of costs and loan payments required to finance the purchase " important for cash-flow planning. Banks are a great source of free advice.

Make sure the cost needs of the business are broken into a list of plant and assets, goodwill and sometimes stock, and all are valued properly.

Are you going to get a return on the money you've invested? The business should pay you for the work you do and there should be some profit left over. If, for instance, you invested $100,000 in the bank it will pay you, say, 3 per cent a year. Your business should pay the opportunity cost of a working wage (what you could earn elsewhere), plus more than what you may be able to get if you had the money invested elsewhere.

Do the numbers stack up? Sometimes an amended set of accounts is presented by the vendor's accountant, removing expenditure that may be viewed as specific to the vendor's circumstances. The disclaimer will tell you what's been removed but request a copy of the tax accounts anyway, including GST returns and calculations for a solid idea of the performance of the business.

Do the preliminary work I have mentioned and then engage your lawyer and accountant for their advice on your business purchase.