You need to understand working capital is a real cost in the total investment when buying, or selling, a business.
You need to make sure there is enough cash to run the business, and especially during those first few critical months.
The number one concern of most new business purchasers is running short of cash to meet their immediate obligations, such as inventory, rent, salaries, payroll tax. There are often all sorts of other expenses that are easily forgotten in the midst of the excitement of buying and running a business.
Working capital is essential to operating a successful business because there must be free-flowing cash to pay the bills.
Business owners usually do not think about the impact of all the components and timing aspects of working capital on the buyer of their business. Why, because its is not seen as the seller’s problem. This is where a business broker can help steer the parties through uncertain waters.
Business brokers know what makes up working capital and how to advise buyers and sellers to structure deals. In the eyes of the business broker working capital is made up of:
Business brokers know what makes up working capital and how to advise buyers and sellers to structure deals. In the eyes of the business broker the main components of working capital are:
- Short-term cash requirements plus
- Customer accounts receivable plus
- Inventory less
- Supplier accounts payable, equals
- Net working capital
Buyers, sellers, business brokers and other professionals need to understand working capital and total enterprise value. They also need know how to best leverage it to successfully settle business sale transactions.
Buying or starting out in your new business should be an enjoyable challenge, not a struggle to pay the bills from day one. To ensure you don’t find yourself in such a situation be sure to get the right advice from experienced professionals who know all the problems and pitfalls. If you need assistance in buying a business, you’re welcome to call us on (02) 8221 8818.