If you’ve decided to buy an existing business rather than starting a completely new venture, here are ten things to consider before taking the plunge:
1) Set your goals
It’s vital to understand exactly why you are looking to buy a business in the first place and set clear and realistic goals for it.
You may wish your business to generate income every year.
Or you may be more interested in something you can scale up and add value to, then sell again down the line.
Having a clear goal in mind will help you more sensibly assess potential purchases and will also be useful for any sales agents or other professional advisers you might employ to help you find a suitable business.
2) Make sure you’ve picked the right industry
Be careful that you have picked the industry that will help you achieve your goal, rather than being simply drawn to an industry to fulfil an unrealistic childhood dream.
Maybe you’ve always harboured the desire to own a widget factory and noticed five such businesses are on the market now? Is it the opportunity of a lifetime, or could it be because the market for widgets died a year ago?
The best way to learn more about any industry is to work in it for a while. You may even be able to do this part-time around your existing job.
If you really want to own a restaurant, spending a year working as a waiter in the evenings will be the best way to test your dream. You will gain invaluable inside knowledge which you’ll be able to put into practice in your own restaurant when you get it going.
3) Do your research
A quick Google search will give you dozens of websites and companies that offer businesses for sale. Spend several evenings researching here to see what’s around in your chosen sector and geographical location.
Aim to put together a shortlist of businesses and then target them with even more research.
Go through every page of their website, Google their name to see what others think, and track down customers to ask their opinions. You could even pose as a customer to see what the company is like.
4) Have an initial viewing
Now is the time to approach the business through their agent and learn more.
Remember to stay subjective—just as when you’re buying property, you need to think with your brain, not your heart. Listen to your gut feeling, and don’t ignore it.
Buying a bad business is an expensive mistake.
Some business owners don’t tell their staff they are selling, so as not to risk them taking their eyes off the ball at a time when the business’s performance is under close scrutiny.
Comply with these wishes and remember to maintain a friendly, if professional, relationship with the seller.
They might be selling you a business they built from scratch and will want to ensure it is going to a safe pair of hands.
5) Do a reality check
Now that you have all the information on the business—official and unofficial—you should take a step back and think it through. What warning signs have you seen in the business?
No company is perfect, but do you have the skills to fix the problems you have seen? Can your strengths enhance this business?
Be particularly careful if the business appears to be overly dependent on the current owner or key staff.
The owner cannot be replaced like for like, even by you. Key staff may be the first to leave during a major upheaval—will this business survive without them?
6) Get help
It’s best to get some professional and informal help. Ask your accountant and solicitor to pore over the figures and contracts. It doesn’t matter how much this costs.
It’s much better to spend a few thousand and uncover potential horrors now than discover them 12 months later when it’s too late to do anything about them.
Ask your partner and friends what they think. By this stage, you may already be too close to the business to be fully subjective, so people whose opinions you trust may be able to provide a fresh perspective.
7) Get the money sorted out
You should have a budget in mind before looking for a potential acquisition target.
If you are buying the business with finance, you should make sure you have a general agreement of credit in place before getting into detailed discussions with vendors.
Now you’ve got a specific purchase in mind, get the credit formalised.
Lenders generally require full details of the business you want to buy, including three years’ accounts and financial projections.
They may even ask you to put some personal assets up as a guarantee for the loan.
If you are struggling to secure a bank loan, other sources of finance you could explore include; your pension fund, an existing business or “friends, family and fools”.
8) Make an offer
If you don’t have a solicitor, get one now. Make your initial offer by phone and always follow it up immediately in writing. Use the term ‘subject to contract’ in all communication.
This is the time to request conditions of sale, such that the existing owner stays within the business for a set period during a handover.
9) Negotiate a great deal
Don’t be afraid to push for the deal you want. Not many businesses have sellers fighting over them, so you are in a strong position as someone with cash to splash.
You and your solicitor will undergo a process called due diligence, during which you verify the information provided by the seller.
Find out why the current owner is selling and leverage it. If they want to retire, are they really going to jeopardise the sale of the business for the sake of a few thousand pounds?
10) Buy the business
Once the lending has been settled and everything has been transferred to you – congratulations, you just bought a business!
Now the hard work starts!
You have to fit into the business and understand it fully before you can start making the changes needed to achieve your original goals.
