Buying a Business: Considering an existing business

Buying an up and running business may be easier than starting one from scratch. You will have to invest time and money into finding the right business that’s not only right for you but also fits within your budget.

There are many good reasons why buying an ongoing business is better than starting one from scratch.

You are about to buy someone else’s legacy so be aware of every aspect of that business.

Let’s look at some advantages:

• A business that is up and running will have all the groundwork already done
• It will be easier to obtain finance for a business with a good track record.
• It should have an established network of customers.
• A steady stream of income
• If it is a good business, it will also have a good reputation
• Teething problems would have been dealt with
• A management in place is always the key especially if you are not from the industry
• And finally, staff that are settled in their position and know the job

Let’s look at some of the disadvantages:

• Your investment may be larger to buy an established company.
• If the business has been neglected, you may need to allow more funds over and above the purchase price to get it back on track
• Most don’t like change so you might have initial growing pains to deal with.

How to decide what business to buy.

When thinking of buying a business there are many factors to consider such as:

• Looking at your skills and matching it to the business you want to get involved with.
• What do you want to get out of this business?
• What motivates you to buy this business
• What do you want to achieve?
• Can this business give you the earnings and satisfaction you looking for?
• Do you have sufficient capital to buy this business and keep it going until it sustains itself?
• Are you committed to this new venture?

If your answer is no to any of the above perhaps you should consider looking at something else

Valuing a business

There are several ways to value a business and business owners often start with their accountants, but a business broker or a corporate financier are also suitably qualified to value your business.

A few things to consider when doing a valuation:

• Current and past performance
• Projections
• History
• Why is the owner selling
• Any outstanding litigation

Buying the business

Make an offer on the business (always include the clause subject to contract, or subject to due diligence) and when that offer has been accepted, ensure you have enough time for an in depth due diligence. Include in your offer a time of exclusivity whilst doing the due diligence

In essence now you have bought a business and the clause subject to means that if what you have been told does not match your findings  then you can withdraw your offer and get out clean.

This is the time you investigate the business you are about to buy. Be careful as staff may not be aware that the business is up for sale. Speak to the seller and find out how discreet you should be.

The findings will tell you the business current and future performance, you will be able to see if there are any issues like litigation in progress and you will have a good insight on the business standing.

It would be wise at this point to see where the business is standing in the marketplace including its competitors.

Get an accountant to go through the figure thoroughly ad ensure there are no financial problems within this business.

If the business is leasehold, ensure the landlord is happy to set up a new lease with you. If you are buying the building don’t rely on the valuation the owner has done, do your own and compare it with what has been presented to you

Finally, get a solicitor on your side to confirm that this business has the ownership of all assets and has the right to sell.

In a due diligence don’t only look at figures as there is a lot more to a business than just figures, look at what you are getting involved with. This exercise will tell you if there is anything that needs fixing, the cost to fix it, and if you are the right person to fix it.

Don’t buy the first business that is presented to you take your time to research the market, look at different business that are up for sale that fit your criteria, get an advisor to help you valuate and negotiate the transaction.