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:
Let’s look at some of the disadvantages:
How to decide what business to buy.
When thinking of buying a business there are many factors to consider such as:
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:
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.