Buying an existing business makes sense, with all the heavy lifting and initial legwork taken care of, once you transfer ownership, you’re clear to hit the ground running. An established brand, financial records, customers, clients, employees, premises; assuming all elements present without serious issue, you could be making a decision from which you’ll never look back!
Whether you’re thinking about buying a business in which you plan to work and make a living, or merely seizing an opportunity to invest, carrying out some fundamental groundwork will ensure an informed decision and could save you from making a costly mistake.
So, before you get wrapped up in the excitement of future possibilities, we advise that you take the time to upturn a few stones, consider what you’re trying to achieve and how best you’re going to achieve it.
Your Financial Status
An essential first step is to determine your budget. Talk to your bank, find out what type of loan you may be eligible for and on what terms. Talk to an accountant; they will help you handle the financial elements involved in a sale process; they will inform you of exactly how much money you’ll have to supply upfront. Financial clarity will allow you to move on a decision to purchase without delay; which in some cases, could be the difference between a successful transaction and one that falls over.
Are you buying a job? Do you plan to be involved in the daily running of the business, interacting with employees and customers?
Or, are you planning on being hands-off, employing managerial staff to oversee the business?
Having a clear idea of your aspirations will determine what type of businesses fall into your search criteria.
Picking an Industry
Once you’ve determined how involved you intend to be, you will be a step closer to refining your industry search. If you want to be a hands-on owner-operator, you’ll need the skills and experience to take on a functional role; the success of the business will depend on it.
Location, Location, Location
Location can often be very relevant to the success of a business. If you’re purchasing an established business, this may be fixed, leaving you with little choice in the matter. However, understanding the specifics of location will be critical to your appreciation of the current position and future needs of the business.
Things to consider:
- Is it located in a populated area? A city or town centre?
- Is there suitable parking for clients/customers?
- Is there enough storage space for inventory?
- Is the space big enough to support clients, customers and employees comfortably?
- Will expansion be necessary? If so, how soon?
Plenty of businesses are relocatable, so be sure to consider this as a practical solution.
Conduct Due Diligence!
Buying a business without conducting due diligence is like driving a car without wearing a seatbelt – you can do it, but it comes stacked with risk!!
Due diligence is the process of unearthing every operational element of a business to gain a clear picture of its history, its current position and its future potential.
Business brokers are experienced in conducting due diligence and will ensure that it is carried out as thoroughly as possible. Someone with little experience in this field can easily miss a crucial detail, resulting in a promising deal falling apart.
Due diligence checks:
- Pending court cases or other legal disputes.
- All critical assets of the company including equipment, vehicles, physical property and intellectual property
- Contracts with sales, suppliers, landlords, etc.
- Staff and current employees – personal details and the roles they hold
- A comprehensive financial history, including projections and financial forecasts for performance potential, debts owed and stock on hand.
Use a Professional Crew
You’ve conducted your research, and your enthusiasm is still intact; this appears to be the business for you, and you’re keen to make an offer!
Any offer you make should be a fair number compared to the asking price and be based on market value and the current competition. Making an offer under the guidance of a business broker will safeguard you from paying too much for the business or worse, pitching too low, insulting the vendor and blowing your chance at signing on the dotted line!
Following this general checklist, taking time to explore each component, is a small but necessary undertaking to secure your future! A positive outcome could be the beginning of a new and exciting chapter for you. Failure to prepare, however, could be your undoing!
For Further Information about this article, contact your nearest LINK Business Broking office at: