How to buy a Business – The First Steps…
First things first: what type of business suits you? Are you looking for an investment opportunity – one that allows you to take more of a back seat while others drive the business? Or are you keen to get stuck in, and want to buy a business that needs your involvement on a daily basis? There are thousands of businesses for sale right now, and you’re bound to find a few that are suitable for you. But to help narrow these down, you should work out exactly what you want to do and what you want to achieve – whether that’s financially, professionally or personally.
Whether you want to buy a shop, a restaurant, or a pub – there’s a business for sale out there for you right now. Narrow your search down by sector, area and price and, instead of being bewildered by thousands of opportunities, you can find a handful that are worth a more detailed look.
If you’re a first-time business buyer, then you need to ask yourself a few important questions.
- Are you ready to take on the pressures of business ownership?
- Why do you want to buy a business in the first place?
- What finances do you have at your disposal and do you have the support of your family?
- These and lots of question like these, are important to ask to make sure you’re ready for business ownership. If you are, then great. Welcome to a world of opportunity and wealth. Just be prepared to work hard for it!
How to buy a Business – The Next Steps…
Naturally, one of the first things you’ll want to know is why the business is on the market. After all, if everything was rosy, why sell it? But thousands of businesses sell every year, and lots of them are sold for legitimate reasons such as retirement, ill health or relocation. It’s important you find out why the owner is selling, of course, as it could help in your negotiations. If the seller wants to exit fast, you could make an offer for a quick sale. If they’re holding out for a final cash sum, though, then there might not be as much leverage.
Take a look at any business for sale from an objective viewpoint too. Imagine you are a customer, and ask yourself why would you choose that business over a competitor. Ask your friends and family what they think, but also be wary of listening to everything and everyone as, in the end, you need to make the decision for yourself. Arrange a viewing with the seller or their agent. But do your own mystery shopping too at a time when the business is actually trading, and not putting on a performance for a potential buyer.
While lots of successful businesses sell for legitimate reasons, there are some businesses for sale that might be on the market because they’re struggling. Don’t discount a business like this, as it could be struggling through poor management. A change in ownership can often breathe new life into a business, and you could even buy a business like this for a knock-down price. Talk to the broker, if the seller is using one, as they are obliged to provide an honest assessment of the business, its value and its potential.
How to buy a Business – The Final Step…
You might have found the perfect opportunity for you. But can you afford to buy that business? Remember, it’s not just the price of the business itself that you have to factor in, but also any other costs – such as lease deposits and stock purchases. You also need to have some working capital set aside to maintain overheads while you transition yourself into the business. And what about your own living costs? It’s worth having a few month’s personal living costs set aside in reserved funds, plus a little bit more for contingencies. Putting together a business plan is vital at this stage, so that you can determine what is required to buy a business – as well was what’s needed over the first few years.
And what about the asking price? In many cases it is a starting point, so prepare an offer with the Broker, and be well armed if you want to enter into negotiations. Back up your bid with a reason for making it and, if you’re smart, give the vendor an incentive to accept your offer. That might be the fact that you’re a cash buyer, or that you can move quickly, or even that you’re prepared to pay more based on the future performance of the business.
Your stance will be different if you’re the only person interested in buying that business too. Needless to say, it’s important that you have a walk-away point, and never overstretch yourself financially.
If your offer is accepted, then great. But the process doesn’t stop there. It’s at this point that you’ll want to enter into more detailed due diligence – a vital part of the business buying process. Dig deep into the business and ask for help where it is needed. Take professional advice, and listen to it. Go through the books, ask to see its trading accounts and VAT returns. Look at any property or capital equipment leases, study the employment contracts and find out if the business you’re buying is facing any disputes. Due diligence will be different in each case, and it depends on the type of transaction that is happening – are you, for instance, buying a business’s assets, or actually taking over the trading entity itself? In all cases, it is recommended you take professional advice to safeguard your investment.
Summary – How do I buy a business?
- Make the decision to buy
- Get prepared to buy a business
- Know which businesses you can afford to buy
- Search through businesses for sale near you
- Negotiate a price you’re prepared to pay
- Ask for help if needed.