11 Rules for Buying a Business
From due diligence to negotiating the right price, if you’re considering buying a business make sure to follow these top tips before you make an offer
A growing number of UK entrepreneurs are choosing to buy an existing business to grow, especially with banks looking favourably upon acquisition lending, rather than facing the struggles of starting from scratch. Finding an existing business where much has been done but there remains much to do can provide the same level of exhilaration as a start-up.
If you are interested in buying a business as an alternative to starting up, then follow these steps to ensure that you know what to look for and how to be prepared.
Do comprehensive due diligence
Leave no stone unturned. Ask about the company’s insurance claims over the past three years, and any outstanding cases. Also make sure you see all financial statements from the past three years, including declarations of cash assets, intellectual property rights and outstanding loans or debts.
Get professional advice
When buying a business, it is vital that you surround yourself with a trusted team of lawyers, accountants and – if purchasing a premises – surveyors. They will be able to advise you on everything from contracts to negotiations, to potential problems with the company’s financials or properties. Even if you think you can do all this yourself, a professional second opinion is invaluable.
Understand the tax implications
Don’t just assume you can keep using the same taxation system that the previous business-owner used. Your taxation situation could be very different, and it may change as the business transitions to under your management. Hire a great accountant who can advise you on your tax liabilities and how best to manage them. Before signing on the dotted line, do a thorough background check to make sure that there are no unpaid taxes in the company’s history, as these may be transferred to you upon completion of the sale.
Create a winning business plan
The importance of having a good business plan is just as important for entrepreneurs buying into an existing business as people starting up. Think about why you want to buy this business and what you think you can do with it. Then create and follow a business plan that will help you to attain your goals in a reasonable amount of time.
Don’t let your heart rule your head
Buying into a business can be an emotional experience. If you are buying into an area you feel passionately about, don’t let your heart run away with you. If something doesn’t add up, don’t ignore it because you just ‘have to have’ this business.
Investigate the competition
You may think you are getting a great deal on that popular local coffee shop, only to discover that Starbucks is opening a branch next door. Know your market inside and out, and keep an eye on any competitor movements that may affect the future of your business.
Don’t be afraid to withdraw your offer
Just because you have expressed an interest in buying a business, doesn’t mean you have to follow through with it. If at any stage in the process you start having concerns, just remember you can still pull out. You are making a huge financial decision here – don’t be afraid to change your mind.
Don’t be too quick to transform the business
Once you’ve bought the business, you will be dying to start putting your stamp on the place and changing the way things are done – but try to hold off for a while. After all, the business has survived this long without you and managed to look attractive enough to catch your eye, so take a few months to observe the way things work; learning the company’s strengths and weaknesses from the inside.
Don’t get carried away with the negotiations
Before you enter the negotiation stages, set your limit. Based on the company’s valuation, your available funds and the business’ potential you should be able to come up with a maximum purchase figure. Start with a relatively low offer (though not offensively low) and do not exceed your upper limit – no matter what.
Make sure you know exactly what is included in the sale. Will the seller be leaving their office furniture? Fixtures and fittings? Domain name? Surplus packaging? Do a full inventory of the business’ assets and get the seller to sign off on these in the contract.
Expect the unexpected
No matter how prepared you are to buy your business, know that something will go wrong somewhere along the line. All you can do is assume you will encounter the odd mini disaster and stash aside some cash to pay for any unexpected damages or other issues, then take a deep breath and move on.
Some of the world’s most successful entrepreneurs including Bill Gates and Ray Kroc chose to buy a business rather than launch a new one.
Buying an established business can bring numerous benefits such as inheriting existing customers, staff, suppliers, products, brands and goodwill. Purchasing a new business may be as rewarding as launching a new company – but with less work and risk!
This article was written by Jonathan Russell, community manager at Intelligent Business Transfer.