Five steps to follow when buying a Business

Five steps to follow when buying a business

Entrepreneurship comes in many different forms. There are those who set up their own business from scratch and work hard to build it from the ground up. There are those who invest silently, sitting in the background and waiting for the profits to roll in.

Then there are those who buy an existing business and take it onto another level. Purchasing a business appeals to entrepreneurs for many reasons. Firstly, there’s the fact that it presents less risk than setting up a company from scratch. There’s a history of profit, loss, and sales for you to look at rather than just rough estimates.

Secondly, you can acquire a business with a strong brand name or reputation upon which you can build. There’s no need to build trust with customers as it is already there.

Thirdly, there is the challenge of taking what somebody else has created and adding your own spark and expertise to push the business in an exciting new direction.

Sounds good, doesn’t it? So, how do you go about buying a business? Here are five steps to follow.

 

  • Decide what sort of business you want to buy

 

You need to have a clear idea of what sort of business it is you are looking to buy. There are plenty of factors to consider here. Most important of all is the industry. Ideally, you’ll be investing in an area in which you have expertise or at least a keen interest. If you aren’t passionate about your new business, then chances are it will fail under your watch.

Location is also a vital consideration. Are you willing to move for the right challenge, or do you need something close to home? If you can’t leave the town you live in for personal or family reasons; already your options are going to be somewhat restricted.

What size business do you want to buy? A small, family run business will be gentler on you than a big, bustling company which may require longer hours and more stress but ultimately, bigger profits.

Finally, there is your lifestyle to consider. Do you want a 9-5 job or are you open to working weekends or odd hours? Taking over a soccer coaching business where the majority of your business is going to be carried out on weekends or during vacations isn’t going to be suitable for you if you only want to work Monday to Friday.

 

  • Research available businesses

 

Once you’ve settled on the type of business you want to buy, you can begin the task of looking for one that is available. At this point, most people will jump straight onto Google, but you should actually start the search closer to home.

Do you have any friends who are looking to move onto another project and might be open to selling their company? Is your favorite coffee shop going to be put on the market soon because the owners are retiring to the Caribbean? Perhaps you already work for a small, family run business whose owners are looking for a way out?

By attempting to find a business that you already have some prior knowledge about, you are far more likely to get a legitimate deal and at a fair price. There’s no harm in asking around before you turn to the internet for help.

 

  • Carry out thorough checks on the business

 

The temptation once you’ve found the business that you want to buy is just to dive straight in and complete the purchase. Yet you wouldn’t buy a house without having a property survey carried out to see if it was structurally sound and you shouldn’t buy a business without carrying out due diligence for the same reason.

Have a business valuation carried out to ensure that you are getting value for money. Look at who the business trades with – if the company’s income is generated primarily because of a personal connection with the current owner, can you guarantee that a client won’t take their business elsewhere once you take over and that connection is therefore severed?

A professional accountant can evaluate the companies finances to make sure everything is in order and ensure you aren’t about to invest in something that has little or no prospects for a future return.

 

  • Acquire funding to buy the business

 

Unless you are incredibly wealthy, chances are you are going to need to source funding to buy the company. The best way to do this is via a business loan. There are lots of great small business loans available, and the good news is that if you can show you are buying a company with a proven track record of success, a lender is far more likely to support you than if you are setting up your own startup.

Alternatively, you could find an angel investor to partner with you on the business. They’ll supply some of the money needed to help you fund the acquisition and take a share of the profits while you do the work on the ground.

 

  • Draft the sales agreement

 

Once you’ve found your business, carried out your due diligence and secured funding, all that is left to do is sign the sales agreement. At this stage, you’ll need to get a reputable legal representative such as Saalfeld Griggs Business Lawyers involved to help you draft a watertight contract and ensure that you and the seller understand the full terms of the agreement and your various obligations once it is signed.

The last thing that you want is ambiguities or confusion surrounding who is paying what, what parts of the business you now legally own and any changes you can make.

Once your attorney has made that clear, all that remains to be done is to sign on the dotted line. Buying a business will impact on your life and those around you for years to come. It’s a brilliant way to improve your standing, make money and just have fun in general. Perhaps best of all though is that with hard work and dedication, you can turn a good business into an excellent one.

 

Posted in: Business