When you’re considering buying a business, it’ll usually be because you want to get fast-track access into a new market. This may be because you are just starting out or want to expand your current business – the alternative, of course, is to build something yourself from the ground up.
There are pros and cons to each approach. Let’s take a look at these before exploring the preparation you need to undertake to buy a business.
Pros and cons of buying a business
There are many advantages to buying the right business to achieve your goals.
Depending on how the deal is structured, you may have any or all of a customer base, employees, brand, assets and systems in place, and ready to generate income.
You’ll also have a track record demonstrating there is a market, which is good for your own peace of mind as well as for other stakeholders – say, if you needed to raise finance.
All the start-up hurdles should have been overcome, saving you costly lessons compared to if you were going to do it yourself from scratch.
Sounds great, but there are things to watch out for, too.
Not least the costs, both of paying the previous owners for their stake and the professional fees associated with the purchase.
In the long run, it may turn out cheaper than starting out fresh, but you’re likely to need significant capital upfront, as well as working capital to sustain the business while you settle.
You may encounter legacy issues, which could take the form of unfavourable contracts which you must honour, or perhaps poor management that needs to be turned around.
Then there are potential transitional factors to contend with. For instance, how will the customer base or employees react to new ownership?
How to buy a business
If you have weighed the pros and cons and decided that buying a business is the way to go, it’s time to make sure you do it properly.
This means due diligence – ensuring you understand exactly what you are buying, and that you’re paying a good price.
While you’ll want to understand the issues yourself, it’ll also be advisable to hire a commercial solicitor and accountant experienced in such transactions. You may involve other advisers too, such as a coach or business broker.
When you buy a business, you don’t necessarily have to buy the whole thing exactly as it was before.
It may be that you want to cherry-pick what’s of value to you. This could just be the brand, or the customer/client base, equipment or property, for instance. This may allow you to sidestep liabilities which you would otherwise have incurred.
Whatever you choose, it’s important to negotiate well to ensure you get good value. There are many factors which influence the price of a business sale. These include:
- historical, current and projected performance
- its current financial situation, including balance sheet and cash flow
- the reasons it is being sold
- any legal proceedings it faces
- how its sector is regulated
The clearer the view that you and your advisers can get on all these issues, the more accurate your valuation can be. It may help you get a bargain or walk away from what would turn out to be a basket case.
Help buying a business
Done properly, buying a business requires a lot of planning and it is best to reserve considerable time to complete the deal. We have great experience in this area and would be happy to discuss your situation if you are considering buying a business.