Thinking of Buying a Business?
Buying a business is more often than not, an attractive proposition compared to building an organisation from scratch. There is much less risk, especially if staff, equipment, suppliers and customers are all in place, giving you the opportunity to enjoy the benefits and rewards of business ownership from day one.
Of course, there are still many risks and responsibilities and you will need to possess entrepreneurial spirit, motivation and determination to manage and improve your new business. You will also need to ensure that you evaluate all the available businesses for sale in order to choose the best business to suit your experience and long term objectives.
An acquisition plan will improve your chances of finding the right investment for you. It should include business type, industry sector, location and size, but you also need to give consideration to the current performance of your target company. Do you want to take on the challenge of a struggling business with huge potential but high risk, or would you prefer a safer option? You should also include the amount & sources of available finance and a proposed timetable; you may even be asked for proof of funding, before any offer for a business is accepted. Once you have a clear idea of what you’re looking for, you can start your search.
Finding the Right Business
Businesses for sale are usually advertised through National daily papers, on specialist web sites and/or through intermediaries, often known as Business Transfer Agents, such as Stirling. Before any information is imparted, you usually have to sign a Confidentiality Agreement, also called a Non-Disclosure Agreement or NDA for short. Business Transfer Agents should be able to discuss your requirements in detail, to see if they have listings that may be of interest to you. Although fees are normally paid by the person selling a business, a “finders fee” may be chargeable if you ask an Agent to carry out search specifically for you.
Once a possible acquisition has been found, you will need to be supplied with detailed information such as the company’s financial performance, position in the market, history, personnel, strengths, weaknesses, costs, assets and liabilities along with the owner’s reason for selling. Much of this information should initially be provided in the Sale Memorandum document which is (or should be) provided by the Agent. Additional information such as Statutory Accounts and Management Accounts are only normally provided if the buyer wishes to take matters a step further and in some cases, only after a visit has been made to meet the person selling (Vendor).
For businesses for sale, please CLICK HERE
What’s it Worth?
You need to decide what the business is worth to you. What’s the current operating profit? What level of salary are you hoping to achieve or accept? Are there opportunities for expansion and increased turnover? Is the level of risk reflected in the return on investment?
Whatever the asking price, you need to be aware that there are at least five different valuation methods and you can be assured that the person selling will often choose a different valuation method to the person buying. It is as well to obtain your own independent valuation before making an indicative offer or agreeing Heads of Terms. Before the price is agreed, you need to be sure that the price fits with the finances, risk levels and aspirations of your Acquisition Plan.
For your independent business valuation report please CLICK HERE
Buying your Business
Once a price and Heads of Terms has been agreed, you should be entitled to a period of exclusivity, to allow time for the financial and legal status of the business to be reviewed. In addition to this process of due diligence, many other legal agreements, such as the preparation work for lease transfers need to be taken forward for when the sale is finalised. If the business is already successful, you might want to negotiate a handover period, whereby the seller is employed by you for a period of time, to ensure continuity.
Running a business can be extremely rewarding both personally and financially, but for most people it isn’t an ‘everyday’ activity as it can become stressful if the right decisions are not made. In this respect, it is worthwhile considering using business transfer agents to help negotiate and act on your behalf.
If you have any questions about buying a business, please contact us for free, impartial advice.