In recent years entrepreneurs have increasingly come to see the numerous benefits of purchasing a preexisting business as opposed to creating a startup. It can make the overall process a lot quicker and easier, but that is not to suggest that you won’t need to put in time and effort to find a business that is right for you. An organised approach is required to help you find and acquire a business and therefore it is important for you to consider the following 8 steps.
There are the 8 steps in the process of acquiring a business
- Seeking Advice
- Goal setting
- Viewing and Valuation
- Financial arrangements
- Final Agreement
Delving into the world of purchasing a business without properly understanding the direction you want to go in is never good. In most cases when individuals aren’t confident in what they want to do and what is involved they will turn to professional help, in this case usually in the form of business brokers. These professionals specialise in this area will be able to offer invaluable advice throughout the entire process from finding a business that is right for you to aiding the negotiation, valuation and closing the deal.
If you have followed the previous step, at this point you are likely to know which sector you are interested in. It is important from here to now consider this sector in more detail to help you understand what is involved in owning a business in this area and what you can expect. With the help of an advisor you should be exploring several potential businesses and understanding when the best time to buy would be. Towards the end of this process you should be able to create a list of two to three businesses that you are interested in and wish to further explore.
At this stage is important to pause and consider why you are buying a business. From this write down your top 10 goals. e.g. what income do you need, what role do you want, where is the business located, which sector etc. Your business broker should help with this and guide you to ensure that you never lose sight of these key objectives.
Viewing and Valuation
Viewing a business is never a set process as whilst some owners are open about their intentions to sell, others may not want their staff and/or customers to know of their plans. Because of this it is important that you are discreet when visiting and are mindful of their situation. Despite this you must ensure that you, and your advisors, are as thorough as possible when asking questions to confirm what the business is worth to you. Again your chosen business broker should be your ally in ensuring a consistent approach in comparing the business you are considering. The key areas you should be looking into will be the financial history of the business, its current performance and why it is being sold and any legal issues the business may currently be tied up in. However always remember that you are buying the future, so seek financial projections, understand how these are put together. Why do customers buy, is future income contracted and what happens when the owner leaves? There are 8 key areas to consider and a systematic approach is important to understand the future potential of the business and the risks that exist. If possible you may also want to speak to the customers. It is important to note that you should be discreet and mindful when doing so as both may be reluctant to be honest because of ties they have with the current owner.
If you do not already have finances available to you for this new business venture then you will have to build a relationship with a lender. In most cases lenders will be interested in the following;
- The security of future revenues
- Details of your personal assets and liabilities and your CV
- The accounts of the business from the at least the last three years
- Financial projections
- A business plan confirming the opportunity you see in the business and how you are going to achieve it
If you have used a business broker throughput this process they will be the one to facilitate making an offer on your behalf. If however you have not used this service and you are making your own offer over the phone it is important that you follow this up in writing. This can either be in the form of a letter or an email but in either should be titled ‘subject to contract’. Be clear at this point, state how much will be paid, when it will be paid and any terms and conditions. It is easier to get difficult terms included at this stage, when a vendor is looking at how much you are offering.
During this period between making an offer and confirming your sale you are likely to be involved in a series of negotiations with the current owner. It is important that you have your broker leading your accountant and lawyer and to verify all of the information provided by the vendor and help you to negotiate agreements that work within your best interest. This may include having a period where they are still present to help make the hand over transition smoother and arranging your own independent survey of the property to ensure everything is in order.
Once you have reached an agreement it is important to note that the deal is not done until all conditions of the sale have been met. This will include a transfer of finances, the lease, VAT registration, contracts, licenses and the verification of all financial statements. This is often called due diligence and will uncover some unexpected matters, ensure these are assessed commercially and dealt with, if needed, in the contract.
Finally, just before you sign, recheck the deal against the goals you set earlier in the process. If the deal does not deliver any of these, ensure you understand why and that you are happy with that reason, before you sign. This will ensure you buy the business you wanted to have.