Buying a business for the first time can be one of the biggest decisions you will ever make. Finding the right business is essential, but it can be difficult to know which factors you need to consider. Getting expert advice from an experienced broker is a must, but in the meantime, here are some of the most important factors for you to consider.
6 Essential Points to Consider When Buying a Business
1. What is Your Goal?
Being clear about your reasons for becoming a business owner will help you to find a business that will achieve your goals. You might be looking for an established business that will provide a steady income, a growing business that needs an ambitious new owner to unleash its potential, or an exciting challenge. You need to find a business that will fit in with your plans.
Putting time into this element will help in assessing the businesses you look at later on. So be thorough and honest with yourself about what you want to do or you may end up buying something you hate.
2. Is the Business Doing Well?
New owners can sometimes rescue a business that needs investment or restructuring, but in most cases, it is best to buy a business that is doing well. One of the main reasons to buy an existing business rather than starting one is that it will come with an established customer base and brand. Ideally, it will already be profitable when you take over.
The seller should provide detailed financial information and forecasts to help you make your decision. You will need an unbiased valuation of the business and if you’re less experienced in the sector or in reading financial records, get expert advice.
3. Why is the Business for Sale?
Owners who are selling up to retire, move away, take on a new challenge, or hand the business over to someone better placed to help it grow, will be happy to tell you about their reasons. If the current owner is reluctant to discuss why they’re selling up, this could ring some alarm bells. The business could be facing some hidden problems that it would be best to avoid. Dig a little deeper.
4. Will There Be Any Extra Costs?
Make sure that you know how much you’ll need to spend to keep the business running. You don’t want to encounter any unexpected costs such as needing to replace old equipment or write off obsolete stock after you’ve invested in a business. Looking at cashflow to work out any seasonality is a good idea (see our previous article here about seasonal businesses).
These things are just part of everyday business. The key is to know about them so you can adjust for them when making your offer. If you’re landed with an unexpected expense after the sale, your due diligence into the business hasn’t been robust enough.
5. Is this Business the Right Fit for You?
Businesses need the right person to run them in order to succeed. As well as evaluating the business, you should think about your own experiences and interests when considering the type of business you’ll buy. Is this a brand that suits your style? Are you the right person to take the business to the next level? Can you build a good relationship with any key employees who’ll be staying on? What skills and experience of the business owner need replacing when they sell?
This was never more evident than after the 2008/9 recession when coffee shops became hugely popular. The people buying coffee shops weren’t always good businesspeople but had redundancy packages to invest. They liked to frequent coffee shops, knew what they liked, but were clueless about the work which went into running one. Consequently, those people struggled.
The seller will also want to be convinced that they are handing their business over to someone who will continue their efforts, especially if they are selling a family business. The skills and energy you bring to the business could all help you to seal the deal.
6. See what’s available
Before you’re serious about buying, get familiar with what’s on the market already. You can sign up for our own monthly newsletter of current sales but also get yourself registered on www.businessesforsale.com or on www.daltonsbusiness.com. These are the two largest sales sites covering the UK and a great source of information. Even if businesses are in totally the wrong location for you, knowing their turnover, profitability and asking price all feed into your knowledge.
Getting Advice from the Experts
If you’re ready to start looking for a business to buy then the next step will be to seek advice from an expert. Business Partnership has business brokers across the country who have handled sales and acquisitions in every sector of the market. We can help you to find a business that matches your needs and provide unbiased advice on valuations, the local market, and every aspect of the process. Our aim is to connect the perfect buyer with their dream business, so that both you and the seller will be satisfied with the results. Speak to your nearest Regional Partner now.