Where to start when buying a business

Buying a business is a huge decision which requires careful thought. If you are considering a business purchase, you need to start by getting yourself in the right mindset. Before you make contact with any business for sale, get clear on your priorities, requirements and the outcomes you want from your purchase. This will put you in a strong, confident negotiating position. Reflection takes time, and you will reap the benefits of this later in the buying process.

This blog focuses on open market sales over management buyouts, mergers or acquisitions. If you decide to partner with a business broker to help you find the right business, these are the questions they will ask you. Let’s start with some individual reflection…

Your personal motivation

Why do you want to buy a business? Consider your reasons for entering into a business purchase. There are all kinds of valid reasons why you might find buying a business attractive, including:

• Using your expertise to grow a small business
• Expanding your portfolio
• An investment opportunity
• A quick way to remove a competitor from the market
• Expanding market reach and growing your customer base
• Benefit from a brand’s reputation
• You retired and miss the buzz and enjoyment of running a business.

Whatever your personal motivations, being clear and honest about your why will help you find the right business to buy.

Business sector

Will you stick with a sector you have experience in or are you ready to apply your skills to a brand new challenge? Sometimes a buyer is looking for a business operating in the same sector to complement and grow an existing portfolio, e.g. a manufacturing company purchasing a key supplier of materials. Other times buyers have a desire to enter a new sector they have an ambition to operate in. 

Location

There are businesses for sale right now across the UK. Location could be a significant factor if you want to tap into the market in a specific area. It may not be a consideration if you plan to relocate the business in the future.   

Your intended level of involvement in operations may also be a factor. If you want to be part of day-to-day affairs the company may need to be local. A more hands-off approach would allow the business to run with low level input, broadening your search area. Alternatively, maybe a business trading outside the UK is more of a priority than where the business is based.

Size of company

People interpret business size in many ways – turnover, customer base, number of employees, stock holding, assets, etc. Your personal interpretation will depend on your objectives and priorities. Get clear on what size of business you are searching for to refine your search criteria. 

Funding your purchase

Will you be a cash buyer or do you intend to fund the whole or part of the purchase through loans or other funding? Having your finance in place at an early stage shows a vendor you’re in a serious position to buy and may help to speed up the buying process. The funds you have available will determine the asking price of the businesses you can approach.

Deal structure

What kind of deal structure are you interested to pursue? Will you initiate a straightforward share purchase? If funds are limited, deferred payments could be your best option. Thinking about your preferred deal structure in advance will put you on the front foot when negotiations begin.

Unsure what deal structure options are available to you? Get in touch with your local business broker for a confidential, no-obligation conversation.

What are your intentions for the future of the business?

Future objectives are a key consideration in matching buyers with businesses for sale. Like buyer intentions, vendor intentions vary too. Aligning both sets of expectations is important in building trust and rapport between parties. If post-sale you plan to break up or sell off parts of the business and the vendor wants to prevent this happening, then theirs may not be the right business purchase for you.

Questions to ask yourself include:

• How often do you intend to work in the business?
• Is business growth a priority?
• Do you want the existing management team and staff to stay on and oversee operations? 
• Will you be a sleeping partner who invests and gains financially, but has no say in the way the business is run?
• How does the business complement the company or companies you already own or are involved in?
• Will you break up or sell off parts of the business?

Searching the market

Starting your search is exciting and also a little overwhelming. At the time of writing we have just shy of 200 businesses listed for sale on the Business Partnership website. If you have a target business in mind this can streamline the process, especially if you know the owner is warm to a potential sale. Where you are going in cold, we’d advise making a formal approach through a professional, such as a business broker or accountant.  

Seek professional advice

Deciding to buy a business is exciting yet daunting. As you prepare yourself to become a business owner, there are several important questions to ask yourself. It can help to discuss your thoughts and ideas with a professional who has experience of brokering business sales.

Business Partnership has been helping people to buy and sell businesses across the UK for over 40 years. We match buyers with sellers and help our clients handle every aspect of their sale or purchase. Find your local expert here.