Buying an existing business? What you need to know and do.
So you’ve made the decision to become your own boss and buy a business. While you’ve yet to identify what business that will be, one thing you do know is that you want to buy a business that’s already up and running. That’s the easy part done. Read on to learn more about what’s involved with buying an existing business.
To begin the process, there are a few questions you need to ask yourself that will help you along the path of finding and buying an existing business that will be right for you.
What sort of business do I want
Firstly, consider location. Where do you want to work? Is commuting an hour each way per day fine with you or do you prefer to work from home? Do you want to be close to home or are you open to moving? Would you consider an online business in which case location won’t matter? When thinking about these questions, keep in mind that location will go on to have an impact on employee numbers, labour costs, taxes and potential earnings.
Next, think about the size of the business. Are you looking for a small, family-run type of business or do you want to take over a large company and grow it further? When thinking about this, consider the implications of small versus large – that is, a larger business could mean larger profits but it will most likely also come with a heftier purchase price and not to mention more stress in both the buying process and the on-going operation of the business. A small business may be easier to take over but potential growth may also be small so consider whether you are ok with that or not.
Once you’ve nailed down location and size, it’s time to turn your thoughts to what do you want to actually be doing every day? Hospitality… automotive… printing…small goods… manufacturing… building… choosing an industry might be a no brainer for you if you have experience in a particular field but if you don’t, or you want to try something completely new, this can be a daunting decision. Start by identifying causes you are passionate about or hobbies you enjoy and are skilled at. Decide if you want a career that has high levels of people interaction or if you prefer to work autonomously. Answering these questions will help you get closer to choosing an industry you want to be part of.
Finally, think about what sort of lifestyle you want to have. Are you happy to travel lots, work late into the night, be outdoors most of the time or is 9 to 5 at a desk more your cup of tea? Whatever you prefer, remember that as the owner, the success of the business ultimately lies with you so if you cannot fulfil the demands of the job, its probably not the right fit for you.
The search for the right business
Now you have a clear picture of what you are looking for it’s time to do your homework. Research what businesses are available and a great way to kick this off is word of mouth. Ask friends and family if they know of a business for sale that would be suited. They may even be thinking of selling themselves in which case you’ve hit the jackpot! If it’s a small café you’re after and your local is somewhere you picture spending your days, there’s no harm in asking the owner if they want to sell. The more people you talk to and who know what you are looking for, the more chance you have of finding the right business sooner.
Another avenue to pursue in your search is your current business contacts. Extending the search area to them widens the options available. The wider your network, the more chance you have of hearing about a great business that is for sale.
You might also consider using the services of a professional business broker to help in your search. If you find that the above methods aren’t really getting you anywhere, a business broker can help in a number of ways. Firstly, a business broker will take your wishlist and pre-screen businesses on your behalf so you’ll only be presented with businesses that will fit your requirements. No time wasters please! A business broker may also have access to off-market opportunities that you otherwise would not find out about. Bring those on!
Once a business has been found, a business broker will also be able to negotiate on your behalf. You’ll benefit from removing yourself from what can often become an emotionally-driven purchase, especially if you have been searching for a long time and have finally identified a business you really want.
Seal the deal
Once you’ve found the business that is right for you, don’t get ahead of yourself and forget about your due diligence. A business may look great at first glance but unless you dive into the ins-and-outs of how it operates, you could get stung by making a poor choice.
If you are working with a business broker, they will help you through the due diligence process. Another advantage of using a business broker is they will be able to provide a professional valuation of the business.
If you are going it alone, have your solicitor and accountant by your side and an independent business valuer to help you assess the value and financial position of the business. Keep in mind that a professional business valuation will take into account the current owner’s impact on the value of the business and what could potentially happen to that value should he/she sell up. Your solicitor will guide you through the sales agreement and ensure you understand everything before you sign on the dotted line.
Open for business
While buying an existing business often costs a lot more than starting a business from scratch, it usually also comes with less risk. Financial information is there for you to view in black and white with an existing business rather than rough projections about potential profits with a start-up. An existing business may also come with an exciting patent or the opportunity to inject fresh ideas as well as your expertise that will take it to the next level. There’s no doubt that buying an existing business will impact your lifestyle and be a huge adjustment for you. With a sound transition plan, and the willingness to work hard, innovate and learn, buying an existing business might just be the best business decision you’ll ever make.
