The Ultimate Guide To Buying an Existing Business
The web is packed with articles and blogs advising you on how you can launch your own start-up. It is so easy to access information on how you can turn your passion into profit and get your new enterprise off the ground.
However, what if you are considering buying a business that is already established? How do you find the out what the advantages are and how to go about it? Here is the ultimate guide to buying an existing business.
Do your homework before you buy a business. If you have already bought a house, or two, you may think that you know all there is to know about buying and selling things. However, buying a business a lot more complex and time-consuming than buying a house. You are probably buying a building (or buildings) and the structural condition of these will need to be carefully assessed. You also need to investigate the business plan and the accounts to make sure that it is a viable prospect and that there is a well-developed market for its products or services.
This involves an almost forensic examination of the business records, plans, and accounts. You also need to check out the competitors and the prospect of new competitors moving into the area in the near future. Is this why the current owners chose to sell at this time?
The legal status of the company, in terms of licenses, permits and registration is also important and you must establish if these can be transferred to you immediately. Do you have to personally register with an organization or a professional body beforehand?
Businesses are not cheap and buying one is a serious investment. You cannot do it without professional legal and financial advice and support. Get your advisers to check out all documents before you sign anything.
The pros and cons of buying an established business. When you buy an established business all the hard work involved in setting up the plans and procedures has been done. All of the marketing strategies, records management, and accounts are well established. The other good news is that you will have an established cash flow which is something that most new businesses struggle with.
If you want to approach banks for a loan, you will have several years of accounts to show them and this makes banks and investors much happier about lending you money.
Perhaps the most important asset that a business has is its existing customer base. When you buy the goodwill of the business this is what you get. You don’t have to start from scratch with your marketing. In larger businesses, you will also get the existing equipment, stock, and the employees. They have a wealth of experience that is invaluable to a new business owner.
However, there are some disadvantages as well. The business plant and equipment may be old and in need of repair. You will be the one who has to pay to replace or repair it and that can be very expensive. You may not have any money available to do this if you have had to find a huge sum to buy the business in the first place.
The fact that the business has premises and existing staff is not much use to you if the building is badly located and the staff is unenthusiastic and uncooperative! Finally, ‘goodwill’ can be a hard concept to sell. The existing customers may have been loyal to the previous owner but they may not feel the same way about you!
Make sure that this is the right decision for you. If you have never run your own business before, this is a huge step. You should do as much research as you can so that you are fully informed about what is involved and whether you are suited to the role.
You will need some financial backing, some skills and a lot of ambition and determination. When you are choosing which business is the right one for you, you should think about which industry or sector would be most suitable for your skills and experience. Decide if you want to sell a product (digital or physical) and if you want to sell locally or nationally. Then you need to decide on the geographical location where you want that business to be based.
People who are selling businesses often advertise them in newspapers or on real estate websites. You may also come across them in trade journals and industry magazines.
Essential steps when buying a business. Once you have made the decision to go ahead, put together a shortlist of four or five potential businesses that suit your budget, your interests, and your location criteria.
Appoint an accountant and a solicitor to help you with your investigations into each of the businesses. The accountant will be able to investigate the financial data and operations of the business. The solicitor can check on regulatory issues and draft the legal paperwork for the sale.
Go and talk to your bank or mortgage adviser. Establish exactly how much money you have available to buy the business and to invest in it during the early months of operation. Remember, you need to factor in the purchase price, stamp duty, professional fees and charges and loan costs.
Your research into the business. Start by having a walk around the location where the business is situated. Is it suitable? Then check out the competition to discover if they are doing anything differently (or better) than the business that you are buying. Have a good look at the company’s online presence. This is not just the website, you also need to look at the social media channels to see whether there is an engaged group of clients. If possible, it is a good idea to try out the business’s products or services yourself. If you are impressed then customers will be as well.
The single most important thing that you need to do is establish exactly why the business is for sale. This is essential. If the reasons for selling the business are anything to with it’s potential to be profitable you should walk away.
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