If you’re wanting to buy an existing business instead of starting a completely new venture from scratch, there are some important things you’ll need to consider first. In this guide, we’ll be going through the ten top tips you should be aware of when you’re buying a business to get you started on the right footing.
Set realistic goals
It’s essential to understand the reasons why you’re looking to buy a business and set clear and achievable goals for it when you do become the owner. For example, you might want the business to generate an income and profit for you every year. Alternatively, you may prefer something small that you can scale up, add value to, and then sell again further down the line.
Having a plan and goals in mind will help you to sensibly assess possible purchases and find the right fit for your needs instead of jumping into a project that doesn’t align with your intentions. Also, a well thought out plan will be handy in steering any sales agents or expert advisers you might use to help you find a suitable business to purchase.
Choose the right industry for you
Take care to choose an industry that will help you achieve the goals you have laid out rather than getting into an industry to fulfil an unrealistic childhood dream. You might have always wanted to get into a specific sector but there are loads of other businesses already operating in that space, or there isn’t a market for that industry anymore.
The best way to get a true insight into any industry is to work in it for a bit and see how it runs. You could even do this part-time around your existing job. If you’ve got your heart set on owning a restaurant, working as a waiter for a while in the evenings will put your dream to the test. The inside knowledge you will learn is invaluable for when you own the restaurant if you decide to go for it.
Do thorough research
A quick search on Google will provide you with a detailed list of websites and companies that have businesses for sale. Make sure you do your research into what is available in your chosen industry and geographical location. It will be helpful to create a shortlist of businesses and then delve deeper into them with more research.
Comb through each page of their website, Google their name to see what comes up, and look at customer reviews to see how the business is performing. You could even pose as a customer yourself to get an understanding of what the business is truly like.
Arrange an initial viewing
Next you might want to learn more about the business through the selling agent and see it for yourself. Try to stay as objective as you can, like when you’re buying a home, you should listen to mind and not your heart. If you have a gut feeling when you view a business don’t ignore it as taking on a bad business can be a very expensive mistake to make.
Some business owners don’t inform their staff that they’re selling straight away, so they don’t lose focus and risk the performance of the business when it’s under close scrutiny by potential buyers. You should comply with these wishes and keep a friendly and professional relationship with the seller. They could be selling you a business that they put their heart and soul into building up from nothing, so they’ll want to ensure it goes into good hands.
Take a step back and assess
Now you have all the information you need on the business you’re interested in, both official and unofficial, you should take the time to do a reality check. Are there any red flags you’ve seen in the business? There’s no such thing as a perfect business, but you need to think about whether you have the skills to fix any issues and generally make the business run successfully.
You should be especially cautious if the business seems to be overly reliant on the current owner or key staff members. The business owner can’t be replaced like for like and loyal staff might leave during the transition, leaving you with the possibility that the business won’t make it without them.
Ask for outside help
Buying a business isn’t an easy process and it’s always best to seek some professional help as well as informal help. Ask your accountant and solicitor to go over the figures and contracts. Experienced commercial conveyancing solicitors like our team can help you with the purchasing process if you decide to go ahead, making sure everything is correct and above board and guiding you to completion of the sale.
Asking close friends and family what they think can be beneficial too. This is because at this point you might already have become too close to the business to be fully objective, so opinions of those you trust could help give you a fresh perspective.
Get your finances in order
Like with buying a residential property, you should have a budget in mind when you’re looking for a business to buy. If you’re using finance to purchase the business, you need to make sure you have a general agreement of credit in place before you start any in-depth discussions with vendors.
When you’ve decided on a specific business to buy, formalise the credit. Usually, lenders will expect full details of the business you want to purchase, including three years of accounts and final projections. They might even ask you to put up some personal assets as a guarantee for the loan.
Submit an offer
If you don’t already have a solicitor, you need to get one as soon as possible. You should make your initial offer on the business by phone and follow it up straight away in writing. Include the term ‘subject to contract’ in all communication relating to the sale. This is the time for you to ask for any conditions you might want, for example the existing owner stays in the business for a certain period of time during the handover.
Negotiate for the best price
Don’t be afraid to push for the best price you can get. Not too many businesses have sellers fighting over them, if your finances are in place and ready to go, you’ll be in a strong position to negotiate. You and your solicitor will carry out due diligence which involves verifying the information provided by the seller. It won’t hurt to find out why the current owner is selling the business and try to leverage it.
Buy the business
Once the paperwork, lending, and conveyancing has been sorted and everything has been transferred to you, congratulations, you’re now the owner of a business. This is where the hard work really starts as you try to fit into the business and fully understand it ahead of making it your own.
So, those are the top tips you need to know when buying a business, we hope you find them helpful. Don’t forget, if you’re buying commercial property in Newcastle, the team at Toomey are here to help make the process as efficient and stress-free as possible. Contact us today to discuss your needs.