Buying a business
Buying a business
If you are planning to establish yourself in business in the United Kingdom, it may be a good option to buy an already established company instead of starting a new one from the beginning. In order to succeed you need to put a lot, in terms of time and efforts into finding a business that suit your business requirements.
There are some advantages and disadvantage in buying an existing business that you should foresee in advance. Let’s start from the good points. The business that you intend to buy is already running and all the ground works have been done for you. The company already has its own market, established customers, a reliable income and reputation. The business plan and marketing are already in place and all potential problems have already been discovered and solved. However, if a business has been neglected you may need to invest quite a bit on top of the purchase price to give it the best chance of success. Don’t forget to find out the reason why the current owner wants to sell it!
It is also important to choose the business that is right for you. Before beginning, you should think about what input you can make into your business and what you would like to get back from it. You must consider your own work experience, the level of your commitments, your interests to formulate your expectations from the business.
You should find out as much information as you can about your chosen industry. It is important to take the time to talk to other people already in the similar businesses, find out how to comply with all the regulations and licences that apply to that particular trade.
If you feel that you have made the selection, you can move forward and look for the businesses for sale. Many national and local newspapers place advertisements for businesses and business premises for sale. Depending on the sector you are interested in, you may look in specific professional / trade magazines. You may find you trade association through the Trade Association website that gives you more information about the type of the business that you are looking for. There are, also, many magazines and websites that specialise in buying and selling, like Exchange and Mart, Loot and Daltons Business. You may access some useful information via the Internet, do search business for sale websites and websites that offer database for business transfer agents that act in a similar way to estate agents. They are experts in finding businesses and can assist you with advice in finding and buying a business. You can also search for business transfer agents at the UKbusiness.com website.
However, when you look for a business transfer agent, do ensure that the particular agent is a member of the National Association of Estate Agents (NAEA). The members are subject to a code of conduct and membership demonstrates that they possess the necessary professional skills, knowledge and experience. You can find you local member of NAEA at National Association of Estate Agents` website.
When you find a business that you are interested in, it is very important to valuate it. You will need professional help and advice in order to value and market your business correctly.
First of all, you must get a general idea of how healthy the business is. Take in account the history of the business, its current sales, turnover and profit, cashflow, debts, expenses, assets. Investigate the reason why the business is being sold. You may talk to the vendor, existing customers and suppliers – they can give you information that may affect the valuation.
Secondly, the most difficult part of the valuation is intangible assets. These may include investigation on the company’s reputation, relationship with suppliers, the value of goodwill, and the value of licences, patents or intellectual property. In addition, do consider the other factors as stock, assets, products, debtors, creditors, suppliers, employees, premises, competition and etc. Remember, all that factors may affect your decision whether to buy the business or not and what price would you offer.
If you decided to make an offer and you agree a price with the seller, than you will be given time to verify that all of the information you have been told is accurate. At that time you will be allowed to access the business books and records to get a realistic picture of how the business is performing now and how it is likely to perform in the future. This time is called due diligence and this period is negotiable and may take at least three to four weeks.
At this stage you are strongly advised to seek professional help. The accountants and solicitors will be able to help you to identify any risk areas in the business.
During the due diligence period you will have a time to see exactly what you are getting into. What needs to be fixed in the business and how much would it cost, and will give you an appropriate time to see whether this is the thing that you are ready to take. You must investigate at all the areas of the business as employment terms and conditions, outstanding litigation, major contracts and orders, IT systems and other technology, customer service, marketing, research and development. It could be anything in the business that can give you the vital information. You should use all the documents available related to any aspects of the business. You can get extra information from external sources such as the landlord, tax office, bank, etc.
Finally, let’s summarise all the steps that you have to take in order to succeed when buying a business:
First of all, get professional help! You will need it when valuating, negotiating and finally, purchasing a business, so make sure that you have someone who can sort out legal and financial parts for you.
Secondly, Do the Research! It is vital in order to choose the right business for you.
Thirdly, arrange your finances. You need to contact lenders to get you money sorted. Usually they need the details of the business that you are about to buy, accounts for the past three years, details of you personal assets and liabilities.
The next step is making an offer. If you are happy about the business you researched, you can make an offer. If you make an offer over the phone, follow this up in written.
Before completing a sale, try to negotiate the price and due diligence period, so you can get familiar with the business. Make sure that at that stage you have someone to take care of the legal part of the processes and someone to sort out the financial part. Make sure that you record all the points that you agreed on with the seller.
Beware that even after you reach an agreement on the price and terms of sale, the deal could still fall through. You have to meet certain conditions of sale to complete including verification of financial statements, transfer of leases, transfer of contracts, licenses, transfer of finance.