Buying a business can take time, energy and considerable due diligence. Most do not come with a money-back guarantee, so it is important that you do your homework to ensure that you buy the right type of business and that you pay a fair price for it. Although the process will always be somewhat of a gamble, you can do a lot to ensure the odds are in your favour!
Should you buy an existing business or start your own?
If you have a great business idea and are ready to work hard to build it from the ground up, then you might prefer to start your own business. But if you want to take a short cut and avoid some of the common start-up hassles, then buying an existing business or a successful franchise may be a more suitable option for you.
Where should you look to find a suitable business?
Of course, business brokerages are probably the first place you would think to look. However, they should not be your only source. Businesses for sale are often advertised in newspapers, on the Internet, by word of mouth or through trade publications. It will be necessary to investigate more than a little before buying any business. Don’t simply stop at the first one you discover that appears to fit the bill and make an offer. Take your time and thoroughly examine your options.
Evaluating a business
This is obviously one of the more critical phases of the buying business.Before deciding to make an offer, you should evaluate the condition and potential of the business to establish the parameters of what you are truly looking for. Are you prepared to buy a ‘ fixer-upper’ or do you required a fully-functioning vibrant business. Always bear in mind that the price will reflect these factors. Either way, you need to be sure you are getting what you need. Among other things, you will want to consider:
•Are the building, equipment and inventory operational, in good condition or in need of replacement or repair ?
•Does the business have a good reputation?
•How visible and easily accessible is the business? Is it located in the city or out of town? You will have to take into account shipping costs that will be necessary, if you are distanced from your suppliers and customers.
•Are the products or services generating revenue? Are sales increasing, decreasing or are they flat?
•Is there a good working relationship with the suppliers and the bank that the business deals with?
Don’t take all or any information supplied by the vendor or his representatives or agents at face value. Try to get a third party confirmation. If a deal seems too good to be true, it probably is. So, beware!
Determining how much to pay for the business
Don’t be deterred by an asking price that seems overly high. As a buyer, it all comes down to knowing what you can honestly afford before negotiations start. You should be flexible in your negotiations to buy, but also keep your budget and the value of the business in mind. Don’t ever feel pressured or that you are in an all-or-nothing situation. If this one falls through another will surely come along. Be sure to have someone along who knows your parameters and can keep you from straying from your desired track.
What is the REAL value of the business to you?
It is not likely that you are buying this business with an eye to flipping it at the first available opportunity, so the price you pay should be determined by whether it is reasonable and within your buddget.
•You may want to investigate the value of assets, such as the building, equipment and products.
•Other factors to consider are the business’ financial statements, annual report and intellectual property (for example, patents, trade-marks, and so on).
•Some valuable assets to any business are reputation, customer lists, quality of personnel, and so on.
Talk to clients who buy directly from the business. It is better to find out a business’ reputation before you sign on the dotted line. Banks are more receptive to a business that has a proven track record.
Financing your acquisition
Unless you are lucky enough to have a wealthy spouse or you recently won a lottery, you will likely require additional funding to be able to buy the business and may well need some working capital to get things going.
Even in today’s tricky economic environment, there are various options for finding financing. Going to your bank or any other will probably appear quite low on the list. Government grants or loans may be available. Raising funds privately through family, friends and business associates can sometimes work. Venture capitalists or angel investors may also be an option. Whatever route you choose, make sure that all your ducks are in a row before embarking upon this critical phase. An AIM mentor may well be your ace-in-the-hole. He or she will have solid experience in both the due diligence and negotiation phases and will have no interest at stake other than your success and satisfaction.
Final considerations
•Take your time and verify all the information you are given before you commit yourself.
•Buy a business within an industry you know well and with products and services you are comfortable selling.
•Buy based on the return on investment and not the price.
•Don’t use all your cash for the purchase.
•Investigate suppliers, clients and the reputation of the business before you buy.
Whether you are just at the stage of considering the possibilities of purchasing a business or have already taken some first steps, you owe it to yourself to find out how AIM’s experience and expertise can help you succeed. For a no-cost, no-obligation introductory consultation use our contact page.
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