Buying a business can be complicated. The good news is that there are several tactics to use when deciding which business to buy.
Just follow our outline of 10 steps when considering the purchase of an existing business:
1. Choosing a Type of Business - Consider your talents and passions. Think about your past work experiences and successes because leveraging the talent and skills you already possess alongside what you are passionate about will lead to a quicker chance of success as a new business owner. If you can secure funding for the purchase of a business, you can invest in a bigger opportunity and perhaps pay less out of your pocket up front. Now go research some of these businesses, they will be out there and start to consider the size of the business you are considering owning.
2. Funding - If you can secure funding for the purchase of a business, you can invest in a bigger opportunity and perhaps pay less out of pocket up front.
3. Size and Industry – Once you know the type of businesses you are interested in, research their industries to understand their place in the local and national markets and the trends affecting them now and in the future. A good place to start is the UK Office of National Statistics. You will also find information about the industries you are considering if you search online for trade organisations and publications and visit their websites. Finally, you should read what is being reported about the industry in the press for expert insight.
4. The Search - Your search for the right business will take you to many online business listings. Some of those sites will belong to business brokers who work with business owners (sellers) to market their companies. It is also wise to work with a business broker as he/she will narrow down the search under the parameters you are looking for (investment level, profit requirement, industry, location, etc.).
5. Choosing a Broker – The right business broker will understand your requirements and help you narrow your choices on the industry and businesses you are looking at. You will need to be comfortable with the broker and feel as though you can trust him/her with detailed information concerning your finances. The broker will also need to have access to thousands of company listings and be able to keep your search confidential.
6. Qualifying the Business – Initially, you will want to know its size, number of employees, net profit, how much the owner(s) take from the business, who owns it, how long it’s been operating, who the competition is, why the owner is selling, how long the business has been for sale, and its place in the industry. It is also very helpful to do a viewing of the business in order to decide if you want to purchase it.
7. Signing a Memorandum of Sale – Once you decide you would seriously consider buying a specific business and would like to negotiate a purchase price pending due diligence, you will need to sign a Memorandum of Sale. It is not a legal document but rather a non-binding agreement for the seller and buyer to enter into negotiations. It will typically specify whether the purchase is of the business or assets, the timetable and method of payment or payments, and all other major deal points, including details of the advisors on each side of the table.
8. Due Diligence – This is the time when you will review all of the company’s financial and sales information. This includes customer lists, tax records, property ownership and leases, trademarks and patents, loan documents, accounts receivable, accounts payable, employee benefits, employee salary information, employee agreements, and supplier agreements.
9. Contracts Exchange and Complete – The contract is a legal purchase agreement that solidifies the information in the Memorandum of Sale and is the final agreement between buyer and seller. Closing the sale involves the signing of the contract and when the seller should turn over all of the business’s documentation to the buyer. If there is property involved in the purchase that is leased, you’ll need to notify the landlord and transfer the lease. If the purchase is a franchise re-sale, you need to notify the franchisor.
10. Preparing to Run the Business – By the time you have finished with the due diligence process and a purchase appears imminent, you should be preparing a plan of how you will run your new business. This will include meeting with employees and vendors and mapping out a step-by-step process to keep it running profitably while you orient yourself to it.
Transworld Business Advisors is the business brokerage company that can help you every step of the way as you explore buying a business. We have been successfully specialising in the buying and selling of businesses and commercial real estate for more than 35 years. Contact us and let’s talk about how we can help you achieve your business goals with a free consultation.