Buying a business can provide a huge shortcut, bypassing the startup phase of launching a new business. It’s a route taken by new business owners as well as companies wanting to expand through acquiring a competitor, supplier or strategic business.
Buying a business is a process which requires careful planning, consideration, research and due diligence.
There are many reasons for wanting to acquire a business, including:
- Having funds to invest and wanting to bypass the start up phase of launching a new business
- Finding an opportunity or struggling business which you can turn around
- Expanding through acquisition, by buying a supplier or competitor
Taking the step to buy a business can involve a big investment, therefore it’s vital to follow a due process with care and attention. This process can take time and should not be rushed. You want to avoid risk as far as possible.
You will need to allow time to review all the documentation including contracts, such as supplier contracts and employee contracts as it’s likely that as a new proprietor you would have to honour existing contracts, or renegotiate contracts.
Unless you have specialised legal and financial expertise or experience, it is likely, and indeed would be an advantage for you to appoint a lawyer and accountant or CPA to assist with the business acquisition process.
You need to gain a clear understanding and a clear picture of business operations. Even with the most detailed due diligence being carried out, a business can still have issues which are not initially visible, and only become apparent when you are actually “in the business”.
If the business you are planning to buy has staff, you will want to ensure that their questions are answered so that you can build an effective working relationship. You do not want staff to feel worried, or uncertain about new ownership and looking for employment elsewhere.
Acquiring a business can be a solid investment, however you should ensure that you have carefully considered the full picture, along with performance, financials and any potential risks, issues or problems.
It’s also possible to buy a business without a lot of capital – by leveraging the existing revenue and profits of the business. So you could effectively acquire a new business without putting any money down.
You would effectively leverage the business assets, which will transfer to you upon purchase – and you can take advantage of this in advance. In some instances lenders and financial institutions will provide finance against the assets you are planning to buy. Accounting records going back several years would typically be required in order to secure financing. Any debt and liabilities carried by the business would need to be taken into account.
Working with a business broker can also help you to identify new unadvertised business opportunities, as business brokers have industry contacts. For example brokers are likely to know business owners who may be looking to retire or relocate. The best businesses are likely to be sought after therefore having the right contacts can help you to find the best opportunities.