Buying an existing business is a great idea as it lets you bypass some of the painful bits of starting your own company. For example, the costs, the marketing, hiring… but finding a business you really want to invest in can be a traumatic process!
Below you’ll find a simple guide from our seasoned business consultant Neil Debenham on what to look for when buying an existing business – both positive and negative.
It always helps to choose a business you’re passionate about so if wicker baskets don’t float your boat, don’t think you will make a huge profit and just deal with the boredom later. Naturally you’ll have experience in whatever it is you buy a business in too.
What type of business do you want?
Think about the experience you already have and consider your passions. What could you do to combine your job with your passion. Think how much happier you’d be in work with the knowledge to answer questions straight away and enjoy finding out information that you don’t know.
You’re also in a great position to buy if you’ve been a long-standing employee and know the business inside out – if you can afford it of course – and still enjoy the work. This helps you to come up with new ideas especially if you have seen what has worked well in the past.
Check out what is available
Online business magazines and marketplaces are great places to start as they have thousands of active listings at any one time. Even going back to the classic classified ads in local newspapers may draw your attention to something.
Neil Debenham said he regularly attended networking sessions as a great place to be nosey, if nothing else. “Networking events are great places to find out information and you may meet someone there who has the perfect opportunity. And if they don’t, they may well know someone who does. No networking meeting is a waste of time.”
Business brokers are also good people to approach as they ten to know which companies are failing and can help you get a better grasp of what it is you’re looking for in a new business. They’ll even take a share of the paperwork and while they do earn commission on the sale, it’s usually paid by the seller.
Know the reason a business is being sold
There could be a perfectly reasonable and legitimate reason why someone is selling up. They might be retiring or moving abroad. But if there is a major flaw with the business you’ll need to find it out by asking the current owners about challenges they’ve faced.
Neil Debenham advises that is a business plan is poor, competitors seem streets ahead and there are plenty of existing debts, these can be major tell-tale signs that it may not be a good buy after all. “Perhaps it’s a shop based on a deserted high street and footfall is terrible. Maybe the equipment is so outdated that you’d never afford to replace it all,” he hinted.
“Whatever you do, speak to neighbouring businesses and see what impression they’ve had. It’s good to talk!”
There are lots more things to check out when it comes to business-buying. For example, the location, sales and staff you’ll be taking on. Will you want to cut numbers of employees and if you do want to change an aspect of a business, how much will that set you back?
If it’s going to be costing too much time and energy as well as cash, you may want to reconsider!
Do your research
Due diligence is the most critical step of this process so don’t scrimp – work with an accountant and a lawyer to get all the data you need. The seller will probably request an NDA and it is always a good idea to sign this in the event you decide you don’t want to part with your cash after all. The seller is then still protected.