Buying a business is an exciting time, whether it’s your first or you’re already a seasoned professional.
Most owners will have invested blood, sweat and tears into their ventures and like any investment you naturally want to ensure any business you acquire has the potential to give you the desired return.
You must seek the perfect fit for your needs. Doing so will enable you to purchase a business that brings the desired results. You’ll also want to find a solid deal that doesn’t cause headaches further down the path.
There are plenty of things to consider before and during the purchase to find the right venture for your ambitions. We’ve listed them below to help in your initial search.
Understand what you want
It’s crucial to know what you need from any business you purchase. It allows you to refine the characteristics you are looking for and what is a must-have.
Examples of some features you might be looking for include:
- Situated in specific industries/markets
- Business size
- Turnover
- Employee number
- Assets owned
- Industry position
- Management team
- Customer book
Consider what it is you want in advance. Make a list of the criteria you need for any deal to go ahead and those that are nice to have. This will enable you to see what is necessary and where they may be room for movement in your expectations.
By outlining these factors early, you will focus on businesses that meet your requirements and avoid those that won’t work out for you in the long run.
Set a budget
Another integral factor for your business search is how much you are willing to pay whether utilising your own or other people’s money. You must have an approximate budget to define what’s available to you on the market.
There may be room for manoeuvre if the right company comes along, but you don’t want to pay drastically above the odds unless you structure the deal in the right manner.
Having a budget set will align your expectations with what you can afford on the market. You can then adjust your list of characteristics to find the balance between your vision and what is realistic.
Arrange a viewing
Once you have found a company that piques your interest, you need to arrange a meeting with the sellers whether at their premises or offsite. This is your chance to learn more about the business before making a formal offer.
If there is anything still unclear about the company, it’s an excellent opportunity to ask questions and find out everything you need to know.
Get a valuation and conduct your due diligence
The next step is getting a valuation once you have established a definite interest in the business. It should be done by an independent evaluator who will uncover the company’s value based on its assets, turnover and many other factors.
The valuation should be used to check that you are paying a reasonable price – and not making too high an offer for a company that isn’t worth it.
Once your offer has been accepted, it’s crucial to conduct commercial, financial and legal due diligence with the support of your professional advisor team. This due diligence will search for potential issues, including ongoing legal cases, HR disputes and financial discrepancies.
Once you have finished your due diligence, you can proceed with the confidence that there are no hidden surprises and you’re getting exactly what you expect for your money.
Check completion and post-purchase costs
Determining your budget for the business purchase is one thing. However, there will be costs associated with the transaction itself and post-completion.
In many cases, you will need funds to invest in the company to get it to the position you want – for example, introducing new processes, hiring staff or introducing healthy cash flow.
These costs need to be considered as part of your acquisition cost. It might impact what you are willing to pay for companies that require increased post-purchase investment.
It will also affect how you raise finance for the purchase and beyond.
Determine how you’ll fund the purchase
Another significant consideration before buying a business is how you will fund the purchase. There are many options on the market, including:
- Commercial loans (secured or unsecured)
- Invoice discounting
- Commercial mortgages
- Asset finance
- Equity funding
There is also the option of seller finance, where the seller provides a loan to you to facilitate the purchase that is paid back once specific criteria are met (usually the realisation of promised revenue or potential from the sold company).
Different forms of funding have their own pros, cons and acceptance criteria. You need to find the best fit for your needs and a solution that provides the finance you need to move forward.
By thinking about finance ahead of time, you will create the conditions you need for success once you find the perfect company.
Consider deal structures
There are two primary types of business sale: assets and shares.
In an asset sale, you buy the assets (such as equipment, plant, vehicles, premises, stock, intellectual property etc.) only, while the original owners keep ownership of the company structure. This is very common in distressed or turnaround sales where you are able to cherry-pick which assets to buy.
In a share sale, you purchase the entire business entity.
If you’re looking for a business to run, you will most likely want a share sale. However, if you’re looking to expand your own company or want to avoid taking on the liabilities of the acquired business, an asset-only deal is ideal.
Decide what you are looking for in advance so you can pursue sellers with a suitable deal structure or negotiate your conditions accordingly.
In summary
Buying a business should be an exciting chapter. Ensuring you find the perfect fit will keep it that way and eliminate any regrets down the line.
By considering the right things ahead of any purchase, you can refine your search to businesses that suit your needs and promise the rewards you want. It will also make the process easier with a clear understanding of your must-haves and deal-breakers to prevent wasted time.
You will have the foundations for long-term success with the ideal business, bought under suitable conditions.
If you are considering a business purchase, we will assist you in outlining your needs and seeking the ideal fit. We will also work with you to find the perfect funding solution to facilitate the purchase through our extensive network of contacts.