Your Business Buyers Guide
Looking to Buy a Business?
Buying a business can be a complicated procedure – from finding the right enterprise through to negotiating every relevant detail to ensure a smooth transfer of ownership.
While there is no such thing as the “perfect” business, we understand the importance of finding one that fits your needs, your talents, your skills and most importantly, your lifestyle.
Whether you’re looking to buy your first business or building your portfolio, negotiating and concluding a deal can be a daunting process laced with hidden challenges and pitfalls.
This is why our network of experts is on hand to provide you with support and advice – to ensure each deal is a win:win for all parties. Our 12+ strong team collectively has more than 500 years experience in buying and selling businesses. We have extensive knowledge of the market, enabling you to choose from a high-quality selection of businesses across a wide range of sectors.
We deliver a bespoke service that connects together suitable buyers and sellers. We work hard to make the entire process as simple and smooth as possible. Also, with access to trusted professional service providers, we can also advise on Accountants, Funding Circles, Legal Practices and much more.
Acquisition Concierge Service
A bespoke service for investors or buyers interested in off-market businesses or specific acquisition targets, our Acquisition Concierge Service helps identify and/or make contact with businesses closely matching your requirements.
As part of this exclusive service, we spend time understanding your investment, acquisition and overall business growth strategies. This allows us to research, engage with and deliver suitable opportunities and furthermore, to approach enterprises on your behalf, as and when necessary.
Need help finding your perfect business? Call us now on 0330 135 8889.
BUSINESS BUYER’S GUIDE
Download our FREE, comprehensive guide and learn what to look for, what to avoid and lots more, when buying a business.
How to Identify the RIGHT Business for YOU…
You’ve made the decision that you want to buy a business. That’s great! However – tempting as it may be to dive straight in, we recommend that you spend some time analysing opportunities that fit your skill set, your interests, and your personal needs and goals. At this stage, its very important to identify opportunities with conducive market conditions where possible.
Of course, its a good idea to target business that are aligned to your skills, talents and experience. That way, you’ll be able to hit the ground running and not waste valuable months learning the basics.
Your target business(es) should also closely match your goals and future lifestyle.
Do you want to be involved in the business on a day-to-day basis? Or would you prefer to hold a more strategic role and leave the daily operations to a capable management team who would require minimal input from you?
When you are looking to buy a business, having a clear understanding of your potential markets is crucial. Is the market in a growth stage, is it a mature market or is it entering a challenging period?
It’s certainly much easier to swim with the tide in a thriving sector. However, even in markets that are showing signs of slowing down a little, an innovative approach or new idea could pay dividends.
But you need to beware of entering markets where the technology or solution is becoming obsolete. Clearly, becoming the next ‘Blockbuster’ or ‘Woolworths’ is not the goal here.
Thorough research and a cool head will ensure you give yourself the optimum opportunity to purchase the best type of business in the the most appropriate sector.
Want to sell your business?
Or are you looking to buy a business?
The Devil is in the Detail
It’s crucial to do your homework and due diligence prior to committing to buying a business. You don’t need to do it alone however, and engaging a team of experts will help ensure i’s are dotted and t’s are crossed.
Your team should comprise of:
- A business transfer agent to oversee and facilitate the entire process
- An accountant to verify company accounts and financial data
- A lawyer to prepare all necessary contracts
- An accountant or law firm to undertake due diligence
- Where necessary - a Financier, whether a bank, private equity firm, investor, etc.
Why not travel to the business and see what it looks like from the outside? If possible, pop in and see what sort of greeting you receive and take a look at the inside of the premises.
How were you greeted?Does it look well presented? Is the receptionist friendly? Do the staff look happy?
You get the idea….
Perhaps you can find an opportunity to speak to customers and suppliers. Forming a picture of how external entities see the business can help you gain a deeper understanding of its reputation.
Questions to ask…
There are a number of key questions you should ask the seller of a business before furthering your interest in it. Here are our top seven:
- Why are you selling the business?
- How did you arrive at the asking price?
- What outcome(s) are you looking for?
- Are you happy to agree to a non-compete clause?
- What area(s) would you focus on to grow the company?
- Who are your key employees, clients and suppliers?
- Would you be willing to stay on for a transition period?
Budgeting for your Business Purchase
Having decided on a sector to work with, you can now embark on your journey to buy a business. At this stage you need to be clear how much you can afford to pay. You need to make absolutely sure you don’t overcommit yourself, so that you have sufficient capital available for the purchase itself, in addition to cashflow for the initial months.
Typically, our buyers buy businesses using anything from £10,000 to £250,000 of their own funds. But of course, it very much depends on the type of business, it’s size, location and current (and future potential) revenues.
We recommend that – even before searching for businesses – you carefully calculate the maximum amount you’re able to pay.
This will help avoid wasting time pursuing a business that is outside your scope.
If you’re looking to secure finance, such as a bank loan, you’ll be required to produce financial projections showing how you will manage cash flow and repay the loan.
Depending on the industry, your experience and anyone else involved in the purchase, banks may require a minimum of 10% to 50% of the business purchase price as a down payment from you.
How to Finance Your Business Purchase
There are a few financial options available to you. Each will depend upon your own credit history, the total amount you require and the assets of the business.
Debt Finance
Debt finance allows you to borrow money which is to be repaid (usually with interest) in the future. Below are some options that are available to you:
Secured Loan – this requires an asset (normally any property that the business owns) as collateral. This gives the finance company legal authority over the assets if, for any reason, you struggle to make the repayments.
Unsecured Loan – this is slightly different in that you won’t need to provide any assets as collateral. However, there will usually be restrictions on the amount you are able to borrow.
Commercial Mortgages – these are secured against the businesses premises (typically 70% of the property’s total value). They are used to purchase the premises or fund the purchase of an existing business.
Asset Finance – this enables you to borrow against the businesses assets such as machinery, equipment, vehicles, tools and debtors.
Non-Debt Finance
This is the process of exchanging your income capital for equity and/or the ownership rights to your business. Examples of this include business angel investors, equity funding, venture capital firms and private equity.
Equity Funding – this is probably the most common form of finance – used on the TV show, Dragon’s Den. This is when you sell a stake in your business (or shareholding) in return for funding, the investors’ expertise and contacts.
Business Angel Investors – invest capital themselves as a sole investor, or through a syndicate or business angel club. They can share or pool capital available to them.
Private Equity and Venture Capital Firms – these also can help with funding, as well as offer you support both strategically and operationally.
Looking for Business Finance Advice?
We have a network of finance partners waiting to help you secure the funding you need, regardless of whether you’re a first time buyer or an experienced business investor.
We pride ourselves on our partners having the expertise that covers all areas of business finance and funding. If required, we may also provide our customers with end-to-end management of the complete financing process, which saves both time and additional costs.
For more information on business finance, call us on 0330 135 8889 or complete the form below.
Want to sell your business?
Or are you looking to buy a business?
Growing Your Business
Next, you’ll need to ensure you’ve budgeted sufficiently to execute your strategy for running the business. If your business plan involves expansion, you may need cash for new equipment, staff or a marketing and PR campaign.
We recommend you put aside around 10% of any inward investment for working capital. It will ensure you’re able to cover planned growth or unforeseen circumstances, whether in the business or personally.
When buying a business, it’s essential that you conduct thorough research and engage professionals to help you. This will help you avoid any nasty surprises when you finally sign on the dotted line.
The process of due diligence is essentially an evaluation of a business’s legal, financial and commercial standing. It involves verifying that the information the seller has provided is satisfactory and that the business is as advertised.
Due Diligence
Think of it as looking under the bonnet or hood of a car before purchasing it – you want to ensure everything is in good working order.
Due diligence is performed by accountants and lawyers who are experienced in this specialised area. Your objective is to ensure that you enter the final stages of negotiations with full disclosure on every aspect of the business.
That way you can make an informed decision as to whether to buy the business and if so, how much you should pay to ensure you’re getting value for your money.
One of the first areas due diligence will highlight is the company’s financial situation. Evaluating revenue, assets and outgoings, together with any future projections, will paint a clear picture of the financial well-being of the business.
It’s wise to request to see a minimum of three years management accounts, tax returns, balance sheets and cash flow statements. Often prior to receiving these, you’ll be asked to sign a non-disclosure agreement (NDA).
You’ll also want to check that invoices are being settled on time, payments are being received – regularly and on time – and that profit margins and cash flow are healthy. Are there any bad debts in the business? Any director’s loans? Anything else?
Sales data can be invaluable – and will show any peaks and troughs that may correspond to seasonal patterns. Ask your seller to provide figures and details on the company’s largest and most important clients, so you can explore buyer behaviour more accurately.
Legal Loopholes
Imagine agreeing to buy a business without ensuring the lease on the premises it occupied was transferable… This is just one of many potential pitfalls of buying a business…
An experienced lawyer with expertise in business transactions and contracts is invaluable when conducting due diligence. They will check copies of all contracts and legal documents, including leases, loan agreements and purchase agreements.
It is also prudent to check that the business has adequate insurance cover and that any required licences and permits are correct and valid. Given that you are likely to be inheriting staff as part of the purchase, it also makes sense to find out everything you can about the terms and conditions of their contracts.
Be sure to analyse business operations thoroughly. Studying sector-specific and economic data will allow you to ascertain whether sales are likely to grow, decline or plateau. And if your offer includes equipment and/or stock, make sure the valuation reflects their condition, age and market conditions.
The Art Of Negotiating When Buying A Business
You’ve conducted your research, know your budget and believe you’ve found the right type of business. Before you take over at the helm and become the new owner, you need to enter the “Negotiation Minefield” to ensure you get the best deal.
A good place to start is by asking the vendor why they’re selling. Are they planning to retire? Emigrate?
Perhaps their health is forcing them to bow out?
If there is a more complex set of circumstances driving the sale, you will need to have full disclosure and understanding.
What if the business is struggling because of a downturn in the market? Or a competitor has taken many of their key clients? Or worse still, their products or services are becoming obsolete.
It’s important to remember that you may not always get entirely truthful answers to your questions. If you believe you’re not being given a true picture, you may want to reconsider the purchase.
Whilst knowing how to value a business accurately is more of an art than a science, ultimately it’s determined by how much another person or entity is prepared to pay for it. Therefore an asking price – similar to buying a house – is just that, a starting point for negotiations.
You can get a greater understanding of whether you believe it’s priced appropriately by looking at what other similar businesses have sold for recently. You should also check the company’s financials and seek professional advice before making an offer.
Make sure you’ve seen the last three year’s management accounts, balance sheets, income and cash flow statements.
What Exactly Are You Buying?
Every business purchase is different. You may be looking to buy the bare essentials – brand name, clients, staff and suppliers. Alternatively, you may want the complete package, including premises, stock and equipment.
Whatever your position, you must ensure your offer includes everything you want – and excludes everything you don’t want. For example, if you’re interested in the business but not the building, your offer should reflect this.
If you want to include equipment in the deal, be sure to check its age and condition – or you may end up paying for a white elephant.
What about the company’s location, market presence and reputation? Are you able to quickly increase margins by raising prices or cutting costs? Are there additional products or services your customers want to buy?
The Key To ALL Negotiations
Negotiations are often viewed as a battle of wills or a tug of war. But the end goal is to reach an agreement that both parties are happy with, and so it’s important to build rapport at the start and maintain it throughout the process. It’s also vital to avoid being unnecessarily critical and to stay professional.
The process of creating rapport isn’t just something to develop at the outset in order to get your foot in the door. It should be ever-present in the relationship.
In addition, listening is a crucial, yet underrated and often forgotten aspect of effective negotiation. In order to understand what’s important to the business seller, especially at an emotional level where many decisions are made, its wise to listen out for more information than the basic facts you are given.
Ensure you understand what really matters to them. And what they actually want out of this deal? It’s not always clear what the seller wants, so find out their concerns and questions.
They may also be looking for assurances from you, such as:
Do you have sufficient industry experience?
Will you look after their staff?
Are you able to preserve the reputation of the business?
By asking the right questions and listening carefully to the answers, you’ll be able to probe away and find out what their real concerns are.
And once you’ve done this you can start creating your win:win outcome.
Once you understand what both you and the seller really want, you have the ammunition to create an offer that works for both of you. A win:win negotiation can enable both parties to feel that they have achieved a great deal.
Any Questions?
You now have the foundation of knowledge to start researching, identifying, approaching and negotiating with businesses you’d like to buy.
If you have any questions about the business buying process, feel free to contact us at [email protected] or call us now on 0330 135 8889.
