Be prepared before buying a business

Buying a business can be one of the most important decisions you make in your life, and there are many factors to consider before signing that final contract.  Here Steven Grant, Commercial Partner, covers the key questions you need to answer before committing to buying a business.

“The questions you need to ask yourself focus around 3 areas; the business, the seller and you, the buyer,” begins Steven.  “The first question around the business is looking at how does the business generate its income? A business reliant on a few customers for the majority of its income is generally more fragile than one with a more even spread.  A purchaser needs to check whether there are good contracts in place for key customers.”

Timing is also a key factor; Steven continues “The timing has to be right for the business; note the challenges faced by the business: these may include competition, regulation and changes in customer and supplier trends.  It may be worth considering starting a new business from scratch dealing in the same market than buying an existing company; evaluate what it would cost you in terms of time, money and effort to establish a similar business.  Each market will have different barriers to entry.  The cost of buying a ready-made business will not always be justified.”

Questioning the sellers’ motives can give some interesting insights as to the history, and the possible future for the business.  “Don’t just accept what the seller tells you,” advises Steven.  “Enquire of the seller and others, and challenge what you are told.  We had a client who wished to buy a pharmacy, having been told that the sellers were simply retiring.  Our enquiries helpfully revealed that the surgery across the road was due to relocate.”

The seller not only gives useful insights, but it may be that they’re the driving force behind the current success of the business and without them; the company will not be as fruitful.  Steven gives the example, “You might think twice about buying a successful restaurant if a retiring seller is Chief Chef.  Likewise, an enigmatic seller may themselves be the reason customers buy from the business.  Engage the seller for a while to help facilitate a smooth handover.”

The final piece of the puzzle revolves around you, the buyer.  “It’s important for you to consider the value that you, or your current business can add,” highlights Steven.  “You might be able to re-energise a lethargic business and its staff, introduce process efficiencies and finance new equipment.  We still see a lot of classic manufacturers and retailers sticking with traditional sales methods and ignoring the internet and social media.”  And it’s not just your own experience that can assist, but assuming you’re already in business, your customer base might be complimentary; there might be staff savings and an opportunity to win new work or bigger contracts via improved customer perception.

“Not only does the timing have to be right for the business, but it also has to be right for you,” continues Steven.  “Consider whether you have the necessary skills and experience for the business, and also whether you’re in a position to be able to finance it; you will need to finance the business purchase and any changes.  Sellers are increasingly willing to accept instalments over several years, sometimes interest-free.”

The last point touches on your private life, but it’s just as important as the rest.  “You will need to have your family’s support to be able to move forward,” concludes Steven.  “Discuss with them the likely impact of working hours, stress and finances.  You may need to put the shiny new car and luxury mansion on hold.”

For more information about buying or selling a business, contact Steven or the Warner Goodman Commercial Team on 02380 717717 or visit the website www.warnergoodman.co.uk.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.