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Factors to consider when buying an existing business

On July 5, 2018

Factors to consider when buying an existing business

Taking over a business isn’t a decision to be taken lightly. There are many things to consider and some possible pitfalls to look out for before you take the plunge and become a CEO. But buying an existing business does come with some advantages, too, in that you don’t have to start from scratch, and if you’ve done your homework, you’re buying into something that’s already got existing clients and some momentum.

Points to consider:

1. It starts with you

Before you do anything, you need to consider what sort of business you want to buy, and what you are happy to get involved with. Will you really be happy dealing with emergency call outs at three in the morning if that’s necessary for your new business? Do you want to get your hands dirty and get involved with the work, as well as running the business? What suits your personality, your temperament and your preferences?

You could be running this business for a very long time, and there’s no point in buying something you’ll hate. Life’s too short.

2. Why are they selling?

Once you know what you’re looking for and you’ve narrowed down possible businesses, the first question to ask is why the owner is selling.

There are some perfectly legitimate reasons for selling a business, including retirement, moving on to a new business idea, and lifestyle changes, but you need to be sure you’re spending money on a viable business, not one that someone wants to sell because it’s not working.

3. Due diligence

Unless you’ve got pots of money to throw away, you really can’t afford to go ahead with buying an established business without thoroughly digging into the shape of the business you’re considering investing in.

What to look out for:

• How tied into the success of the business is the current owner? If they leave, will your business still be worth anything?
• What do current clients think of the business and are they happy? What do they think could be improved?
• How are the business financials? Go through them with a fine tooth comb and make sure there aren’t any discrepancies. If you’re not sure, get yourself an accountant who knows what they’re doing.
• Look at any current debts and liabilities. Will you be responsible for those if you buy the business, and will that work for you?
• Check the current contracts between the business and its staff and suppliers. Are you tied into anything you’d rather not continue with, and how do the contracts stack up legally?
• What insurance does the business have and is it sufficient for what they do?
• How is the business currently run? Is it efficient and easy to take over? Will it run smoothly over the transition period? Or are there problems in terms of management and systems that you might not be willing to deal with?
• Look at the company’s current assets and inventory. Make sure you specify in your purchase agreement who gets to keep what, and look at how the inventory is managed.
• Be aware that there will be tax implications on purchasing a business and ensure you’re covered.

4. Funding

How are you going to pay for your new business? Consider your options and get your funding in place well before you need it.

You might choose a business loan, go for venture capital or angel investors, or come to an arrangement with the current owner that you can pay over time.

Whatever you choose, don’t leave it to the last minute or that perfect business might just slip through your fingers.

5. Purchase agreement and final transfer

Once you’ve signed your purchase contract, it’s a legally binding document, so ensure you’ve gone through everything thoroughly and there’s nothing you haven’t nailed down and resolved.

Don’t try to do this without a professional and experienced property lawyer or you could be left with liabilities and problems you didn’t expect.

Once you’re through your purchase and you’re the proud owner of your new business, don’t forget that both you and your new staff will need time to adjust, especially if you’ve got people who worked for the original owner for years. Be open, listen to staff feedback and ideas, and encourage a no-blame culture where people get to take ownership of their jobs and tasks, and you’ll build something solid, without throwing the baby out with the bath water.

With years of experience in property law and buying and selling businesses, put your trust in Peter Robinson Property Lawyers for a professional service. Contact us today: https://peterrobinsonandco.com/commercial-conveyancing/buying-or-selling-a-business/

  • By Peter Robinson  0 Comments 
  • business premises, commercial conveyancing, Property Prices