If you come across a business for sale, then before handing over the money to buy the business, you must first of all be sure about why you wish to make the acquisition. You need to also ensure that you are purchasing the right business for you. For this you must look at more than just the financial statements. Be sure to ask the reasons why the owner is selling his business. Also, do your best to find out if there are any hidden issues or whether the industry is headed for a fall. Be sure to check whether the customers of the business are loyal to the business.
Before purchasing the business you must also address the following issues:
- Make sure that the new business is a suitable fit
- It is available at the right price
- You can get proper financing
- You have the correct mindset
Before you purchase a business, make sure that it has the same kind of culture as your own. For example, if your passion and interests relate to formal clothing then it does not make any sense for you to go out and purchase a business that sellis T-shirts and flip-flop clothes. The business needs to be compatible with your lifestyle and interests.
The Right Price
Before purchasing a business you must make sure that you have done your research regarding the items that the business is selling in your area, as well as in your region. It makes sense to be disciplined regarding the price that you are going to pay. Do not let the fact that your lenders are ready to give you money cloud your decision making abilities. Make sure that you do not pay more than you should for the new business. If you pay more than you should then your financial returns will be less and there will be greater risk of default.
When financing your new acquisition you need to ensure that you get the most flexibility in regard to repayments. You need to look beyond getting loans that are secured by your company’s assets. In fact, you should look for financing from the present owner of the business. This is because vendor financing is available at more reasonable rates of interest. If the repayment terms are more flexible, then there is no need to provide a personal guarantee either. Be sure to look at growth and business transition capital as this form of financing is available at more flexible terms and does not generally require personal guarantees.
Remember that the right mixture of financing tools can have a real positive effect on the returns realized by your business, and it can also dramatically reduce the risks associated.
When searching for the right business for sale, you must exercise patience, especially if you are looking for a business in a competitive market space. Over seventy-five percent of entrepreneurs expect to get out of their business (small as well as medium sized) in a period of about ten years. This works in favour of the buyer.
Advantages of buying a business
- Most of the groundwork has been completed because the business is already running
- An established market for the business’s products and/or services is already known and existing
- Easier to get financing if the business has a good track record
- Already has a customer base, which ensures reliable income
- The business will already have its own business plan as well as marketing strategy that you can use
- Most problems that affect the business will already have been taken care of
- An existing business is more acclimatised to the market than a new one
Disadvantages of buying a business
- Requires a lot of working capital to help improve the cash flow of the business
- Need to have a substantial sum of cash to help make purchases to run the business
- Need money to pay for professional services such as those of accountants and attorneys as well as miscellaneous fees
- It may become necessary to honour existing contracts
The bottom line is that when the time comes to acquire a business you must start by getting an accountant to check the business’s figures. Check to see how long the business stays open to trade. If it stays open for a long time then it should be easy for you to make a profit with which to pay the staff. If you are going to acquire the business’s stock, then make sure that it is in good shape and not outdated. Finally, make sure that you hire a solicitor to check the lease, which should be transferrable and must have some time to run and it should also be renewable.