Do you want to become a business owner? Buying a business is a multi step process which takes time and attention.
To buy the right business at the right price, you need to conduct due diligence. You should never conduct due diligence from behind your desk, but rather act as a real investigator and gather information using a wide range of data sources, including financial statements, annual reports, financial experts, suppliers, (former) customers, investors, and competitors. In order to confirm or refute your assumptions (e.g. sustainability of the profit margin), you must gather this data from the field.
You need to go out on the field to gather intangible data. This includes the following: product positioning in stores, company image, company culture, the quality of the inventory, customer loyalty, customer satisfaction, and how customers perceive the company’s position in the market.
Due to a lack of IT systems, financial data is hard to access in a large number of small businesses. The speed at which you receive information speaks volumes about the company. Understanding trends in margins, discounts, revenue, etc., requires digging into the raw data.
If there are no numbers, do not rush to buy the business.
You become a business owner once the necessary paperwork (such as financial statements transfer) is complete.
After you purchase a business, your responsibility doesn’t end. Next, you’ll enter the post-purchase phase of the buying process.
Following are the four steps of the post-purchase stage of buying a business:
Review current practices and processes
Speak with any current employees
Assess the culture of the company
Maintain a regular review schedule
Historical and present performance: This covers sales, turnover and profit. You can get a significant amount of this information from official document filings.
Projection of future success: How successful we predict the business to be. If you want the most accurate assessment, you may need to speak to an accountant.
Assets, cash flow, expenses, and debts comprise the financial situation of the company. You can gather this information from company filings and official sources.
Litigation issues: This includes any legal proceedings the business is involved in. Speak to a solicitor to find out if the company is involved in any litigation.
The reason for selling the business: This relates to the reasons for selling the business. You might be able to get a clearer understanding of their answer if you speak directly with them.
It is important to know what changes the government is making to the industry sector the business operates in. This information can be found on the web pages of the appropriate government department(s).
This refers to any intellectual property owned by the business. It is something you can determine by talking to the current owners.
You can glean a lot of information about the business you’re interested in buying from your own research. A professional can assist you with some details, however.
Being a customer of the business
Referring a friend to use the business
Checking how many customers enter and leave the business at different times of the day
Inspecting the trade over the weekend, particularly at pubs, restaurants, and hotels
Communicating subtly with competitors
You should ask yourself the following questions when you’re about to visit the business:
Do you really want to own this business?
Does it have any advantages or disadvantages?
Is this a company you would like to do business with?
Has this type of business been on the market recently? Did they sell?
Why is this business for sale?
You can ask the current owners the following questions when you visit the business:
What is the length of time they have owned the business?
Before they bought it, what was the business like?
A buyer’s journey
The second stage of buying a business is purchasing. As you move from determining the value of a business to completing the purchase, you have a variety of tasks to complete.
A business can be purchased in six steps:
Obtain legal representation
Formalize your offer
Do your due diligence
Completing the purchase
Below, we’ve explained each in more detail.
Detailed knowledge of finance
Entrepreneurs who are successful aim to realize that they are well versed in the financial aspect of their companies.
It’s important to analyze a business’ financial aspects prior to making an offer on it. During the business’ early months, you need to make sure that you can maintain the business, then turn a profit as time goes on.
Understanding the math of acquiring and running a business can be easier with the help of a finance expert.
Analyze your own position
Research the market carefully
Detailed knowledge of finance
Choosing the right location
Finding the right property for your business
Visiting a business
Each of these topics has been discussed in detail below.
Then, when you have thought long and hard about what type of business you want to buy, and what you are able to afford, you can start looking. The two factors to consider are geography and whether you need a business with accommodation included or not.
When you are serious about buying a business, a Business Transfer Agent or Broker will be of great help. In this day and age, the internet will play an important part in your search. There countless businesses for sale worldwide through Business Transfer Agents, each with its own website listing the businesses for sale. Nonetheless, it’s also worth speaking with a few BTAs or Brokers in person. You will find that a good BTA or Broker will be invaluable in helping you with your search if you are well prepared, can demonstrate that you are a serious buyer, have considered everything you’re looking for, and have already sourced the necessary funding. Undoubtedly, he or she has insider knowledge and can call your attention to an opportunity that hasn’t yet become available on the market. He or she may even suggest alternatives that you hadn’t considered.