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Things to Consider When Buying a Business
Author: Paul Leach  | Posted: 07-03-2008 | Comments: 0 | Views: 13 | Rating: (57)  (?) 
Things to Consider When Buying a
Business
Owning your own business can be extremely rewarding both in terms of money and personal satisfaction. Whether you are a seasoned proprietor, or aspiring to become one, there are several issues that you should consider when searching for a business to purchase.
What type of business is going to be best for you?
Before you look at businesses for sale, you must decide what type of business you would like to own. It should be a business that complements your lifestyle and one that can make good use of your skills. Think about the business goals that are most important to you. And, remember to consider these key issues:
What are your expectations regarding profit levels? How much time, energy and money are you willing to commit to the success of a business? How would you describe your personal skill set, and in what type of business would those skills be most advantageous to you?
Once you choose an industry, speak to people who already own businesses in that industry. Having a good, working knowledge of the industry will help you to compare businesses when you are actively looking to buy. You should also research any applicable licenses and regulations for your selected industry.
Finally, when you are ready to buy a business, remember that location is not as important an issue as you might think. Relocation is easily accomplished for some businesses, so just because a business for sale isn’t currently located in your area doesn’t mean it can’t be moved there.
How much is this business worth?
When you find a business you’re interested in purchasing, the price you should offer can be affected by numerous factors.
Some factors to consider when assessing the health of a business include: the business’s history; the business’s current performance with regard to sales, turnover and profit; the business’s current financial standing including cashflow, debts, expenses and assets; and why the current owner is selling.
Your valuation of a business can also be affected by information you receive from the current owner, customers and suppliers. You should talk to all of these individuals. In addition to information about the business in question, they may also be able to provide information about industry trends or conditions that could affect the business.
Intangible assets are difficult items on which to place a monetary value, but they also need to be factored into your valuation of a business you are considering buying. Some common intangible assets include: the reputation of the business, the business’s relationship with its suppliers, the value of goodwill, the value of licenses and ownership of patents and/or intellectual property. You should also consider how these assets might be affected by a change in ownership.
Other features that have an effect on the worth of a business include: stock, assets, products, debtors, creditors, suppliers, employees, premises and competition.
When you consider all of these components in conjunction with one and other, you can begin to formulate an idea of how much—in your mind—the business is worth. If you make an offer that a seller accepts, a period of time—known as “due diligence”—is then allotted for you to substantiate all the information you have been given pertaining to the business.
Due diligence
The amount of time you are granted for this process is variable, but most small businesses require a minimum of three to four weeks. You should begin the investigation after you and the seller have agreed on a price. If you make a down payment, the seller may agree to take the business off the market while you conduct your research. At the end of your due diligence period, you should have an accurate idea of both the business’s current performance and how you can expect it to perform in the future.
If at all possible, you should enlist the services of accountants and solicitors to help you identify potential risk factors associated with your prospective new business. However, you can also get detailed information about businesses at the Companies House website (http://www.companieshouse.gov.uk/). For businesses located in Northern Ireland, you can visit the Companies Registry website (http://www.detini.gov.uk/cgi-bin/get_builder_page?page=3378&site=7).
Remember that due diligence is not just about a business’s financial records. You will also want to investigate and consider things such as employment terms and conditions, unresolved litigation, principal contracts and orders, IT systems and other technology, environmental issues and the management team in place to handle customer service, research and development, and marketing.
You can acquire information about your prospective new business from a multitude of sources, and you should inspect any documents that are available. For example, if you’re looking for information on employees, you could examine old payroll records; staff files; copies of pension and profit-sharing plans as well as any relevant financial statements; employment contracts and union contracts (if applicable) and even the employee handbook. You can also get information from outside sources such as a landlord, tax office or bank.
The bottom line is this: You should exhaust all possible resources during your due diligence period, and be certain that you know exactly what you’ve gotten into and where your new business is headed.
Where can I go for more information?
For more information on buying a business in the UK, you can visit the UK’s government-sponsored business link website by clicking here:
http://www.businesslink.gov.uk/.../action/home?r.l1=1073861225&r.l3=1073861492&r.l2=1074407571&r.s=m
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