Buying a business

Buying a business can be quicker, easier and less risky than starting one from scratch. It might also be easier to borrow money to buy a business with an established customer base, supplier network and healthy balance sheet.

Why buy a business?

People have different reasons for buying a business. Some want to be fully hands-on in the day-to-day management of a business, while others are happy to let others run the show, as long as profits are generated. Some want to buy a safe and stable enterprise, while others enjoy the challenge of saving a sinking ship.

For many investors, it’s all about the money: maximum return on investment as quickly and easily as possible. But if you don’t have the capital to buy that type of opportunity, you’ll have to set your sights lower, work harder and be prepared to wait longer.

You might want to stick to a sector you already know or try something completely different. Buying into a franchise might offer less risk – but less control and profit, too.

Before buying a business you must consider whether ownership will satisfy your needs – financial, lifestyle, professional and personal.

Potential pitfalls of buying a business

Consider why the current owner wants to sell. Maybe there are serious problems or signs of bad times ahead. Perhaps major investment is necessary and they have neither the money nor energy required. Maybe they’ve simply had enough and want to retire or do something else. 

Buying any worthwhile business will require significant capital, as well as money for professional fees and quite possibly additional investment. Buying a business can also be very stressful and time-consuming.

There are other dangers, too. A change in ownership could severely affect staff morale or lead to longstanding customers going elsewhere. Sellers are also likely to keep problems hidden, which means potential buyers must scrutinise every aspect of the business in fine detail.

Where to find businesses for sale

Many local newspapers carry details of businesses for sale, as do trade journals, trade association websites and publications such as Loot. A simple Google search can throw up many leads, too. Probably the best place to search is the Daltons Business website, which features a huge range of available enterprises for sale all over the country and beyond. 

Business brokers can act as intermediaries between buyers and sellers. They might be able to steer you in the direction of businesses for sale. Otherwise, speak to people in your local business network – maybe a member of your Chamber of Commerce, or an adviser from your local Enterprise Agency.

Valuing a business

To avoid paying over the odds, seek help from an accountant or business broker when valuing a business. The seller might have named their price, but that doesn’t mean you can’t get it for less.

When valuing a business, you must consider its history, people, premises, location, products/services, turnover, profit, cashflow, debts, costs, assets (including intangible ones such as reputation and intellectual property), market share/customers, reasons for sale and any relevant legal or regulatory issues.

If there are no major issues and a sale price is agreed, due diligence must take place. This involves checking information provided by the seller. There are three forms of due diligence: legal (ie confirmation that the seller has the right to sell the business and its assets and isn’t facing any actions); commercial (ie verification of market position); and, perhaps most importantly of all, financial (ie that the business’ books are in order and claims made by the seller are correct).

Following due diligence, the deal will either collapse or go through, subject to the buyer having the necessary finance.

More on this topic:

• Q&A: Buying a business
• Buying a business (factsheet)

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