BUYING A BUSINESS

The process of buying a business is often long and complex, from finding the right one to working out all the details required for a smooth transfer of ownership.

Below you will find some helpful information as you consider which business might be right for you.

  1. Identify the industry 

• Step one of business acquisition is defining the type of enterprise you're looking for.
• This will begin with a general decision of which industry to move into. You’ll need to research the mid-to-long-term prospects of the sector before moving forward.
• Pay specific attention to legal concerns, changes in regulations, and look at local competition within the industry.
• Trade magazines and newsletters are a good start – they provide expert opinion on the prospects of your chosen business.

  2. Target the business 

• With broad marketplace knowledge now at your disposal, the next logical move is to target a suitable, specific business.
• Have in mind an ideal budget, size, location and annual turnover and, most importantly - whether you feel you can make a success of it. Now to find one which matches these expectations. 
• Think about businesses that are not actively seeking a buyer, as well as those advertised for sale. Every enterprise has its price and tabling an unsolicited offer may convince the owners that the time is right to sell.
• You will also beat competitive bidders to the negotiating room this way.
• Don't promise a deal that you cannot deliver, simply to open negotiations. A professional broker can be instructed to begin talks discreetly on your behalf and help draw up mutually agreeable terms.

  3. Research

• Before you bring in the experts you can undertake a little investigating of your own.
• Pose as a customer to experience the service first-hand, whilst also working with the company to look through its finances.
• This position of trust and privilege cannot be abused, and you will most likely need to sign a confidentiality agreement before you can get access to sensitive company data.

  4. Open negotiations

• At this point in the acquisition, you will have a more detailed picture of both the target business and the industry within which it operates.
• With your clearer understanding of its business activities, you can begin to talk directly to the current owners and work together to build a deal that will satisfy all parties.
• One of the first points of negotiation will be price, after a preliminary valuation. At this point, you do not have to worry whether your initial offers are legally binding - they are not.
• Spend time formulating a plan to work towards so that everyone is pulling in the same direction.

  5. Evaluate 

• The valuation stage of buying a business is perhaps the most vital to ensuring a successful purchase.
• The approach you use will differ depending on the type of concern that you are buying. Assets will often make up the bulk of any valuation: value from property and real estate to machinery and equipment. 
• However, whilst these can be relatively easy to appraise, you shouldn't overlook the importance of turnover, profitability, and ongoing contracts as a way of informing your offer.
• A specialist accountant may be brought in, and they will often provide expertise within a certain field or industry that can help inform your offer.

  6. Heads of Agreement

• The Heads of Agreement, though not a legally binding document, is nevertheless an important and useful stage in the negotiations process. It essentially condenses the key elements of a sale into a single document.
• Payment, responsibilities, periods of confidentiality will all be set down in the heads of agreement at a point in the negotiations when each party is still free to walk away from the proceedings.
• Most importantly, the Heads of Agreement will act as a timetable towards completion: explaining to each party the time-scale and deadlines for every step of the deal, from financing to the release of payments.

  7. Due Diligence

• By this point in the buying process, you will be intimately familiar with all aspects of the sale and you should have a detailed understanding of how the rest of the process should unfold.
• Having already undertaken your own, informal due diligence in the early stages of the purchase, you can now look to bring in the professionals who will offer a more thorough analysis of the target business' accounts, practices and day-to-day operations.
• Although you don’t want to take risks by cutting costs at this important stage, remember to stay in budget and keep your outgoings to a sensible ratio of the overall purchase.

  8. Sale & Purchase Agreement

• The completion of your sale and purchase agreement will mark the closing stage of the acquisition process.
• Whereas the Heads of Agreement sets out in broad, non-legally binding terms an overview of the purchase, your Sale and Purchase agreement will give both parties their legal obligations for the sale.

  9. Pay

• You will have a different set of options for paying for your new acquisition, depending on the size and scale of your purchase.
• A larger merger of multinational interests may involve complex financing from multiple sources. For a smaller scale buy-out, the most common method is a straightforward payment on completion agreement.
• Financing can come from private means, angel investors, banks, loans companies, or peer-to-peer lending platforms.
• Sometimes, the current owners may relinquish full control of their business at sale but take only a percentage of the full value on completion, in return for ongoing shares in company profits.

 10. Completion

• With the final documents completed, contracts signed and payment agreement in place, you have completed your newest business acquisition.
• Although this ten-step process may at times seem slow and the workload insurmountable, everything will fall into place with time. Even the hardest negotiations can find a positive resolution.

Congratulations:  the business is yours!