So you've decided to take the plunge and buy your own business. It's a big and exciting decision, but now the tough work begins. What do you do next? It's important to get it just right so the buying process runs smoothly and creates as few grey hairs for you as possible. There's a lot involved but if you do the right research and find the right help you too can be on the road to successful business ownership.
Self Assessment – what are your assets and what are you good at?
The first step in the buying process starts with you. Work out what you want out of your business, what you can do well and what will you need help with. Businesses fail every day because owners did not invest in what they are good at, know well and have a passion for. So choose with care and consideration and find an industry and a business size you're comfortable in.
At this early starting point it is also worthwhile consulting an accountant to look into your financial health. A solicitor is also handy to get on board as the path ahead will be a legal jungle. Choose your accountant and solicitor wisely. Find the right professionals to help you at this early stage and they will be by your side through the entire process of buying your business.
Important things to think about before taking the plunge are:
- Your expertise – Be honest with yourself. How much do you really know about running and managing a business (whatever type). Will you need help? Help will always mean higher running costs, so allow for this.
- Your budget – How much money and/or equity do you have available. How much are you willing to risk? Remember to allow for good working capital and cash reserves for any unexpected downturns. An accountant can help you with this.
- Your time – Owning a business is time consuming and will most likely affect your current lifestyle. How much will you sacrifice for success? Make sure your family is supportive and involved. They can be a great asset.
If you've considered all the above and are still keen to be your own boss then the next step is to find the business that is right for you and evaluate it thoroughly.
Finding a business – the internet is your friend
Finding a business that is right for you is a real challenge. Here the patient and relentless prevail. Key things to remember:
- Use the internet – it's invaluable for finding what's out there and to research your options.
- Don't be impatient, don't be impulsive – the tortoise wins the race here, so take it slow and steady and find out all the facts.
- Ask around – it's amazing what you can find out just by chatting with locals, family, friends or associates.
The essential consideration here is to find a business that is the right fit for you; a business that suits both your personality and your budget.
Evaluating a business – due diligence
You've found a business you're interested in so now it's time for a financial analysis and the beginning of the due diligence process. A vendor (seller) who is reluctant to give you details about their business's finances is a person (and business) to avoid. This is where your accountant that you hired early on in your initial self assessment stage comes into their own.
A good accountant will be invaluable in assessing your prospective business's financial situation – its assets, financial records (profit-loss statements, balance sheets and so on), tax records, goodwill value (if any) and financial projections. This may require a confidentiality agreement.
Get to know your prospective customers and suppliers. Look at the business's location and customer traffic. Find out if there are any Government licenses or regulations that will impact you. Research any known problems with the business (use the internet or possibly talk to suppliers and customers).
Investigate why the business is being sold – is there a strong new competitor, or maybe bad management practices. Discover just how long has the business been on the market – maybe there are some hidden problems. Keep on digging, then dig some more. Remember the tortoise – be patient, be relentless.
Negotiations – working towards a fair outcome
This can be a stressful and complicated dance between the business vendor and buyer that requires a measure of transparency and compromise. Use your solicitor to help with the legal side of negotiation, but remember that you are ultimately the person who will be running the business and good communication between you and the vendor is essential.
Some tips toward successful negotiation are:
- Be objective, don't bring your emotions to the table. Be patient and reasonable and avoid confrontation.
- Have all the facts at hand and have a list of questions that you can tick off as they're answered. Be prepared!
- Use your solicitor's knowledge, trust their judgement – if they're good they will have years of experience in negotiation and will have done this many times over, but remember you're the one who needs to communicate well with the vendor.
- Negotiate a price reduction – many buyers pay more than a business is worth.
Time to buy
Talk to your solicitor and accountant and draft an offer after negotiations have ceased. It may be worthwhile bringing in an industry specialist/advisor who can help you with the finer points. It's not time to get sloppy. Review all of the terms thoroughly.
Once your business proposal is approved by your funder you can pass your offer on to the vendor. If it's approved then a Sale of Business Contract can be drafted and you are on your way to owning a business. There may be a cooling off period after signed copies of the Sale of Business Contract have been exchanged. This is a period of time when the vendor may change their mind and rescind the contract. Once this expires you are all set. You now have your own business. Time for the real hard work (and excitement) to begin. Enjoy.
At Gateway Financial Partners we have over 20 years experience in buying business and advising clients on buying businesses. Our team of experts are ready to help you today. Call us on 07 3226 1800 or contact us via our online contact form.