Buying a Business Checklist
28/07/2014
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Experienced buyer or new entrepreneur, one thing remains true:
Buying a business is a major decision for anybody.
To ensure that you maximise your investment it is crucial that you educate yourself on the process to be certain you make the correct decisions.
Now, what if we told you:
There is a procedure to follow to take some of the pressure off of this big step?
In this guide, we will take you through a straightforward checklist of questions that will tell you what to keep in mind in order to buy a healthy and profitable business.
1. Decide what kind of business suits you
The right business is not necessarily the one with the highest profit. It is the one that fits your budget, experience, and plans.
Before you start viewing opportunities, be clear about:
- the sectors you understand;
- how much you can invest;
- whether you want to work in the business day to day;
- how much income you need from it;
- the location you are prepared to operate in; and
- whether you want something established, growing or in need of improvement.
That makes it easier to filter out opportunities that look attractive on paper but would be a poor fit in practice.
2. Understand why the owner is selling
A seller’s reason for leaving helps you understand the wider story behind the business.
Retirement, relocation, health, succession and moving on to another venture are all common reasons to sell.
What matters is whether the explanation fits with the financial performance and condition of the business.
Ask:
- Why are you selling now?
- How long have you owned the business?
- What would you do to grow it if you were keeping it?
- What are the biggest challenges?
- How dependent is the business on you personally?
A credible seller should be able to answer these questions openly.
3. Review the financial performance
Do not rely on turnover alone.
A business can have strong sales and still generate weak cash flow or profit.
You should review, with professional advice where appropriate:
- recent annual accounts;
- up-to-date management figures;
- profit margins;
- cash flow;
- debt and liabilities;
- working-capital requirements;
- tax liabilities;
- customer concentration; and
- any unusual or one-off costs.
Look for trends rather than one strong year.
If performance has changed recently, understand why.
4. Check what is included in the sale
The asking price does not always include everything you assume it does.
Confirm whether the sale includes:
- equipment;
- vehicles;
- stock;
- intellectual property;
- customer databases;
- websites and domains;
- licences;
- property or lease rights;
- goodwill; and
- cash or debt.
If stock is being added separately at valuation, make sure you understand how it will be counted and priced.
The legal structure of the purchase also matters. Buying the shares of a company is different from buying selected assets from it, so take legal and tax advice before proceeding.
Related guides
Introduction To Buying a Café Business
How To Buy Your First Restaurant
How To Negotiate When Buying a Business
How Do I Arrange a Viewing & Make An Offer On a Business For Sale?
And there you have it:
4 things to keep in mind when buying a business in order to make a decision that works for you.
If you are interested in buying a business of your own, please take a look at our businesses for sale or get in touch with us via 0800 612 7718.
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