Buying an existing business means you will already have existing customers, and you can completely skip the start-up phase.
Buying an existing business can be very tricky, and you may require the help of a business broker to help you manage the complicated process.
Business brokers in the UK will provide you with guidance, help you negotiate with the previous owner and ease the process of purchasing an existing business.
We have compiled some information that potential small business owners need to be aware of if they are attempting to buy an established company without the help of a professional.
Do your research
The first thing a professional will tell you is to find out why a profitable business is being sold.
You can’t always trust the seller’s word, and you will have to do your own research before buying an existing business.
You will have to ask realtors, other business people, suppliers and even customers why the business is for sale.
Ask what you will get for the asking price
You will have to ask the seller what business valuation they did, and which business assets are included in the sale.
Request a sales profile document, and don’t be afraid to ask questions if you are not certain.
The last thing you would want is to blindly buy a new business without having all the information.
Do a deep dive into the existing business
Before investing in a business venture, you need to dive deep into the business finances.
Request financial statements from previous years, and wrap your head around the expenses and profit margins.
This phase is where a business broker would be beneficial, as they know exactly what to look for in the financial documents of an existing business.
If possible, you should request audit reports to understand the cash flow of the company. You should also ask the previous business owner any questions regarding the cost of business ownership.
If you are uncertain about what you are seeing, or you don’t trust the information that was provided, ask to have your own audit done.
Is the business operations worth the asking price?
During your investigations, you should determine what you should actually pay for the business. You can use different methods of business valuation to determine the price.
The asking price should be based on the company’s balance sheet, the market value of the business assets, replacement value and liquidation value.
The real value of a business depends on the market presence of the company, and what the profit margins are.
Try out the business for a while
Being able to get a feel for the business is one of the main existing business advantages.
Ask the seller if you can sit at the business for a few days to get a feel for existing company culture, the workings of small business administration, and how the operations run.
Investigate your financing options
Can you really afford the business? That is the first question you should ask yourself? If you don’t have the immediate cash flow to buy the business, discuss financing options with the current owner.
Lenders will be more willing to offer you a loan because an existing business is less risky than financing a brand new business. You can also request seller financing, where the seller will finance part of your purchase.
Make an offer
Once you have done all your research and considered all external factors, you should make an offer and start negotiations.
You may have to make a non-refundable deposit to show you are a serious buyer and not just wasting time.
Compile a sales agreement
The sales agreement needs to stipulate the payment terms and every other aspect of the sale. This document is legally binding, and you will have to enlist the help of a lawyer.
Conclusion
Buying a business is challenging and can rarely be done without the help of a professional.
Business brokers will help you save money and provide you with valuable advice to facilitate the buying process.
