What to Look for When Buying a Business

Purchasing an established business can be a strategic move, whether entering the business world for the first time or expanding your existing empire. However, buying a business is a significant decision that requires thorough research and careful planning.

Before making any commitments, consider these five key questions:

1: Why Is the Business for Sale?

Understanding the reason behind the sale is crucial. The current owner might be retiring, seeking new opportunities, or facing financial difficulties. Alternatively, there may be underlying issues with the business itself.

Ask these essential questions:

• Is the owner retiring or moving on to another venture?
• Are there financial difficulties or debts?
• Are there legal or regulatory issues?
• Are there personal reasons driving the sale?

2: Are the Finances in Order?

Cash flow problems can affect both startups and established businesses. Before purchasing, it’s essential to review the company’s financial health.

Here’s what to do:

• Obtain and review the business’s accounts, including statutory filings and internal management reports, with the help of an accountant.
• Look for red flags like debt, losses, or cash flow issues.
• Ensure the business is profitable and financially stable.

3: Are the Staff Capable and Engaged?

Your people are a crucial asset. Before buying, assess the team’s capabilities and engagement.

Consider the following:

• Meet key employees and get their insights on the business.
• Verify that the core team plans to stay after the sale.
• Factor in the cost of replacing any key employees who might leave.

4: What Governance Do You Need to Address?

Proper due diligence and governance are vital steps in the pre-purchase process. Ensure the business is viable and free from undesirable issues.

To ensure thorough governance:

• Review all contracts and agreements related to the business.
• Conduct due diligence checks on the company and its owners.
• Understand the legal obligations of the business.
• Seek legal advice for any uncertainties.

5: Can You Secure the Best Price?

While purchasing a reputable brand can be advantageous, it’s important not to overpay. Set a clear budget and negotiate effectively.

To get the best price:

• Research the fair market value of the business.
• Be prepared to negotiate with the seller.
• Be willing to walk away if the deal doesn’t meet your financial criteria.

Get Professional Advice for a Successful Purchase

This list is not exhaustive. Buying a business involves many considerations, and working with professional advisers can help you navigate the complexities.

As your adviser, we can assist you with:

• Conducting due diligence checks.
• Assessing financial health and identifying red flags.
• Finding financing options for the purchase.
• Connecting you with M&A experts for advice on the sale.

If you’re considering buying a business, contact us to ensure a smooth and successful transaction.