Buying A Business
Are you asking yourself whether to buy a business or start your own? Many small businesses fail after only one to five years. While this is not to scare you, buying an existing business eliminates many risks.
An existing business must have a successful track record, verified business model, established customer base, experienced and skilled employees, and already existing business finance for the new owner.
There is no great business. Businesses have different unique features. So when you want to buy a business, consider finding the right business suitable to your strength and needs.
Advantages of buying a business
Buying a business is less risky compared to starting your own business. When you buy a well-managed and profitable business for a good price, there are loads of advantages.
- Buying an established business gives you instant access to cash flow
- Many businesses fail after only one to five years. Buying an existing business helps you avert such risk
- An existing business financial history allows you to qualify for certain business financial options
- Buying a business means access to an already existing market and customer base for your product or service
- It also gives you leverage to use the skilled and experienced staffs in the business.
Disadvantages of buying a business
Not every business has good potentials. Many businesses are unprofitable or under-performing. While these businesses may be cheap to acquire, it is a risky investment. Certain problems may come with such.
- Most businesses may need major improvements or upgrade to their facilities and equipment
- Under-performing businesses may require a lot of investment which may not be recuperated in the business
- The industry may affect the business. This is known as external factor.
- The location of the business may be unfavourable to the seller
Conducting Due Diligence
When buying a business, it is important to examine the business in detail. This process is known as due diligence. Due diligence is conducted just before a binding contract is agreed between the buyer and the seller.
Assessing or valuing a business before buying gives you access to important details about the business that may not be privy to the public. This information gives you enough leverage to make rational decisions to buy the business or not. It also answers all questions you may have about the business.
The due diligence process ensures you get the correct value for your money and can make the difference between buying a risky business or a profitable business.
The process of examining a business involves reviewing details such as
- Income statement of the business
- Records of Received and payable accounts
- Profit and loss records of the business
- Privacy details of employees, trading partners, investors, customers
- Stock record
- Details about the business facilities and equipment
- Contract with staffs and employees
- The business financial history, bank loans and credit history
- Intellectual property, trademarks, patents and intangible assets of the business
- Partnership, trading, investment and lease arrangements
Things to consider when buying a business
The process of buying a business is time-consuming and can be overwhelming. It is important to factor all possible situations and also reconsider when some details are unclear.
As a buyer, you should reconsider buying a business if the seller
- Does not disclose important information like reason for selling, financial statements, contract of staffs, and other agreements
- Does not agree to enough time for you to conduct due diligence. This takes at least 30 days
- Doesn’t introduce you to key partners of the business
- Is involved in any legal case as at the time of buying the business
- Wants to close the sale of the business quickly. Something must be fishy, hesitate.
- Have a question or two to answer about their credit history
Are you looking to buy an existing business? From finding the ideal business to guiding you to get the maximum value for your business, business brokers are your best option when you need to buy a business.
At Small Business Post, as your broker of choice, we can help you with
- Business valuation and negotiation
- Sales closing
- Due diligence
- Securing business finance to buy any business of your choice