You may be dreaming of being your own boss, or maybe you’ve spotted the next big thing and want in on the ground floor. Here’s how to buy a business in five easy steps.
Chances are you’ll already know at least the type of business you want to buy, but it’s never a bad idea to begin with some research. A good start is to identify the industry sector your desired business belongs to, and read up on any current and planned future regulatory changes. This may present you with obstacles or opportunities to take advantage of.
Another good tip is to discover any trade publications or associations that exist for your industry sector. Get as much information as you can from fellow business owners and learn from their success stories and mistakes.
It’s also a good idea to identify a couple of key ‘look-alike’ businesses in the market and study them. What do they do well? What do you think you can do better? This may sound simple but it will help you properly identify the right business to buy.
Once you have your ideal parameters down pat (market sector, size, location, price range, etc) you can begin really looking for opportunities to buy. You can do this either by finding a business that’s already listed for sale, or by approaching a business and making an offer.
Develop a shortlist of potential businesses and gather as much info on them as you can. This should include:
Once you’ve got your hands on all this info, it’s time to get yourself into a position to negotiate on price. This usually starts with getting the business you want to buy valued.
As most first time business-buyers will be buying a property-based operation like a pub, café, hairdresser, etc, most of the value will be based in the property itself, so be sure to get a surveyor’s report.
When it comes to valuing the turnover of the business, for first time buyers the general rule is to use a multiple of future profits to land on a price starting point. Most businesses are sold based on a price of between three and eight years’ worth of future profits.
If you feel like you are over your head when it comes to negotiating, you can always enlist the services of a broker or business sales professional.
Once you’re ready to make a move, you’ll need to decide how to structure the finance side of your purchase.
The simplest and easiest way to pay is by cash on completion. Simply put – you organise your finance with the bank, hand over the payment in full and the business is yours.
Another option is to defer payment until a number of certain milestones are hit. For example, you might wish the full sale of the business to depend on the retention of a number of contracts or clients key to your profit margin.
When it comes to Business Finance, it pays to get the right advice from an expert, so if you’re not sure about something, be sure to ask.
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Almost there! The final step in the process is to bring in the professionals to ensure all the t’ are crossed and i’s dotted. This may be relatively simple based on the nature of the business you’re buying – smaller businesses may only need the services of accountants and lawyers for a couple of days.
Have your team look at the commercial, legal and financial aspects of the business.
Once this is complete, you’re ready to get to work – Congratulations!
Start a conversation with one of our Business Banking specialists today by sending us a few quick details.
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