So, you have been thinking about becoming a business owner and have decided you’d like to buy a business, rather than start a business from scratch. You’ve found a business that you are interested in so what should you do now?
We look at the process of buying an existing business and some key aspects to consider:
- You will need to put together an ‘acquisition team’. Your accountant and business lawyer will help you with the critical due diligence process. This will allow you to know what you are buying; the value of the business and its future prospects. You should also be engaging with your bank manager to determine how you are going to finance the acquisition.
- Do your research. Don’t just rely on the numbers. Immerse yourself in the business and get a complete understanding of all facets. Ensure the business comes with a good reputation. Ask industry experts and obtain professional reports to assess the risks associated with the future of the business and the industry as a whole.
- Work with the current business owner for a period. This allows you to gain practical experience in running the business and the trials and tribulations you are going to face on a day to day basis. Use this time to verify as much information as possible including testing the machinery and equipment to ensure you are getting what you pay for.
- Get to know the important customers and other stakeholders, such as suppliers and employees. Ensure you are introduced to important customers and discuss the potential change of ownership with them. Meet key suppliers and ensure there is a good relationship with them. Most importantly, speak to employees as they will be critical to ensuring the business continues to run as normal.
- Always ask for more when negotiating, and do everything you can to minimize the downside/risk of the purchase. Obtain an indemnity clause from the seller and request the seller stays in the business for a transition period. Additionally, try asking the seller if you can pay off the business over a period of time rather than in a lump sum.
- Choose the right business structure. The structure you choose will significantly affect your business legal and operational risk, asset protection and tax obligation. It is important to think carefully early on about which structure is the right one for your business and best reflects your goals for the future. The right business structure could also reduce your tax burden and improve your cash flow.