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10 steps to buying a business

Steps buying a business

Buying a business is one of the biggest decisions that you will ever take, and every entrepreneur owes it to themselves to make sure that their purchase goes smoothly. 

Define Your Purpose

It might sound obvious, but your first step should be to define exactly what sort of business you are looking for. Identify your own skillset, and go after the appropriate company. Don't just choose the right sector, but identify exactly the correct kind of business in terms of size, speciality and unique selling point.

Target Your Search

Once you know what you are looking for, it's time to focus your search. The main factor to consider is how far you are willing to move to find the perfect business. It won't necessarily be on your doorstep, and you must consider your own lifestyle. If your family doesn't want to move, perhaps you'll need to relax your criteria.

Initial Due Diligence

Once you have found the right company, make an approach and see if you can get hold of a few basic business documents. Even if you can't, find out about the reputation of the business and its existing contracts and suppliers. Perhaps you could even attempt to use its services for yourself. Before you commit your time, make sure it is worthwhile.

Put yourself in the shoes of the existing owner. What do they want, and what would you do in their place?

Value The Business

Having looked into the state of the business, it's time to estimate an initial valuation. This is normally done as a multiplier of yearly profit, adjusted to take into account the tangible and intangible assets of the company. Ultimately, however, you should offer what you are willing to pay, and not a penny more!

Negotiate The Price

Once you know your own valuation, it's time to discuss an initial price with the existing owner. Don't go straight in with your highest offer, and leave a little room to negotiate. Whatever you do, make sure that you put yourself in the shoes of the existing owner. What do they want, and what would you do in their place?

Heads Of Agreement

Once you have reached an initial agreement on price, you will need to sign heads of agreement, which is sometimes also known as a letter of intent. This will give you access to key business documents, in return for an agreement that they will be kept confidential throughout the process.

Detailed Due Diligence

Upon securing those documents, it is time to perform due diligence. This is a process of forensically checking everything about the business, both financially and strategically, and thus ensuring that there are no nasty surprises lurking. At this stage, you would normally be well advised to engage the services of both a lawyer and an accountant.

Keep Something In Reserve

It is vital that you don't spend all of your money on the purchase itself. Your new business will probably experience teething problems whilst it is handed over to you, and you will need reserves to meet any such issues. Ensure that your finances are still in good order before you commit.

Complete The Purchase

Once you are sure that the business is sound, and that you have the resources to go ahead, then you can sign on that dotted line. The business is all yours.

Plan Ahead

Whatever you do, don't stop thinking about the future whilst you are buying the company. You should hit the ground running on day one, and your strategy for the next few years should already be in your mind. Ensure that you meet with key staff immediately, and let them in on your plans. Then enjoy the feeling of owning your new business!

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