Businesses for Sale - Tips and FAQs
Frequently asked questions - Tips on buying a business
Q1. What questions should people ask themselves when considering buying a business?
Buying a business can be one of the riskiest undertakings imaginable. The wrong decision can cost you your money, plus more spent trying to rescue it, not to mention your home, even your marriage. Ask yourself the following questions:
- Do I really need to buy a business?
- What do I expect from the business?
- What can I contribute to the business?
- Can I run it as well as, if not better than, the current owner.
Q2. Where should people look to buy a business?
You can find businesses in the papers, in for sale magazines, or if you are already in business, you can talk to competitors, suppliers, customers. But the chance that the business you are looking for, in your price range, experience range and area will be for sale at the time you happen to be looking, is slim.
Some reputable business Brokers offer a "Buyer Service", where you can retain the Broker to search for business that fit your parameters. This means that you pay commission instead of the seller, but the Broker is now legally obliged to work FOR you rather than AGAINST you, and most importantly, you have someone with appropriate insurance you can sue if it all goes wrong.
Q3. What should people consider in choosing a business that is right for them?
Business is not easy - there are always competitors doing their best to beat you. So if you don't actually enjoy what you are doing, you are already behind the eight ball.
You also need to know why the vendor is selling. A bad business can often lead to a bad back.
Q4. What are the key areas of financial due diligence for a buyer?
The first test should be the common sense test - are the seller's claims reasonable? Be wary of claims that cash has been taken out of the business. Count only add-backs that can be traced through the books.
You can follow up by talking to customers, suppliers etc.
Q5. What should be considered in determining a purchase price for a business?
The true price you should take into consideration is the "Enterprise Value", which includes the stock, and the working capital need to maintain the business. This would depend on such things as payment terms between customers and suppliers, and any seasonal factors which can influence the cash flow
There are no hard and fast rules, but you cash flow should enable you to pay off the interest and principal in a reasonable time, say 5-6 years.
Unless you really know what you are doing, it is probably safer to pay more for a solid business with a good track record and prospects, than to pay a bargain price for a shaky business.
Q6. What are some general contractual conditions/criteria buyers can consider when negotiating the purchase of a business?
If you are dealing with a crook or a con man, there is not much comfort in having a contract which says he promises not to cheat you. So you need to know who your seller is. And make sure all possible concerns you may have are addressed as conditions in the contract and alleviated before handing over your money.
Use a good solicitor who specializes in business conveyancing to prepare the contract, and a reputable Accountants to conduct "Due Diligence" prior to completion.
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Further Information on buying a business and businesses for sale:
Buying a business is a complicated process. Being a buyer, you should understand the reasons why someone would be selling their business. These reasons should be eventually taken into consideration to make sure that whatever business you are buying is of your interest, profitable and gives you complete value for your money. There are so many businesses for sale. In such a case how will you decide which the best business for you to buy is? If you go out on a survey by yourself, there are many hidden facts about the business for sale that you might not be able to uncover on your own. Therefore it is advised that you seek the help of professional business brokers. These professional business brokers will take care of the following points to make your business buying process easy and you will avoid falling into any traps. You can make the right decision with ease and comfort. Those who are willing to sell business ventures will provide the right information to you about their business because of a neutral third party intervention. These business brokers ensure credibility of their sellers, so that they have a good reputation in the market and you can further recommend them to your friends and acquaintances. What are the main issues that business brokers help you with, if you want to buy the right kind of business?
- The broker will zero in on the right kind of business type for you based on your requirement because the broker would have a ready list of people who want to sell business ventures. This means saving of valuable time and effort. You will not have to go out and search for the right kind of business
- Most people, who want to sell business ventures, prefer to keep their listings confidential because of competition and reputation reasons. Most people who use the services of business brokers have access to those confidential listings and help you search for the right kind of business venture, which means confidentiality for you as well in return
- You can also choose to meet, with the person who owns the business and have a look at the premises at which this business is being conducted. You can openly question your appointed business broker on any doubts you might have regarding the valuation, feasibility, or profitability of the business venture you intend to buy. Your broker will ensure that you get all your answers fairly and objectively
- The business broker ensures that the valuation of the sellers business is done properly. This ensures that your decision to buy any of the businesses for sale, at the right price and you do not end up over paying for your buy. This ensures a fair deal for both the parties involved
- Since this business broker is representing both the seller and the buyer, they can assist in preparing offers and counter offers which prove profitable for both. The financial transactions that happen between both are facilitated through this broker. This ensures a smooth process for the involved parties and peace of mind
- The broker helps with getting all the right legal paper work in place – for example the Sales memorandum/deed, Letters of Intent and Non Disclosure Agreements etc. They have all the necessary document formats, thereby saving you expensive legal fees
These are a few things that will ensure that you optimize time, make the right decision and yet have complete peace of mind. Remember, the best way to buy or sell business, is to come to a reputed broker, who will ensure you a reasonable deal, always.