The benefits of buying an established business are vast. The company is already up and running, has a client base and a reliable income and reputation. The business plan and operations procedures are already set in place and the potential problems have been discovered and solved. However, it is very important to always ask the owner as to why he or she has decided to sell the business, as if it has been neglected by previous owners a lot more investments on top of the purchasing price must be made to ensure business profitability.
There are many different channels through which you can find your potential business. Specialized magazines, websites and trade associations will all have a section dedicated to listings of businesses that are being sold. You can also hire a business transfer agent. It is important, however, to check that the agent is a registered member of the National Association of Estate Agents. This will ensure the trustworthiness of the agent and his possession of all the necessary skills and level of professionalism to ensure the best outcome.
Once you find the business that you are willing to buy it is very important to valuate it. In this case, it is strongly advisable to seek professional help in order to value the market and the business correctly. It is very important to have a good understanding of how healthy the business you are interested in is. History of the business, current sales, profit and turnover are all strong indicators of how well the business is doing. The reasons for sale are also important to investigate. It is important to establish contact the clients, vendors and employees who may give you valuable insight into the company situation.
The most difficult part of the valuation is intangible assets. This will touch upon the reputation, supplier relationships, goodwill and the value of the licenses and patents of the company. Keep in mind that the valuation process will affect the decision of buying the business and the price that you are willing to offer for it.
Once you have decided to make an offer and have agreed on the price with the current owner you will be given enough time to confirm the accuracy of the information provided to you. You will be allowed to access the business books and records of the company to build a realistic understanding of business performance in the future. The process is known as due diligence and the period can be negotiated to last for at least three to four weeks. At this stage it is important to seek professional advice as solicitors and accountants will be able to help you identify the areas of risk for the business.
The due diligence period will give you enough time to understand what needs to be fixed in the company, the costs associated with the changes and whether you are willing to take the risk. All areas of the business need to be carefully assessed. It is also advisable to collect extra information outside the business from the landlord, tax office and bank.
In summary, the following steps should be taken for successful acquisition of a business:
It is important to understand that even after the agreement is reached on the price and terms of sale the deal may still not finalize. Certain conditions of sale including financial statement verification, transfer of leases, contracts and finances must be met.
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