Starting a business is a tough task. The benefits of buying an existing company instead are huge. You already have the infrastructure, the customers, the cashflow and the team. So it makes sense, for some, to look at companies that are already out there, instead of beginning from scratch.
It’s not a smooth ride of course, so here are the main things to consider before taking the plunge and buying a business.
Know the market
I always advise people to buy a business operating in a sector they already know and understand. This doesn’t mean they have to be complete experts, there still needs to be research and diligence: but they need to have some awareness of how the market operates. There will be a lot of things to learn along the way anyway when buying a business – the staff, the culture, the reputation – and if you buy in a sector that you are completely new to, you’re going to have two huge learning curves as you’ll need to learn all about that industry. Don’t make it more complicated or more difficult than it needs to be. Start with what you already know.
Buy a good team
Ensure you secure a company that already has a good solid management structure in place. If not, you will end up being part of that management team, looking after the day to day running of the company: and you are not doing this to buy yourself a job. It’s best to look at companies that have an annual revenue of at least £1m, with a team of over 15 people. People sell their businesses for different reasons – retirement, health, complete life pivot – but the key is to only buy that business if it can survive without them at the helm. If it is too small, then there is a chance it won’t cope well at first – and then you are looking at a different path altogether. If the team and structure is strong, a change in ownership means progress, not panic.
Finance first
Only buy a company you can finance – but never finance it from your own purse. Think of it like buying a house: if you’re told you can’t get a mortgage large enough to cover the repayments on the house you want, that may be a sign you can’t afford it. You do not want to end up out of pocket here, so don’t dip into your life savings. There are many other ways to fund a business.
Use the professionals
Always engage an accountant to do the due diligence. It sounds obvious but I have come across a lot of people who fancy doing it themselves. This is never a good idea, as you are simply not able to look at it objectively: you are coming at it from a personal and financial gain point of view and whether you want to or not, this is will skew your judgement. Hire someone completely detached, and of course suitably qualified. The same goes for your lawyer: have a good proactive lawyer already in place who can get the deal done without any ego getting in the way.
Don’t fall in love
Don’t fall in love with the business – this is business! You are looking for a motivated seller, but DO NOT BECOME A MOTIVATED BUYER. The key is to stay detached. Look into at least 20 businesses before deciding which one to buy. Buy that business based on its financials, not your feelings.
Start with the end in mind
Why are you doing this? What is your motivation? For most people, the aim when buying a business is quite simple – to make money. It is to create a more secure future, one that involves accomplishment and provides security. To take an existing success, add and build to it and make it better. That’s great – I applaud this and have helped hundreds of people do just that. So keep that goal in mind throughout the entire process. If you get too emotionally attached, or too involved in the running of the business, or don’t do the diligence up front, that success becomes compromised.
Keep it objective, professional and detached. Buying a business can be the best thing for everyone – it can bring you the success you seek without personal financial risk, it gives the previous owner the departure they are hoping for, and it offers the team better prospects, thanks to the progress you will provide.
