Six Things to Consider When Buying a Business
There can be many positives to buying a business, rather than building one from scratch. It can save a lot of time and effort on your part if you are taking over systems, processes and even a customer base that is already established and working. Buying a business can be very risky though, and here are some things to consider:
- The business valuation – is this fair and reasonable? Your accountant will be able to help you determine whether the price you have been offered is a true reflection of the business’s worth.
- Return on Investment – based on the price you will be paying, the profits the business is making and the potential added value you can bring – how long will it take to get back your original investment and start to reap the rewards of your new venture?
- Due Diligence – have you done your due diligence? It is important to instruct a solicitor to help draw up the legal documents for the sale. The solicitors, along with your accountant, will also advise you on what kind of questions you need to ask and what documentation to obtain from the sellers – to ensure everything is in order and that you are not hit with any unexpected liabilities.
- Employees – does the business have any employees or self-employed workers that will be transferred to you as part of the sale? These employees have rights under a piece of regulation called TUPE which you need to adhere to as explained here: http://www.acas.org.uk/index.aspx?articleid=1655
- Property – does the business include a leasehold or a freehold property? If so, you will need to instruct a conveyancing solicitor to deal with this part of the transaction, and ensure you commission a full and thorough survey to foresee any structural problems.
- Finance – how will you raise the funds to pay for your acquisition? Will you be investing your own money or will you need to borrow money from a bank or other lender? If you are putting in your own cash, you need to be able to afford to take that risk. If you are borrowing money, you need to take advice about what security you will need to provide to your lender. The cost of that borrowing also needs to be taken into account when calculating your cash flow forecast.
Of course, it is still exceptionally hard work taking over a business and really making it a success – and there are different challenges associated with the transfer – but it can mean that you are in profit much more quickly, rather than spending months or even years recouping your start-up costs!
Director, Bells Accountants