When people dream of owning a business, the foundation for this is typical, with their own idea in mind. While starting a company from scratch is enticing as you have total control, it’s not the only option available.
You could purchase an existing business.
As opposed to starting a new venture, acquiring a current company has several benefits in its favor. The foundation has already been laid, there’s a current customer base ready to go, and you can get started right away.
Yet even with these advantages, there’s still plenty of risks involved with buying a business. You cannot simply find a business for sale, buy it, and expect instant success. You need to take an organized approach, one that considers all angles to ensure you acquire the right company.
To help you in that regard, here are six essential tips to remember when buying a business.
1. Do your research
Whether you are fronting a startup or purchasing an established company, the path always begins with the first step: research. Without research as the backbone for your endeavors, you could end up making a giant mistake with your plan to buy a business.
When it comes to research, begin by ensuring you’re picking the right industry. Try and avoid selecting a business solely due to passion. You want to have a vested interest in an industry, sure, but the experience is even more vital. When you have valuable inside knowledge from the start, it’s much easier to turn your business purchase into a profitable one.
You should also look into what businesses are actually available for sale. You may have your heart set on a specific company, but a quick Google inquiry will reveal there are plenty of other opportunities in the area. See which one offers the best features – location, reputation, products, etc. – and go from there.
2. Arrange an initial viewing
Before you decide to make any type of offer, you will want to have a first-hand view of the business you plan to buy.
When doing this, remember to remain subjective. Never allow your heart to rule your head. You might believe it’s a dream business, but it could turn into a financial nightmare if you overlook certain aspects.
3. Receive professional help
If you go through with it, purchasing a business is, ultimately, one of the most significant events of your life. Due to the nature of the transaction, it’s highly recommended you reach out for professional assistance in certain areas.
First of all, you should gain an expert valuation of the business. Say the company you want to purchase is in Perth. In this case, you want to contact a specialist that knows about Perth business valuations inside and out. They’ll be able to compare to other similar businesses in the area, look at the intricate details, and come up with an accurate insight into the company’s value.
Sure, you can go with the valuation the business provides. However, it’s always recommended to use an independent party to gain an alternative perspective.
Of course, there are various other areas for you to gain professional help. For example, you should have a solicitor look over the contracts to make sure everything is in order. These types of services are not cheap, but it’s worth spending the money now to ensure there are no potential traps with your planned business purchase.
4. Sort out your finances
If you already have the money sitting in your bank account, purchasing the business is made a whole lot easier. However, this is rarely a viable option. This means that some form of financing will be required.
For many, a loan will be the first form of financing that is explored. Yet it’s not simply a case of putting in a request for a large sum of money and receiving it. You need to put together a detailed business plan, one that includes:
- Executive summary
- Financial projections
- Market analysis
- Company structure
What if your credit rating is holding you back from a traditional bank loan? Fortunately, there are other forms of financing available. You may seek crowdfunding, use your car to secure a title loan, dip into your pension fund, etc.
5. Don’t be scared to negotiate
If you want to be a success in the world of business, you need to know the art of negotiation. Well, what better way to test this out than with your planned business purchase?
You should never be afraid to test the waters and try to land the ideal deal. Just remember few businesses up for sale will have a line of potential buyers ready to ignite a bidding war. This means you’re in a strong position from a negotiating point of view. You have the cash to splash, and they could well be desperate to get their hands on it.
As an example, the seller might be doing so because they’re retiring. Now, are they going to delay their precious time on the golf course for the sake of a few thousand dollars? Knowing that it could take months to receive another proposal, they’re likely to accept an offer below their original asking price.
6. Take it slow
The business has been purchased. It is now under your control, and you’re free to make changes as you wish. While there will be a strong temptation to put your fingerprints all over the business, avoid being too hasty. You could quickly alienate your customers – and employees – if you make wholesale changes from the outset.
Instead, it is advised you take a step back to simply analyze the landscape of the business. Understand what works. Spotlight the areas that require improvements. Speak to your employees and customers to gain valuable feedback.
Once you have gained this type of information, you can begin slowly introducing new changes. It’s only natural that not everyone will be on-board with these alterations but try and keep your long-term goals in mind when faced with any dissent.