Top Tips
Opportunity Knocks: The Ins and Outs of Buying a Business
Buying a business can represent a huge opportunity for budding entrepreneurs, however it is not risk free - without adequate research, planning and consideration, the process of acquiring a firm can be fraught with difficulties.
In order to help budding entrepreneurs avoid some of the pitfalls associated with buying a business, David Robertson, Chief Executive of leading finance firm Bibby Financial Services has developed a series of top tips.
- Do your homework - Get a feel for the business by researching its market, the main competitors and visiting the business to meet the current owner.
- Get into the detail - Undertake detailed due diligence. Seek out customer's opinions, ask suppliers for their views, review the balance sheet and audit the workforce.
- Better safe than sorry - Make sure that the business has no major problems before you make a firm offer. Speak to industry experts to determine prospective demand as well as price and margin prospects.
- Seek expert advice - Choose advisers with appropriate expertise. You may need specialists in accounting, tax and legal due diligence at different stages of the buying process.
- Making an offer - Calculate your initial offer and your maximum offer taking into account your initial valuation, the seller's objectives and what competition you are up against.
- Set out your stall - The "Heads of Terms" agreement sets out the main terms of the sale, the way payment is to be structured, any preconditions and what warranties and indemnities will be provided by the seller.
- It's good to talk - Keep the dialogue going with the seller, even if the going gets tough. Communicate at all stages of the buying process and then close the deal.
- After the deal is struck - Quickly announce the change of ownership in a positive way with the cooperation of the seller. Write to major customers and suppliers explaining the advantages to them.
- Have an action plan - Determine your key objectives for the business and then stick to them.
- Keep staff "in the loop" - Communicate with employees your determination to carry through your action plan. It is important to make them feel settled and motivated from the outset.
David Robertson, Chief Executive of Bibby Financial Services said:
"Buying a business can be a huge step forward. However, selecting the right business, in the right industry, at the right time, is critical if you are going to be successful.
Many prospective buyers waste precious time and resources looking at endless business listings without any planning. It is vital that entrepreneurs go into buying a business with their eyes open, having dotted the "i's" and crossed the "t's" to guard against falling into the potential pitfalls of buying an unsuitable business".
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