Buying a business is a significant investment and, like any other large purchase, doing thorough due diligence beforehand will reduce the chances of regretting your purchase.
If you are considering buying a business or have started searching for businesses for sale, find out the key considerations to take to increase the chances of long term success in our latest blog post.
Is the Business Fairly Valued?
The current valuation of the business should play a significant part in your decision on whether or not to make the purchase.
Buying a business that is overvalued can leave you struggling to make a return on your investment, which can impact profitability and leaves less to re-invest into the business or pay yourself.
When reviewing the financials of a business, it’s important to look beyond the basic financial information such as revenue and profit. Other factors such as client retention, earnings per client, the profitability of each service, competitors and industry outlook should also be considered.
It is highly recommended that a viewing of the business is undertaken and that it is valued by an independent expert before making an offer.
This independent valuation will give you another perspective on the value of the business and adds leverage during negotiations. In our experience, sellers will usually take an offer lower than their initial asking price.
What Industry Does the Business Operate In?
Purchasing a business in an industry that is in decline greatly reduces your chances of long term success, even if buying into a proven model with a successful history.
Businesses in sectors with high growth potential will have this priced in, but should provide a greater return on investment in the long run. If you’re unsure about which industries are currently on the rise, take a look at our top sectors for growth in 2021.
In addition to the industry outlook, your experience and knowledge of the industry will play a part in how successful your venture will be.
Whilst some opportunities will have few management requirements, the more you know about the industry, the more informed decisions you can make.
Why Is the Business Being Sold?
When considering any big purchase, it’s useful to understand why the asset is being sold.
When it comes to buying a business, it pays to be sceptical. If the business is successful and generating lots of revenue for the owner – why would they sell it?
Most entrepreneurs will have built their businesses from the ground up and therefore will not sell without good reason, so a sale could be a sign that they are facing debt, legal issues or other significant problems which could impact the profitability of the business.
There are, of course, many legitimate reasons to want to sell a business such as moving abroad, starting a new venture or simply wanting to cash in on all the hard work that’s gone into growing the business.
If the current business owner or broker will not disclose why the business is being sold, it can be a red flag that there is something else going on behind the scenes.
What Will Happen To Existing Clients and Staff?
Existing staff and clients will play a role in determining the overall value of the business and should not be overlooked when looking for a business to buy.
Problems can arise if existing clients and staff are not considered during the negotiations. For example, if clients or staff are close to the current owner or manager, they may want to follow them to their next workplace.
On the other hand, if you have your own teams, this can cause friction and creative differences between existing members of staff.
In smaller companies, a client base may be served by the business owner and could therefore feel unsettled under new management which, in a larger business, may feel less personal.
In most cases, it’s beneficial to have the owner or manager of the business stay on board following the acquisition to ensure a smooth takeover – checking that the current owner or manager is happy to do this before the purchase is recommended.
Can You Meet The Management Requirements?
Every business opportunity will have different management requirements from a new owner.
Some will be self-sufficient, with a strong management team in place to deal with the day to day operations. Whereas others will demand more time and hands-on management from the new owner.
When looking at businesses for sale, understanding the management requirements of the business will help you determine whether you can commit enough time to ensure success.
Where Is the Business Located?
An element that is often overlooked when looking for a new business opportunity is where the business is located.
If everything about the opportunity is perfect bar the location, it can be tempting to take the plunge and press ahead with negotiations without considering the real implications of the location.
If the business is located hundreds of miles away, it can be disruptive to move and could impact how much time and attention you can commit to the business.
Relocating the business is possible, but relocations are not always successful and rarely bode well with existing clients and staff.
Help & Support from Bristol Business Brokers
If you are looking to purchase a business, Bristol Business Brokers can support you with finding businesses for sale that meet all of your requirements.
Bristol Business Brokers can help with every aspect of the journey to purchasing a business, from initial viewing to negotiations and legal work.
To have a conversation about buying a business, get in touch with our expert team today by calling 0117 379 0117 or filling out a contact form.