A Guide to Buying a Business

Searching for a business to buy? Thousands of people search business for sale websites every day. Many are looking at buying a business instead of starting one from scratch. Buying a business is less risky than starting your own one, but finding the right business amongst the thousands of business for sale listings can be tricky.

Its important to consider the advantages of buying a business as well as the disadvantages of buying a business when making a decision to buy.
This guide is meant to provide users, who plan on buying a business, with an overview of what is involved in the buying process. So if you?re considering buying a business, take a look some of the useful links to other similar articles on Business 4 Sale.co.uk.

Buying the right business

The easiest way to decide on the right type of business to buy is to think of what your strengths are, or what your passion is. If youve always dreamt about buying a hotel or owning a pub then thats always a good place to start.

One suggestion is imagine the sort of business you would have the most fun running. If youre not having fun then its unlikely that youll work very hard to make it an outstanding success.

Another suggestion is to buy a business that plays to your strengths and experience. So for example, if youre an experienced salesman and youre looking to buy a business, consider buying a business that requires a large amount of customer facing or telephone selling to play to your strengths.

Franchises are also becoming more and more popular as an alternative to buying a business. Click here to view our guide on buying a franchise.

Every year thousands of business owners list their businesses for sale in the UK and the next section is meant to provide you with an idea of how to find those business listings.

Where do I find business for sale listings?

There are many good sources of business for sale listings around these days. The internet has made buying a business easier and websites like ours have allowed sellers to advertise for less, while at the same time providing more information about the business they are selling. Websites like Business4Sale.co.uk provide you, as the potential business buyer, with thousands of business for sale listings from almost every business sector and location in the UK and best of all it wont cost you a penny!

Another way to find a business to buy is by visiting your local business transfer agent. They would be happy to sit down and establish a set of criteria you need fulfilled before buying a business. They also have a number of businesses that they are looking to sell for their clients. You might find they already have your perfect business, or they will keep your details and search criteria to notify you in the future of similar businesses for sale. Their services are normally free for buyers but some do levy a charge for the service. When buying a business through a business transfer agent, make sure they are members of The National Association of Estate Agents, or NAEA as it is referred to. This should indicate they conform to a code of conduct and reduces the likelihood of being messed about.

Traditional sources such as newspapers and trade publications often include a classified section listing businesses for sale. If youre looking to buy a business in a specific sector then try looking in magazines or publications specific to that sector. The problem with business for sale listings in print media is that they are normally quite costly to place. As a result, there a few listings and the amount of information displayed is minimal. Libraries usually have lists of publications that are related to buying a business.

It is also very common for business owners to sell their businesses to friends or family, so keep your eyes peeled and your ears sharp for anything that might suite you.

How do I go about evaluating a business?

When youre searching for a business, consider the following:

• How will you fund it?
• Where must it ideally be located?
• How soon do you need to buy a business?
• Are the existing employees good enough? If not, how will you handle redundancies?

Once you have shortlisted a few listings that you think might be worth taking a look at, make some enquiries via telephone or through a website like Business 4 Sale.co.uk.

Remember, placing an enquiry is free of charge and it gives you a chance to shorten your shortlist even further. You should have a list of relevant questions that you plan to ask the seller. This ensures the seller knows you are serious about buying a business and youll find he/she will be more likely to provide you with useful information.

Once youve shortened your list the next step would be to attend a viewing of the business. Look at the condition of the assets and make a note of the how enthusiastic staff are. Staff enthusiasm can tell you a lot about how the business is managed and could provide clues to potential future problems or opportunities. If you are in doubt about something, ask the seller. Its important to remember that sellers often prefer to keep the sale of their business private to prevent poor trading or unrest amongst staff, which can occur when a decision to sell is made. So be discreet but thorough and make a note of key findings.

Once youve found a business to buy, you need to make sure its worth the asking price. There are two main routes you can take when valuing a business. They are, making use of an accountant or specialist business valuation agent.

There is no substitute for experience, so try to use professionals like accountants and solicitors if you can, when considering buying a business. They may cost you more in the short term but in the long run they will save you money.

Arranging Finance

Once youve established the value of the business, you should look at whether or not you need to raise additional finance. Lenders usually require the current trading statements of the company for a period of 3-6months. If you dont have these then its quite likely you may need to compile a business plan to explain your attempts to forecast the sales of the company you wish to purchase.

Submitting a formal offer

Once your finance is in place then its time to put in an offer based on what you think the business is worth. Remember to submit all offers in writing regardless of whether you have placed an offer over the phone and ensure that the phrase "subject to contract" is present in all correspondence with the seller. Its advisable to seek professional advice when tabling an offer.

There are strategies for putting in offers. These include discounting the price you feel the business is worth by between 10- 25% leaving room for negotiations. We advise you ask the professional who conducted the valuation to offer some suggestions or advice.

Try to negotiate a period in which you can become familiar with the business before taking over. This can help to make sure there are no major skeletons in the closet.

The likelihood that you will have to negotiate on your price is very high, so try to stay below what you feel the business is worth. Remember that this is a business decision and that emotions can negatively affect your ability to make good business decisions. Having said that, a business is only worth what someone is willing to pay for it.

What is due diligence?

Due diligence is a period negotiated between you and the seller in which you can verify the information given to you about your prospective new business.

It usually occurs after you have negotiated a price and gives you a chance to check the companys financial position in relation to the information used to compile your offer. Its also a period in which you can identify business weaknesses and solutions to strengthen the business you intend to buy.

Key issues that need to be addressed include:

• Staff terms and conditions
• Environmental Issues
• Major Contracts and Orders than need to be fulfilled
• Management style and whether changes need to be made to improve the operations of the business.
• Unsettled litigation

So try to gather as much information as possible from internal sources (company documents) and external sources (Tax office, bank, and landlord) to compile your analysis.

Prospective buyers for a small businesses usually need about 1 month to complete a proper analysis of the business and larger businesses have been known to take two or three months to evaluate.

During this period the Seller may still choose to continue advertising the business for sale.

We suggest you get help from a solicitor or accountant, who will be able to assist in most matters relating to this topic.

Completing your purchase.

Once youre happy with the information youve collected and the financial statements of the business you plan to buy have been verified, any leases, contracts, licenses need to be transferred. You will also need to transfer the finance to the seller and complete any remaining paperwork.

You are then the proud owner of a new business.