Buying a business can be daunting, but Insider’s guide is packed with case studies and expert guidance to help you.
Buying a business can be like choosing a puppy – it looks irresistible but you only realise later how much cleaning up you need to do and how it will change your life.
This guide aims to help you to avoid making the wrong choice. It takes you through the steps of buying a business, including how to get professional help, analysing and valuing a business and your obligations to existing staff.
More than 60% of acquisitions fail to achieve the objectives used to justify their purchase. This guide will help you to be in the successful minority.
Authored by Chris Oakley
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Stage 1: What are the options?
You may want to buy a business because you are thinking about running a company for the first time and do not want to start your own.
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Stage 2: Preparation for buying an existing business
All types of business buyers, including those who buy franchises, have more that unites them than divides them. To make any acquisition successful it has to fit – with your skills, lifestyle and aspirations if you are a first time owner or successful management team or with your company’s strategic aims if you are a serial acquirer.
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Stage 3: Initial viewing and valuation
Once you have identified a target business, you will face two hurdles – the mountain of paperwork that is integral to every sale and the critical task of putting a value on the company which is acceptable to the vendor and can be justified by the benefits the acquisition will bring to your existing business or that you feel comfortable with as a first time buyer.
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Stage 4: Arranging finance
Start up or serial acquirer looking for funds, the starting point is a business plan. The time and effort you put into producing a professional looking, realistic, comprehensive business plan is never wasted. In the process, you may even learn something yourself about the business.
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Stage 5: Making an offer, negotiation & due diligence
Having studied the Information Memorandum or any other documentation provided by the vendor, come to a decision about the value of the business to you and provisionally secured funding to make the acquisition, you are now ready to make an offer.
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Stage 6: Completing the deal
The Completion process begins with a Heads of Agreement letter drawn up by the vendor’s legal advisers. This document may be drawn up before you are granted a period of exclusivity to conduct due diligence or, in a race to Completion among competing bidders, when you are prepared to sign a document outlining what you have agreed to purchase, the payment structure, who will pay the costs, details of contracts and assets, responsibilities to employees and a timetable for completing the purchase. Usually, this document is not legally binding except for clauses covering exclusivity, if any, and confidentiality.
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Stage 7: Post purchase - looking after existing employees
As a business owner, you will have responsibilities to the workforce which you now employ. An awareness of these responsibilities is necessary if you are to make the transaction as smooth as possible and avoid breaching legislation.
