Shopping With a Difference: How to Buy a Company

Starting a business anew or buy a company? For those thinking about starting a new business, the chances are that they’ve considered launching something from scratch by developing fresh ideas, researching a market proposition and building something from the bottom up. But starting in this way does present a number of challenges, such as the lack of an existing customer base, the marketing challenges of being ‘heard’ in a saturated market, establishing steady cash flow and hiring staff, all without the benefit of an established reputation or track record.

Consider the Alternatives

Buying a company is something that most of us don’t consider. And yet it’s a less risky solution than starting afresh. By purchasing a business you take over an operation that’s already generating income and, hopefully, profits. It will come with a reputation, staff and an established customer base and have a position in the market. You won’t need to reinvent everything as long as a successful formula for running the business is already in place.

   

The Big Picture

There is the inevitable downside that purchasing a business costs more than creating a new one. However, financing is easier to come by as investors and bankers feel more at ease lending to or investing in a business with a track record. Additionally, buying a business can give you legal rights to copyrights and patents, which can be highly profitable in their own right. Of course, you need to be clear about what you are buying and weigh up the facts carefully – picking the wrong business may harm your finances severely if you find yourself faced with obsolete stock, high manufacturing prices, outdated processes and controls and resentful staff.

Taking a Strategic Approach

Firstly, think about what type of business will suit you. Look at an industry which you understand and are familiar with. Consider which business types will match your experience and skills and look at other factors too, such as size of business that you’re seeking in terms of number of employees and sales base. Then look at geographical region, assessing business costs and the labour pool in that area. You can then start looking in the ‘businesses for sale’ columns in local, trade and specialist press, or put your own ‘looking to buy’ ad in the press to generate interest. Network hard and put your contacts to use – they may serve you well.

Using a Broker

A business broker is another route to finding a suitable business for sale. Most are hired by sellers to find the right buyer and assist with the deal negotiation. They work on a commission basis – around 5-10% of the sale price – but the assistance rendered can often far outweigh the cost in terms of genuine value, particularly to first-time buyers. If you are confident in your approach and looking to manage your budget carefully, though, consider approaching a broker only at the final-negotiation stage.

Getting the Team in Place

Beyond that, you’ll need a support team made up of an accountant, banker and lawyer in place to manage the acquisition. They will help you during the due-diligence period, which ensures that the sale goes through correctly and the business been valued correctly.