Buying a Company: First Steps for Interested Parties to Take

Buying a company that’s already established is the perfect way to become a business owner. Not only do you avoid all of the struggles involved in building a startup from scratch, but you also get to see that the business is viable before you invest any money into it. Everything from staffing to branding has already been taken care of with a company acquisition, so you can start to create revenue right away too.

It’s not just fledgling entrepreneurs that benefit from buying a company either. Business owners looking to expand their operations may opt to buy out rivals in order to grow their business. This is a far quicker method of growth than opening up a brand-new premises.

Whatever your motive for buying a company is, you’ll find that many of the steps you’ll have to take are the same. Acquiring a business can be a complex affair, and it pays to be as well-prepared as possible before you look to sign any contracts. By being thorough in your processes now, you can save yourself a lot of time and problems later.

 

 

Clarify your personal situation

It’s a good idea to take stock of your own situation before you look at buying a company. This will enable you to filter your options appropriately.

Consider how much capital you have available to spend on any potential purchase. This will narrow down your options straightaway. After that, you should think about how much you need the business to earn. Some ventures may only have the potential for a small profit.

 

Decide upon the sector you’re looking to buy into

For those looking to expand their existing business network, this should be an easy question to answer. Any business in a similar field to your own will make for a relatively easy takeover. If you’re able to acquire a rival business, then even better. In one fell swoop you’re able to not only grow your own business but remove a competitor from the equation too.

Those looking at their first foray into business ownership, meanwhile, will have some decisions to make. They’ll need to look at the following factors to help them determine what they’re looking for.

 

 

Experience

For some, it may be obvious, but others may have a few different ideas of the type of business they’d like to run. It goes without saying that it’s beneficial to have some experience in your chosen field, but you may find that you have transferable skills that could work in a different industry. Those in accounting or management roles may find that their skills are useful across a range of sectors.

 

Motivation for buying a company

Are you hoping to take over a business that feeds your passion for a particular subject, or are you just looking to make as much money as possible? Someone with a penchant for woodwork, for example, might decide to buy out a local carpentry firm, even if it only yields a modest income.

If revenue is the most important factor, then you’ll also need to think about how much risk you’d like to take on. Low-risk businesses can be attractive propositions but may not provide scope for growth later on.

 

Location

This is usually the easiest question to answer. Potential business owners will likely look to buy something close to their home. This makes sense, as long commutes could eventually cause you to spend less time at the business once the initial excitement of running it has passed. There will also be plenty to do in the period directly after the purchase, so it’s useful to be nearby.

Bear in mind however, that the area closest to you may not be the best location for the type of business you’re looking at. Unless your business will trade in a speciality that people will travel for, you may need somewhere with strong footfall levels. This is especially true for retail.

Internet-based businesses, and those working from home have less to worry about in this respect. If you prefer office-based staff rather than remote workers though, it’s worth considering how easy the premises are to get to.

Look at the amount of business competition in the area too. If there are few other options for customers, then your company is more likely to attract their custom. Identifying nearby industry-adjacent companies is also recommended. A hardware store situated down the road from a successful builders’ yard is likely to find regular custom from their neighbours.

 

Find the right company to buy

You’ll find vastly different operational practices across different businesses, even if they all work within the same sector. At the same time, you’ll almost certainly find some that are doing better than others. As you might expect, those that turn a greater profit will often be more expensive to acquire, but that isn’t always the case.

A successful company owner looking to sell quickly due to personal reasons may value their business at a lower price than the stubborn seller of a struggling company. Don’t write a business off just because you assume it will be too expensive. You may be surprised at what you can find.

Of course, you may find a business for sale that isn’t particularly successful, but only needs a couple of tweaks to potentially soar. This is why it’s important to thoroughly check over every detail you can find about companies you’re interested in.

 

View the business at work

This should be one of the first things you do when checking out any company you’re interested in. Before making formal contact with the owner make sure to visit the business as a customer if possible. This will give you a valuable insight into the company’s strengths and weaknesses. Ask friends and family to do the same and collate your findings to look for any common concerns.

This is also a good opportunity to take a first-hand look at the staff you may be taking on. Employees inevitably behave differently around their bosses, but by interacting as a customer you can often ascertain which staff members are an asset to the business. Be sure to listen out for any conversations among workers too. Any grumbles about how the business operates may lead to some good ideas for change.

 

 

Premises

Some companies rent their premises, while others own them outright. This should be a major point of consideration when choosing a prospective business to buy. If the company in question owns the premises, a straight share sale will automatically place the property in your hands. This, of course, enhances the company’s value considerably.

The inclusion of property in any deal understandably adds some extra checks for interested buyers to make. While property can be a great asset to any business, it can also bring with it substantial headaches.

If the building is in need of repair, you’ll need to make sure that it isn’t a problem that could cause substantial issues further into your stewardship. You’ll also need to establish whether the business owns the freehold rights to the property, or if you’ll have leasehold payments to make.

It’s a good idea at this point to consider how viable the premises are for expansion. Are there practical solutions in the area if you needed to relocate? Is there adequate parking space available if you’re planning on hiring more staff?

 

Valuing the business

Many businesses will already have a price that they’re listed for. In certain instances, however, you may choose to make an offer for a business that isn’t listed for sale and will have to value it yourself in order to determine its worth.

There are a number of ways in which to value a company, and choosing the right method can be a dizzying task. The easiest way around this is to use a free service, such as our own online valuation tool, that will choose the most compatible method automatically.

 

You’ll find that if you have followed the above steps, then the rest of your acquisition will be a lot easier. With the information you’ve gathered, you should have a good idea of how profitable the business could be, and how much you’re prepared to spend on it.

 

Are you thinking of buying a company?

We’ve helped countless clients to purchase the best possible business for them. Buying a company can be a complex affair, and by enlisting our help, we can help you to not only avoid common pitfalls, but also stand the best chance of a successful takeover.

Call us on 0800 975 0380, or email [email protected] for a free consultation. There’s no obligation to use our services, and your calls or correspondence are completely confidential.