Published: 06/07/2018

6 things to consider if you want to buy an existing business

When working for yourself gets mentioned, we usually think of a person starting their own business from scratch and creating something new. And this can be something that is incredibly rewarding, but it is not the only option that you have.

You could consider buying an existing business that is up for sale. It is another avenue to explore something that is already established. But, as with anything, it is important to go into this well prepped. Buying a business is not a simple process, so there are certain things that you should consider before purchasing a particular company.

What are the issues?

A business that is up for sale is in this situation for a reason - otherwise, it probably wouldn’t be up for sale. If you are interested in a business and you think the price is ‘too good to be true’, there is probably a reason for this. It’s up to you to find out what this might be. If you are talking to the owner, make sure you grill this person about the whole business. It’s important you know absolutely everything, there shouldn’t be any skeletons in the closet and if there are you need to uncover them before you take over a business that might have too many issues to fix.

What’s the market like?

You might have a business that has its issues, but what about the market it is in. What if the industry is a lucrative one that this business hasn’t exploited? There could be a tremendous opportunity to capitalise and wake up a ‘sleeping giant’. Or on the other hand, the industry this company is competing in, might be either dying or saturated. If the market is too inflated, or just plain poor, is it worth investing time and money into an endeavour that might prove to be fruitless regardless of what you do with this business? Do your utmost to learn all you can about this industry. This should have a bearing on whether you decide to buy this company or not.

How is their marketing?

Now you’ve looked at the industry, you might want to ask what the business is currently doing related to their own marketing. Normally a business that is struggling will probably not be focusing on this area as well as it could do. But even so, never assume. Have a full check of their marketing efforts. You should be taking a close look at the following aspects of their marketing:

  • Are they active on social media?
  • Is the company utilising key search terms to rank on search engines (Search Engine Optimisation)?
  • Do they produce regular fresh content such as blogs and new pieces?
  • Is there any kind of PPC (Pay Per Click) campaign in place?
  • What about traditional marketing: is the company producing flyers, direct mail or getting involved in the local community to strengthen its branding?

Any suppliers?

Another interesting thing to consider is what kind of relationship does this company have with its suppliers. Grill the owner about the type of contracts in place. For instance, how long do these contracts run for and have they been good value? Furthermore, you should also find out how many suppliers the company are currently working with. The last thing you want to do is find out that you purchase the business and discover that you are locked into expensive and problematic arrangements with suppliers who aren’t providing value.

Get outside help

Think you know all there is to know: perhaps you have a very strong understanding of the  business and what it’s doing well and what isn’t. Great, this shows your an astute businessperson. But don’t get carried away. Due your extra diligence, this is a massive decision. You might want to use outside help to ensure that everything with this is okay. You could hire an accountant to delve deeper into the business, in case there are certain parts of their finances which you aren’t sure about. Ask a lawyer to look over the details of the contract between you and the current owner. Better to do this now than uncover some irregularities further down the line.

Make the offer

Once you're happy that you've looked into all the various details, it’s time to make an offer. Take everything you have seen and looked at into account and make an offer that reflects the value of the company. This is all about doing your due diligence beforehand. Don’t be scared to ask for a deal that is best for you. This is the art of negotiating, so don’t be worried about it. If you are the only person looking to buy this company your negotiating position is even stronger.

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