Advice for purchasing existing business
- July 10, 2017 at 7:16 pm #172502
Hello. New here and this is my first post. I have worked as Operations Manager for a company for almost 5 years now and have now been handed the opportunity to purchase the business. I haven’t studied the books in great detail yet but being in charge of the operational side of the business, I have access to bank accounts for paying wages and expenses and know that it is a profitable business and represents a great opportunity for me. The asking price is 35k, I could potentially put up 10k but would be looking for funding for the rest plus extra to bankroll for the first couple of months. Any recommendations for where to go for initial advice and recommended lenders. Many thanks.July 19, 2017 at 11:41 am #172791
There are many considerations to make when buying an existing business. Far too many to list in this post but I do have a few suggestions:
Do not just focus on the accountant prepared financial statements
Meet the owner in person and tour the business (once the staff have all gone home)
Don’t forget to read the real estate lease agreement (once your sign a Confidentiality Agreement this document should be provided to you in the first document package you receive).
Once you know you have the structure of a deal in place with the owner, hire an experienced lawyer to button it all up. (The seller should also have their own lawyer).
Also complete a thorough Due Diligence on every aspect of the business before buying it. Just as important you should be inspecting the business as well as all the equipment, the night before you take ownership of the business.
As a seasoned business owner and business broker myself I’ve been through this process hundreds of times. What I would highly recommend to you is front and foremost educate yourself on the process and what is involved. Check your credit score now as you are likely to need financing in order to buy that perfect business opportunity.
Then look for an experienced, ethical business broker in your area, have a coffee with them and talk to them about your thoughts. The great ones will be more than happy to share their experience and knowledge with you.
Financial analyst with interest in startups, crowdfunding and equity based crowdfundingJuly 20, 2017 at 1:17 pm #172834
There is always going to be a reason why someone wants to sell off a profitable business – sometimes its a genuine reason because they want to retire/relocate but if the business is making enough money they could hire someone to run the company day to day for them and continue taking dividends.
Alternatively they could be getting out before something happens – is a large customer ending a contract/lease on the building coming up and trying to get out before liquidators become involved?
Startup specialist with large amount of sales and marketing experience working with SMEsJuly 20, 2017 at 7:57 pm #172866
The question is why do they want to sell a profitable business? Before you make any rational move, find out the reason they want to sell it off.July 20, 2017 at 8:24 pm #172868
Hi guys. I appreciate the time you have taken in replying to my post. If you read my initial post again, you will see that i already manage the business in question and have worked there for 5 years. Additionally i have a great relationship withe business owners who have offered me this opportunity as they are both in their sixties and looking to retire. They have already taken a step back from the business by employing me to run it on a day to day basis and this is a logical next step for both parties.July 20, 2017 at 9:48 pm #172876
A lot of people on here will have seen going concerns which should have been liquidated years ago and accounts which aren’t necessarily representative of the companies future health, hence the caution!
I would look at financing a Management buyout to bridge the finance gap – this may turn out to be simpler than approaching banks with business plans, it may also reduce the risk of you giving personal guarantees/securities.
Startup specialist with large amount of sales and marketing experience working with SMEsJuly 21, 2017 at 11:31 pm #172908
Very much I doubt that for such a small amount you will be sold a really profitable business.July 26, 2017 at 12:12 pm #173153
Buying an existing business can be your good decision. But, there are so many important things you need to consider before buying any type of existing business. You should know the reason why they are selling their business? You should also get the advice from a business lawyer to know any hidden facts such as pending lawsuits, any debt etc.
Hello all, I am Olivia. I am new to this forum. I am having a home based business. I am here to increase my knowledge.August 10, 2017 at 7:26 am #173681
There are a couple of key points you need to think about
The first is cash flow – profitability is fine but if you run out of cash then the business will fail – it’s critical to understand that profit and cash are two different things and failing to understand this is a significant reason that businesses fail because they ‘overtrade’. If you are ok at excel then do a sales projection and work out when you will get paid in order to calculate cash coming in, then work out your costs and again establish when you will have to pay for them. Using this information create a cash flow forecast (money in and money out with a running balance) – if you do it in excel then you can flex it to look at various assumptions.
The second is ‘skeletons in the cupboard’. You seem to have a good relationship with the owners but you need to be aware of any issues that the current owners know about which may not be clear to you in operations. I have bought several businesses in Scotland and I asked the owners to sign personal warranties in which they stated something like (my lawyer drafted them) ‘I have told you all I know or all I should know in my position that might influence your decision to buy or not to buy this business and I accept personal liability for any loss that might come about as a consequence… So essentially the owners and senior managers have their feet to the fire to declare all they know. I appreciate this might be indelicate given your relationship but you could walk into trouble e.g. hmrc issues.
Good luckAugust 10, 2017 at 9:49 pm #173704
It’s so interesting situation. Thank you for starting this discussion, because the comments are smart and useful.
Personally I think, that you should find a reason of this sale. If it is appropriate to you, so you should pay more attention on the team. And find out who is going to stay or leave. It will be very good to know better an inside information.
Good luck and remember that such decisions should be taken without emotions 😉August 16, 2017 at 6:58 pm #173827
Really interesting topic. I am also in similar situation and would like to more feedback from members.