Buying a Business

Why do you want to buy a business?

Consider your objectives well before you start looking for a business to buy. Ask these questions:

• Do you want to buy so that you can run your own business?

• Is buying a means of expanding an existing enterprise?

• Are you hoping to build up a business and sell it on for a significant amount of money?

Things to consider when choosing a business to buy

The type of business you buy will depend a number of key factors:

1. Your own knowledge and skills

• Do you and/or any prospective business partners have any experience, knowledge or skills relevant to your target business? Consider If you (or they) do not have experience, is it relatively easy to acquire?

• Will it continue to exist within the business after you have bought it?

2. How you will fund the purchase?

• What financial resources do you need to buy a business?

• Besides the initial purchase price you may have to make further investments in the company for continued success.

• There will also be costs, such as professional fees, when the buying the business. These can amount to thousands of pounds depending on the nature and size of the business being bought.

Most people cannot afford to buy a business outright and will need a loan from the bank. You may be expected to contribute 25-50% of the purchase price and the bank will want to look closely at your background and personal resources, as well as the target business’ finances.

• Before agreeing to a loan. Speak to your bank in general terms about buying a business to get a feel for how much you may be able to borrow.

• Alternatively, you could look for others who will invest their money in return for part-ownership of the business. Family or friends might consider getting involved when the purchase is a small business. With a larger purchase it could involve business angels or equity from venture capital firms. You’ll need to be clear about what is expected from investors and whether they want to have some sort of control in the management of the business. See BIF 40 A Summary of Sources of Finance for Starting a Business for related information.

3. Business location

• Can you be flexible about the location of the business?

• Is it practible for you / or would you be prepared to travel long distances or even relocate your home to buy the right business?

• Or are you only interested in looking at a businesses very close to where you live?

• If the business is based from home, would you be happy with this?

4. Timescales of a purchase

• Be prepared for the buying process to take some time, but also, ensure you’re not pushed or pressurised into completing the sale before all of the checks you or your adviser consider necessary are carried out. You may, though be able to achieve a discounted price if you are in a position to complete the purchase quickly.

5. Existing staff

• You’ll need to develop a good relationship with your future employees because you’ll rely on them in the early days of ownership, be aware that the staff employed by a business can be crusial to its ongoing success. Talk to staff before you complete the purchase so that you can assess how they feel about the change of ownership.

• Conversely, poorly motivated or badly trained staff can contribute to business failure. Are you capable of addressing these issues? And if you decide to buy a business that is not profitable but has good growth potential, consider that you might have to make redundancies. Make sure that you understand your responsibilities under employment law and redundancy legislation

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