What to watch out for when buying a business

Helping you to identify and avoid the possible pitfalls

Buying a business is both exciting and challenging. Here at Business Sale Report, we can help you make the right purchasing decisions and we can also help you to avoid some of the mistakes that can lead to failure. Below we take a look at some of the potential problem areas to be aware of when thinking about buying a business.

Why is the business for sale?

Although buying an existing business should help you to limit risk by avoiding the start-up period, there is still room for problems to arise. It’s important that you research each potential target and undertake the right level of due diligence to ensure that the business you are buying is financially sound, or at least as financially sound as it purports to be.

Think about why the owners are putting the business up for sale and why they have decided to do it now. Is there a clear reason, such as retirement?

Do your research

Take advantage of the period of due diligence and ensure you don’t ignore any nagging doubts simply because you are enthusiastic about the prospect of taking over a particular business. If the business is struggling in some way, it’s not impossible to turn things around, but it’s bound to take both hard work, time and money to do so. Ask yourself if you are prepared and equipped for this.

Here’s a checklist of things you can look into before signing on the dotted line:

  • Credit rating of business and those involved

  • Check for any CCJs or tribunals pending

  • Talk to suppliers and large customers if you can

  • What contracts does it have in place?

  • Are the contracts transferable to the new owner?

  • Are staff settled/reliable/ likely to remain in their jobs following a takeover?

  • Check business’s accounts with Companies House

It is vital that you obtain the advice of a qualified accountant and lawyer who can help you to establish whether you are paying the right price for a business and even help you to negotiate the deal.

Making sure you have a solicitor working alongside you who has extensive experience in buying and selling businesses is perhaps the most effective way of avoiding the pitfalls involved with a deal.

Buy the right business for YOU

Buying a business that suits your unique skills, interests and experience is perhaps the most important factor in ensuring a smooth acquisition. Becoming the new owner of a business will come much more naturally if you’ve done something similar before or if you can put your expertise into good use.

Pay the right price

Finally, paying the right price for a business is vital. Remember to think about factors like contracts, intellectual property, online reputation and stock when negotiating the value of a business you are interested in.

The risks involved with acquiring a business are numerous but none is, in itself, a reason to avoid taking on the challenge. Providing you get the right advice and support from the experts and put time and effort into researching potential purchases, you can maximise the chances of buying a business at the right time, at the right price and making a success of it.

Looking for more tips on buying a business? Take a look at our other articles:
The top 10 questions to ask a seller before buying a business
Legal essentials when buying a business
M&A insurance: Are you covered?
The due diligence process

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