Buying a business is one way of striking out alone but you still need dedication, determination and money. A knowledge of what is going through the seller’s mind also helps.
For some people, the idea of being their own boss is very attractive – the only problem is that they haven’t had the flashbulb moment of inspiration that makes them want to start from scratch. Instead they opt to buy a business that is already up and running.
There are many businesses for sale, from pubs through to car dealerships, and there is of course the matter of the franchise business. But how do you go about buying a business and what should you be looking out for?
One thing is certain. You will need to put your own money on the table. It is common for banks to lend anything up to 70 per cent of the total price, while you will have to provide the final 30 per cent. Your share may come from outside investment and family and friends are a possible source.
It is essential that you have done your research and you are sure it is the business for you. There is no point buying a pub if you are a grumpy so-and-so who likes to go to bed at eight o’clock every night. You have to have an understanding and an empathy with the business you intend to buy.
Once you have raised the 30 per cent deposit it is back to the bank. But what will they want?
Banks will want to see the last three years’ business accounts to check that it is profitable. They will want to see that the trends are going in the right direction, and that the business has grown year-on-year. And you, as the potential purchaser, will have your own accounts for the last six months carefully scrutinised.
Just as with a start-up, you will need a business plan and the bank will want a cash flow forecast for your first year of trading. You also need to have prepared a budget plan, where you show that you’ve done your sums. While a 70:30 lending ratio is the norm, the banks may lend up to 80 per cent for commercial mortgages. Repayment may not start for six months to give you time to settle into your business.
Once all that is agreed, the agent can make the offer on your behalf. Your solicitor will see the contract and negotiate for you. The contract needs to be drafted to reflect everything that the buyer needs and disputes can arise here because buyers and sellers have different agendas. The buyer wants to have as much included as possible in the contract so that there is less to sort out. The seller will be trying to give the minimum.
When the amended contract has been returned, it will dictate whether any further alterations need to be made. A search is also carried out with the local authority to see whether there are any planning or financial issues that affect the premises.
If there are any employees of the business who you don’t want to employ, you will have to be advised on your liability on redundancy and unfair dismissal. And a breakdown of fixtures and fittings needs to be included.
Once you’ve exchanged contracts it is time to apply for licences and seek planning permission, if it’s needed. Once complete, the final documents are drawn up, final searches take place and then you pay the money. The hard work is about to begin and the forecasts have to be met.
In planning to buy a business it is useful to know how to sell it because it gives you a more all-round perspective on the process of the deal.
SELLING A BUSINESS
Whatever the reasons for selling your business, the financial implications are likely to make a long-lasting impact.
The outcome of your sale can be either uplifting or depressing in both money and mood terms. A lot is governed by how well you conduct the sale.
The level of care and effort you put into the sale has a major influence on the price you receive for your business and how long it will take to complete your sale.
You will need to provide up-to-date financial information. Gather together the financial information that will be needed including:
Tax returns for the business Three years of profit (and loss) statements The lease A list of loans against the business, with balances and payments schedules Make sure that your financial statements, budgets and business plans are ready to be inspected by potential buyers. Be ready to answer questions on every aspect of the business’s financial details.
As you prepare the business for its impending sale it will help if you make all the paperwork as impressive as possible. Increase the sales figuresthrough aggressive campaigning, reduce costs – avoid making big purchases inthe run-up to the sale – formalise employment contracts or deals with customers and suppliers and brighten the place up.
Every potential buyer will want to know why you are selling. Your answer could make or break the deal. Business owners sell for a number of differentreasons. Your reason for selling must be sincere and honest – do not be desperate.
Of course knowing you are selling has an impact on your motivation – but don’t let it make you lazy. Apply yourself diligently, concentrate on monthly sales targets and the everyday running of the business.
Quite naturally, prospective buyers want to know as much as possible about the business. The more information you include, the more enquiries from prospective buyers. However, letting others know that your business is for sale can lead to problems with suppliers and employees. If you have any reason to distrust a buyer then don’t disclose information unnecessarily. Ask your solicitor to draw up a confidentiality agreement for interested parties to sign and do not go any further with anyone who won’t sign.
A high asking price scares away many potential buyers. It also gives the impression that the seller is not serious about selling their business. Surveys reveal that the amount of down payment requested by the seller can be the key to a quick sale. As a rough guide, the lower the down payment, the shorter the time to a successful sale.
Once you’ve estimated a price for your business you can reject any buyers who fail to reach that mark. Other bidders may then feel obliged to increase their offers.
Another approach is to offer the seller financing up front. This is when the seller lends to the buyer to facilitate the purchase. After a down payment is made the buyer promises to pay the seller certain sums over a specified period of time.
Finally, if you would rather not handle the sale you can appoint a business agent. He can help you establish a realistic price for your business, target willing buyers on your behalf, put together a selling memorandum, negotiate the terms of a sale, and maintain your business confidentiality.
For this they charge a percentage of the sales price, usually between 3 and 7 per cent and many also charge an up-front fee.
When you buy a franchise, you are paying for everything that is needed to keep the business running successfully from training, customer leads, research information, equipment, suppliers and marketing tools. Also you will have a licence to use the business name and any other patents, brandings and trademarks that the business has used.
In terms of starting and running your own business you immediately have a head start because franchising gives you a brand that will be chosen oversimilar products – simply because consumer psychology says people pick a brand they know and trust.
The choice of businesses is vast, so look for a tried and trusted winner that has quickly succeeded in more than one area. Know and have an appreciation of the business and weigh up the demand in the area you want to open. It’s no good running a pizza parlour if your town already has half a dozen of them.
Many household-name businesses are part of a franchise network – from McDonalds through to the sandwich chain Subway. You pay a licence for thefranchise – anything from £10,000 upwards depending on the type of business– and receive help and support to make the business grow.
"Business is like riding a bicycle. Either you keep moving or you fall down." John David Wright