What to look for when buying a business

What to look for when buying a business

Business Sales Article

Space Race

It can be exciting and daunting searching for a business to buy. The right preparation and research will help you choose well.

Considering a business purchase can be an exciting experience. Scanning listings and imagining yourself at the head of various ventures can give the feeling there’s a world of possibilities. On the other hand, it’s one of the biggest investment decisions you will ever make. Some people go into the process without a clear idea of what’s involved and become overwhelmed. To ensure you make good business-buying choices, there are some simple steps you can take.

When you’re beginning the search:

1. Start by assessing yourself. What are your strengths and weaknesses? Define the types of businesses you know will be a good match for you, and narrow your search down before you begin.

2. Get a good picture of your financial position right from the start. Work out with complete certainty how much you can afford to invest, and don’t look at any businesses you can’t afford. Keep in mind that the majority of business purchases require funds to be raised or stock bought – so you’ll need to spend more than the purchase price.

3. Put together the paperwork funders will require: a statement of personal financial worth, a list of assets and liabilities, and an assessment of your net worth, as a minimum.

4. Work out how much time you’re likely to need to fully investigate your options, then set aside time every day to search.

5. Commit to a deadline, and be disciplined about sticking to it. With so much choice, it’s easy to become stuck in an endless search.

6. Take the time to understand different valuation and appraisal methods, so you’re in a strong position to make an appropriate offer. A good financial advisor will guide you, but it’s also important to know how the price-setting process works. Common valuation and appraisal tools are capitalisation, cash flow, tangible asset value, the ‘cost to create’ approach, the ‘rule of thumb’ approach, and the EBITDA method.

7. Consider carefully the advantages of buying a business through an agency.

At Bayleys, our business sales experts appraise each business we sell.

As a legal requirement, all businesses listed with us have gone through a rigorous assessment process to establish their value. Therefore, you can rest assured that our vendors have a realistic expectation of what their business is worth.

We also prepare a detailed Information Memorandum on each business we sell for qualified buyers to assess, and are happy to liaise with the vendor if you wish to find out more about a specific aspect of a business you’re interested in.

As part of our job, Bayleys business sales agents act as a sounding board during the due diligence process, ensuring everything goes as smoothly as possible. If you need legal advice, we can introduce you to our trusted experts to advise you with care. While our agents have a fiduciary responsibility to act in the best interests of the vendor, every successful business sale involves satisfying two parties. As professional, experienced negotiators, we’re always aiming to secure a good price for our seller and a great future in business for you.

However you choose to search, and whatever you’re thinking of buying, it’s important to remember that the right knowledge will get you the right business.

The best investment you can make is time and effort. Educate yourself on how to pick a geniunely good business from one that looks good on paper, and you’ll enjoy a smart investment that’s a great match for your lifestyle, finances and goals.

NOTE: this article is provided for guidance purposes only, and is by no means an exhaustive list of valuation methodologies. Further financial and legal advice should be sought.

Contact one of our specialist business brokers for an informed and timely take on the market and how we can achieve a great result for you.