Step by Step: Business Buying Guide

Introduction to Buying a Business…

Searching for a business to buy? Thousands of people search business for sale websites every day for an existing business, as opposed to starting one from scratch. This is because buying a business is less risky than starting your own one, but finding the right business amongst thousands of business for sale listings can be tricky. Despite understanding the business sale process, you’ll also need to consider the advantages and disadvantages of buying a business, to determine if it’s the right option for you. This guide is meant to provide readers, who plan on buying a business, with an overview of what is involved in the buying process. It’s by no means an exhaustive resource but it serves as quick primer to give you an idea of the major elements of the process. So if you’re considering buying a business and you want to learn more, then this guide is for you.

Buying the right business

The easiest way to decide on the right type of business to buy is to think of what your strengths are, or what your passion is. If you've always dreamt about buying a hotel or owning a pub then that's always a good place to start. One suggestion is imagine the sort of business you would have the most fun running. If you're not having fun then it's unlikely that you'll work very hard to make it an outstanding success. Another suggestion is to buy a business that plays to your strengths and experience. So for example, if you're an experienced salesman and you want to buy a business, consider buying a business that requires a large amount of customer facing or telephone selling to play to your strengths.

Do your research and get more information

While deciding on businesses to add to your shortlist, do a bit of research and try to answer the following questions:

  • Is this business in a growing, mature or declining industry?
  • How many hours will I need to commit?
  • Is there a local demand for the product or service?
  • How competitive is the industry?

Once you have shortlisted a few listings that you think might be worth taking a look at, make some enquiries via telephone or through a our website.

Remember, sending an enquiry is free of charge and it gives you a chance to shorten your shortlist even further. You should have a list of relevant questions that you plan to ask the seller. This ensures the seller knows you are serious about buying a business and you'll find he/she will be more likely to provide you with useful information.

Some good questions to ask the seller are:

  • How much profit does the business make and does that figure include the owners salary?
  • What is the exact location?
  • Is the businesses yearly revenue growing or declining?
  • Is the business dependant on its current owner or can it function without him?
  • Does the business have any unique products or services that competitors don't?

Arrange a viewing

Once you've shortened your list the next step would be to attend a viewing of the business. Look at the condition of the assets and make a note of the how enthusiastic the staff are. Staff enthusiasm can tell you a lot about how the business is managed and could provide clues to potential future problems or opportunities. If you are in doubt about something, ask the seller. It's important to remember that sellers often prefer to keep the sale of their business private to prevent poor trading or unrest amongst staff, which can occur when a decision to sell is made. So be discreet but thorough and make a note of key findings.

Evaluate the business

Once you've found the right business, you'll need to try to evaluate its worth. There are many factors that will need to be taken into account and below is a list of some examples:

  • What are similar businesses selling for?
  • Is it ideally located for good trade?
  • How dependant is it on the current owner being present?
  • What position does it hold in the marketplace and are customers familiar with the brand?
  • What is the value of the businesses fixed assets?

There are three main routes you can take when valuing a business. They are, making use of an accountant, specialist business valuation agent or read as much as you can about the topic and try to come up with an informed guess. Naturally the third is less reliable, but it's worth noting that a business is only worth what somebody is prepared to pay for it. There is no substitute for experience, so try to use professionals like accountants and Paviour Property Services if you can. Don't be afraid to ask how we came to a particular value and try to verify as much of what we say as possible.

Arranging finance

Once a value is established, you should look at whether or not you need to raise additional finance. Lenders usually require the current trading statements of the company for a period of 3-6months. If you don't have these then it's quite likely you may need to compile a business plan to explain your attempts to forecast the sales of the company you wish to purchase. High street banks are the most common source of small to medium sized business funding and they will generally provide loans of up to 60% of the businesses value. This leaves you to come up with the remaining 40%. Many business owners rely on family and friends to help them finance a new business purchase but beware that this does also open the door to serious dispute should the business fail.

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