If you are thinking of starting a business, buying an existing business is another viable option. While it isn't a straightforward process, getting external help and doing your homework can help you score a bargain.
What are the benefits of buying a business?
Everything has been established for you. You don't have to worry about incorporating a business, building a team from scratch and marketing new products or services.
One of the hardest parts about starting a business is testing whether there is a market need for your product or service. Buying a business with an established customer base means you already have a business idea that works.
You can start earning straight away if the business you're buying is in the black.
What are the drawbacks of buying a business?
It may cost you a lot upfront, especially if you're buying a profitable business with a big customer base.
It may also take time for you to make the business your own. You will need to put in some elbow grease to transform or get it running the way you want it.
Be careful of existing contracts or arrangements with lenders, suppliers, manufacturers or customers. You must honour them until the deal expires. Furthermore, some items may already be set in stone such as your location and branding.
Where can I find businesses for sale?
There are many avenues such as online sites, newspapers, local publications, through word of mouth or a business broker. You can also investigate buying a franchise instead, which involves engaging with the respected franchisor.
How do I value a business for sale?
One of the most important processes in buying a business is conducting a due diligence. Once you've found a business of interest, you need to consider:
The seller's motive for
selling: This can tell you a lot about whether the business is doing well or not. Is the owner selling due to retirement or forced to sell because of heavy losses? Are they in a hurry to sell or willing to wait for the best price? What happens if the seller starts a competing business after selling you his original one?
Their financial records: You must study the financial trends over the years. A sudden 20% jump in revenue last quarter could mean the seller conducted a fire sale of unwanted stocks to make the business look good. Look at their revenue, profit or loss, operating cost, and debt level trends to get a better picture.
The supply and demand: Do some customer and market research to get an idea of the competitive landscape and market demand. Speak to existing customers, read their reviews, use the product or service yourself, and look at areas of opportunities.
Any intangible value: There are many ways to value a business, and one of them is by looking at its intangible assets. This includes intellectual properties, a brand name's goodwill and customer loyalty. There could also be a new product or service in the pipeline, which can score you a handsome profit.
Legal matters: Check for any past or current legal infringements. Has the business ever breached any laws? Are there new regulations that could jeopardize the business?
Who can help me buy a business?
Business broker: He or she can assist you in finding the right business and negotiating the right price so that both buyer and seller are happy.
Accountant: Your accountant will help to conduct due diligence and help you understand and meet all your financial obligations as the new owner.
Lawyer: Your lawyer will help you negotiate and draft the sale contract. He or she should protect your interests and prevent the seller from taking advantage of you in any way.