You might decide to buy an existing business rather than start your own venture from scratch. Buying a going concern can mean that:
- the premises and equipment are already in place
- there are established customers
- the business can generate income immediately
- suppliers have been identified and relationships established with them
- the business has a reputation and a track record, which can help if you are looking for finance
- staff may already be in place
However, look critically at any business that you are interested in to make sure that the price you negotiate with the seller is a fair one. Try to establish why the business is for sale - for example, is the owner keen to retire or is there another personal reason for selling up.
Your market research into the sector as a whole and the locality in particular will help you to establish whether or not the owner is selling because he or she can no longer generate enough income from the business. This may not necessarily deter you - many business people are confident that they can turn a failing business around. The important thing is to have established the current position so that the price you pay for the business is not too high.
Other matters to consider include:
- the state of the premises, equipment and so on. Will you have to spend money refurbishing or replacing assets
- existing staff rights
- the reputation of the business
- how to retain key personnel once you've taken over
- does the business owe money that you will be responsible for
- if you are paying for goodwill, to what extent does this depend on the skills and personality of the seller
Look carefully at what you are actually getting for your money. In many small office-based businesses, the really valuable assets are the proprietor/s and a few senior staff. Ask yourself how much value is left in the business without them. In some businesses a client list or contacts book plus a trading name can be very valuable, but in others it may be cheaper and at least as effective to start up from scratch. What guarantees are there that the proprietor/s won't just set up in business elsewhere and poach some or even all of the existing clients?
Ask your accountant to look critically at the business accounts for the past three years and discuss with him or her the selling price in the light of what the accounts reveal. Make sure you budget for other professional fees such as legal fees and valuation and survey costs.