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How to be sure you’re buying the right business?

By Raymond Blin

Buying an already established business can give you the same level of independence as starting one from scratch, but it will also bring sizeable advantages.

If you choose the right business to buy, you can access many of the tools needed to run a successful operation. This includes an existing customer base, a reputable brand, operational assets and a steady or even growing income. However, you need to ensure you buy a venture that has potential, profitability and fits your leadership style.

As such, there are a few things you will need to consider to check that you’re buying the right business for you.

We’ve listed the five most essential questions to ask during the process.

  1. What’s your goal? Start by being honest about your reasons for buying a business owner. This helps you find a business that allows you to achieve your objectives while setting the criteria you need to meet to find the perfect fit in terms of experience and values.
  2. Is the business doing well? In an ideal world, you will buy a company that is already performing, as this proves its potential. However, moreexperienced buyers may sometimes choose to invest in a business that needs restructuring or improvement to meet its maximum performance. Whichever you choose, you need to undertake your due diligence to ensure you a buying a valuable enterprise – not a financial drain.
  3. Why is the business for sale? If anowner is selling up to retire, change their lifestyle, take on a new challenge, or simply hand the company over to someone better placed to extend its legacy, they will be happy to tell you about their reasons. If the reason for the sale isn’t so apparent, it could be a red flag that it’s a failing business.
  4. What cash flow is required? When buying a business, you need the cash to make the initial purchase, alongside funds that see you through the regular cash flow of the company. If you spend all your money on the purchase, you will have nothing to support the business while waiting for your customers to pay up and changes to occur. So, consider the funding you need in advance and how easily you will be able to secure this.
  5. Will there be any additional costs? Make sure you know how much you’ll need to spend to run the business, paying close attention to every expense that may arise. If you encounter unexpected costs, such as needing to update equipment or write off obsolete stock, it can have seismic effects on your cash flow and ability to profit.

While there is plenty to consider before buying a business, the main advantage is that you won’t have to do everything from scratch. The venture will already be operating and known in the market, so you can instead build on existing branding, processes, systems and assets to maximise results. If the business is in a strong position when you buy, you’ll soon generate profit.

You will need to determine if the business has a healthy customer base. If it does, you should start getting an income quickly, boosting cash flow. It may also be possible to continue established relationships with suppliers, employees, and other key stakeholders, allowing you to focus on running and refining the business rather than developing new contacts.

Forecasts can help to understand the state of the business better. They tend to be more predictable when the company has been running for some time. By accessing one, you’ll have a better sense of future revenue and cash flow, which can make planning and applying for financing simpler.

You will be able to build on what the previous owner did, taking the business to new levels of success. If appropriate, you may choose to rebrand and change the company – but you will need to consider if this will alienate existing customers or damage the brand you’ve bought. So, take your time introducing changes and communicating them well while ensuring they will have the desired effect.

Deciding what business to buy will largely depend on your goals, the opportunities available, and which option appeals most to you. Regardless, if you want to run a business without the struggle of those complex start-up years, buying an existing business can take you straight to that position.

For more information on buying a business or any other support you may need, please look at our website to find a UKBA advisor near to you.

Raymond Blin | UK Business Advisors (ukba.co.uk)

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