Buying a business can be a more attractive option than starting a business from scratch. After all, if you make the right purchase, you will be buying a business with established products, customers, employees, and internal structures.
Buying a business is a complicated process, though. In addition, that process starts long before you start exploring your options. Here are five factors you should consider before buying a business.
1. What Type of Business Do You Want to Buy?
The starting point when answering this question is to think about the industry you want the business to be in. Do you have experience in the industry and do you have the right skills? Will a business in your chosen industry complement your other businesses?
Industry isn’t the only thing you should consider, however. Location and size might be important too. Also, do you want to buy a business that is very successful (which you are likely to pay a premium price for) or do you want something that is not doing so well that you can change, improve, and turnaround?
2. How Much Do You Want to Invest?
The amount of money you are willing to invest in the business is also crucial. If you want to buy the business outright, this is a simple equation – the amount of money you want to spend will decide which businesses you can consider.
In many cases, however, businesses are bought with a combination of personal investment plus investor finance and/or loans. This is beneficial because you can buy a higher value business, however the process is a bit more complicated.
In the early stages, you need to be realistic with the ratio of your investment compared to third-party finance. For example, you are unlikely to be able to buy a €1m business if you only have €100k to invest as you will need an investment or finance of 90 percent of the purchase price. A much more realistic purchase price with a €100k personal investment is in the region of €250,000 as this only requires investment or finance of 60 percent.
3. Where Will You Get the Additional Funds From?
Following on from the last point, you will need to decide where you will look for investment or loan finance. It is not necessary to make approaches at this stage, but you should have an idea of where you think the additional funds will come from.
4. Have You Done Your Research?
Researching the industry that you plan to buy a business in, as well as the location, is also important is the early stages of the process. This will give you a better understanding of the market which will help when it comes time to make a decision.
5. What Help Will You Call on During the Purchase?
Finally, you are likely to need help during the purchase. This includes help from an accountant and solicitor, not least for due diligence and contractual purposes. You may also need help from a business advisor as well as from someone who understands the industry you are buying into.
If you are thinking of buying a business, or you need any other business help or advice, please contact a member of the Gilroy Gannon team today.