Buying a business is a complicated undertaking, so you must understand how it works. If you decide to hire industry experts or manage it yourself, there are several things you need to know and prepare for.
Whether you are looking to buy a small company, a large corporation, or a franchise, we explain the key steps you must take in this article. To simplify the process and ease your stress, read it all here.
Benefits of buying an existing business
Building a business from the ground up takes a lot of work while buying allows you to bypass the challenging start-up phase. The perks of buying an established business include:- A solid customer base.
- Experienced staff.
- Established supply networks.
- Long-term contracts.
- Financial record and rating.
- Business plans.
- Existing premises.
Within the first year, 10% of startups fail, so why not skip that risky period and invest in a company that has already proven successful?
8 steps to buying a business
Once you have an idea of the type of company you’d like to buy, these are the 8 steps you should follow to ensure the process is successful.
1. Get a business broker
If you are interested in buying a company, your first step is to enlist the help of a professional. A business broker will manage everything for you, ensuring the process runs smoothly from start to finish.The role of a broker is to:
- Protect your confidential information.
- Provide an information memorandum and relevant information for a business you are interested in.
- Process the paperwork.
- Assist you with completing due diligence.
- Assist you with structuring an offer.
- Coordinate communication and information.
At McDonald Real Estate, our brokers also help you to find a business that suits your needs. We’ll present a range of businesses for sale, having already evaluated them in our careful selection process. Then, we’ll send you information about them before it’s made available to the public so you have a head start.
2. Organise your finances
Commercial financing can be complicated, so it’s wise to get the process started early. Speak with your broker, accountant, and lender to learn more about your options, and try to build up your savings.For a business loan, you will need to provide:
- Personal bank statements.
- Tax returns for the past two years.
- Financial statements for other companies you have run.
- A list of personal debts and assets.
Your lender will also require financial information from the business you want to buy, but this isn’t publicly available. To get a loan, you will need to complete the next two steps first.
3. Research the brand
Once you find a business you like, it’s time to dig deeper into the details. Visit the company website, social media pages, and physical stores to get a feel for how the business operates.This is your opportunity to learn more about the:
- Current market.
- Overall industry.
- Suppliers.
- Competitors.
- Products and services.
- Target audience.
If possible, buy the products, try the services, and talk to customers to get a taste of what the brand offers.
4. Register your interest
The next step is to register your interest in the business. Your broker will handle this for you and act as an intermediary between you and the seller. At this point, you will receive an information pack about the business that contains details that aren’t publicly available, such as:- Cash flow statements.
- Profit and loss statements.
- Asset lists.
- The business plan if it is available.
Your broker will help you to assess if the business is suitable for you. Every business is different and it is good to understand if the business will work for you.
5. Appoint a lawyer and accountant
Now that you’re ready to commit to the purchase, it’s worth hiring a lawyer and an accountant. Not only will they make the process easier for you, but they’ll also improve your credibility as a buyer. A lawyer will handle the transaction process, including the legal transfer of the company into your name. An accountant will handle your financing, ensuring that everything is prepared correctly.
To keep things simple, your broker will coordinate communication between you, your lawyer, your accountant, and the vendor.
6. Get a business appraisal
Before making any offers, you need to determine the value of the business and if it is worth investing in. By taking the current market into account, your broker will complete an appraisal for you, assessing how much it is worth.
This is your chance to compare the valuation to the information memorandum you received from the seller. Consider assets, ongoing contracts, and expenses, as well as projected growth.
7. Make an offer
When you’re ready, your broker will prepare a Sale and Purchase Agreement for you. This will contain the offer you are making to the business owner, who will then decide whether or not to accept it. Your broker will coordinate the negotiations between you, and ensure any conditions are added to the agreement, including the finalised sale price.
Once the agreement has been finalised you will then undertake your due diligence and satisfy any conditions. Due diligence is the process whereby you explore the details of the business to ensure that everything is as it should be. For example, you would review the assets, customers, and suppliers.
8. Business handover
Once all the conditions contained in the Sale and Purchase Agreement have been fulfilled, the agreement will be unconditional. Your lawyer and broker will confirm this with you and the seller, and process the necessary paperwork. At this point, you are the official owner of the company.In most cases, the seller will agree to a handover period to support the transition. This usually includes a handover document, containing the following information:
- Industry contacts.
- Leases that are also transferred.
- Regular maintenance tasks.
- Payroll processes.
- Employee information.
The handover period will normally last for 10-30 working days but this does vary depending on the size and complexity of the business. If you think you’ll need more hands-on time with the seller, you need to raise this at the negotiation stage.
The bottom line: Get professional support
When it comes to buying a business, you need to have the right team of experts behind you. This is a big decision and having professional support ensures each step is seamless and stress-free.At McDonald Real Estate, our brokers have years of experience and all the industry insights you need to help you throughout this daunting process.
By partnering with us, you’ll receive:
- A curated list of commercial opportunities.
- Confidential information before it is made public.
- Comprehensive appraisals.
- Assistance with structuring an offer.
- Effortless communication.
Download our ultimate guide to buying a business for all the information you need before you start your purchasing journey. If you still have questions or need tailored advice, reach out to our friendly team today.
