What are the reasons for purchase of business?

Here are six questions to ask to make sure a potential acquisition target is right for you.

1. Why do customers value the business?

A business with an established customer base may be more expensive to buy, but this isn’t necessarily a bad thing. You’re inheriting the company’s "goodwill", which can come with better access to immediate cash flow and existing customer relationships you can build on.

But to make sure a business is worth your time, you’ll want to find out why people buy from them.

• Is it great products or top-notch service?
• Experienced and professional employees
• Is it the customers’ relationship with the owner?
• Will a change of ownership change that?

Market research can help give you some insight into how clients view the company`s products, services and overall brand.

Think carefully before you acquire a business with a damaged reputation, as this can be hard to turn around. Ask why the company is up for sale and ask about its—and it’s owner’s—reputation.

See what people are saying about the company online. It may not be representative of the full picture, but it will give you a good glimpse into how the business is perceived and what needs to be done to change those negative feelings.

2. Is the product or service unique in the market?

If you’re targeting a business in an industry that has lots of competition, probe further to find out what the company does to differentiate itself, as this is a key reason why clients will keep coming back (see above).

If there is no obvious differentiator, think about what you would need to do to help set yourself apart as well as the effort and cost involved in doing so.

3. What’s the company culture like?

Carefully observe the company’s culture, management style and the quality of the work it does, as well as the seller’s relationships with employees and managers. See if they align with your personal philosophy and whether it’s worth making any changes. Remember that rapid change following an acquisition can be met with resistance from employees, vendors and partners.

Long-standing employees are also a big plus. They know the company, the products and the processes. And they can offer insights into the business and the industry. If turnover is high, ask yourself what is the cause. Is it competition within the industry? The company culture? An aging workforce? These questions will give you insight into any human resources issues or needs.

4. Do you know enough about the business or industry?

Don't fall into the trap of buying a business in an unfamiliar field because it seems like a sure thing.

It's much more difficult to succeed in an industry in which you have no experience or little interest. Evaluate your skills, interests and experience, and make sure the business matches those attributes. Choosing familiar territory greatly reduces the risk of failure

5. Will this new business “fit” with any existing businesses you have?

If you are growing your business through acquisition, you will need to look for synergy in key areas.

• Products or services should be related or complementary to what your existing business already sells.
• Marketing and sales methods need to mesh well with one another.
• Production and delivery methods will need to be harmonized.
• Staff from the new firm will have to be integrated in your business, and you will need to have a plan to deal with potential redundancies.

It can be a good idea to start thinking about the integration plan during the due diligence process. In this way your evaluation of the company will go beyond pure accounting to also take account of your strategic goals.

6. Are there hidden costs you are missing?

Hidden problems can make the business less attractive than it initially appears. If leases for facilities or equipment are about to expire, for example, you could be facing unanticipated costs. A proper due diligence will allow you to uncover these issues and avoid costly oversights that can leave you burdened with unnecessary debt.

Once you've begun your due diligence, don't limit yourself to examining operations and financial statements. You also need to talk to employees and suppliers to evaluate the business's true worth.

Finding and researching a business to acquire can be a time-consuming and costly exercise. But, well done, it can be well worth the investment

You’ve thought about it long and hard, and you’re ready to venture out on your own and start your own business. But have you considered buying an existing business as opposed to starting your own company? Here are our top 5 reasons why buying an established business is a better choice than starting from scratch.

Less Risk

The most important reason to consider buying a business, is that the startup failure rate for newly launched businesses is extraordinarily high in the UK. 50% survive less than 5 years, 60% go under within 3 years and 20% close their doors within 12 months. If you are not a risk-taker, consider buying a seasoned business with three to five years of verifiable financial records and tax returns that coincide with the data on the financial statements. “Businesses that show a record of growth, have employees, a good customer base, proper equipment, and an established inventory, are excellent business opportunities. In fact, the failure rates of businesses that have been around for at least five years is quite low, “ says Paul Fyfe, Director of AldesUK Business Brokers.

Build your Brand

If you want to start a business that is strongly identified with your personalised brand, it might be best to start something new. You will be able to build your own brand, design its look and market it to the world. Be aware though, that laying the foundations of a brand, takes huge expertise and has massive financial implications.

Rather focus your efforts on building growth than laying the foundations in a startup. Buying an existing business is a better option. The on-going benefits of any marketing and sales of product has been market tested. All you need to do is continue the brand building the previous owner has done.

Income

Buying an existing business means that you receive Immediate Income. Compare this with startup where it will take you some months (if not years) to establish a consistent income. People tend to forget the importance of cash flow. If an existing business delivers a monthly income of say £50 000 it means that after 6 six months your £300 000 better off than starting from scratch.

People

When buying a business, one of the most valuable and important assets that does not appear on the balance sheet of the business you’re buying is the people. It took the previous owner time to find the right employees, train them and develop them. “If you have the right people, the culture of the business is set and it is much easier to implement growth strategies. You needn’t worry about training and you have a base of existing expertise on which you can draw.

Customers / Clients

Most importantly, with the purchase of an existing business, you will be buying an existing customer base and vendor base that may have taken years to build. You might even be able to arrange with the seller to stay on for a short time and transfer those relationships (goodwill) to you, the buyer.

Becoming your own boss always involves a risk. When you buy a business you will pay for and receive goodwill already established in the business and you take a calculated risk that eliminates a lot of the pitfalls and potential for failure that come with a startup.

So what are your chances of finding such a business? Biz Mastery Online has been buying, selling and valuing businesses for over 20 years and can help you. Whatever type of business you want to buy or sell, we have the specialists to help you find the right business for you and help you through the process. Go to www.bizmasteryonline.com for more information.

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