What to Look Out for When Buying a Business

As the new calendar year unfolds, many entrepreneurs set their sights on acquiring new businesses to expand their portfolios or venture into new markets. If you’re considering taking the leap into business ownership, it’s crucial to approach the acquisition process with strategic foresight. At MKS Group, we understand the nuances of acquiring a new business and have compiled a guide on what to look out for in this exciting endeavour.

Below are some questions to ask yourself before entering into a deal.

Why are they selling the business?

You must know WHY the current owner is selling. It may be that they simply want to move on to a new business venture, or retire. But they may also be trying to extricate themselves from a business that’s not performing well, or has intrinsic issues.

Important questions to ask will include:

Is the owner retiring?
Are they facing financial difficulties?
Are they looking to pursue other opportunities?
Are there any legal or regulatory issues?
Are there any personal reasons for the scale?
Are the finances in order?

A common problem with both startups and established businesses is a lack of cashflow. It’s possible to have a business with a reasonable customer base and ongoing sales, but for poor margins and rising operational expenses to have a negative impact on the company’s finances. Before you buy, drill down into the company’s finances:

Get a copy of the ‘business’ accounts, both statutory filings and internal management accounts, and have them reviewed by an accountant.
Look for any red flags, such as debt, losses or cashflow problems.
Make sure the business is profitable and has a solid financial foundation.
Are the staff capable and engaged with the business?

As the saying goes, your people are your most important business asset. So, prior to buying the business, it’s important to get acquainted with the top team, management and employees. To learn more about your prospective workforce:

Meet with the key employees and get their input on the business.
Make sure the core team is willing to stay with the business after the sale.
Think about the cost of replacing any key employees who leave.
What governance do you need to do?

Purchasing a well-respected brand is a great move as an entrepreneur, but you don’t want to pay over the odds when agreeing on a deal. To help secure the best price:

Do your research and find out the fair market value of the business.
Be prepared to negotiate with the seller to bring the price down.
Don’t be afraid to walk away from a deal if you are not getting a fair price.

Talk to us about planning the purchase of a business.

This isn’t an exhaustive list. There are plenty of additional factors to think about when buying a business. Any business sale is a complex process, where working with professional advisers will help you navigate the twists and turns so you come out with a successful deal. As your adviser, we can help you: