Andrew Weaver CEO at www.lawyerfair.co.uk The legal procurement & comparison service for business owners
Why launch a start up when buying a business brings much less risk? 11 steps to buying a business and immediate revenue
Start ups are great. Start ups are cool. Start ups are high risk. But there is an alternative to starting from scratch and crawling your way up the revenue curve. Instead, you can buy an established business. Saves a lot of time and opportunity cost. Buying a business plugs you straight into a living, breathing commercial entity with exciting things like customers, revenue, employees, supply chain. Sure, there might also be some issues, particularly if the price is low but even a struggling business (which can often be turned around with new owners, energy and ideas) is going to give you a massive head start on starting from zero.
Here’s a quickfire list of things to consider before buying a business
1. What is motivating you to buying a Start-up business? Buying and running a business is rarely easy and needs a clear motivation. Don’t buy a restaurant because you think it will be fun. It can be but is very hard work and rarely glamorous. Be sure of your motivation and pick something you’ll want to do every day, particularly important if the business struggles.
2. Don’t set your heart on buying one business Deals fracture for lots of reasons so try to give yourself more than one option. Helps the seller to focus when they know you have options.
3. Avoid using agents Unless you are so time poor that you need someone out there searching for you, do it yourself. Very few get exactly what you want. Set a profile and stick to it.
4. Understand financials. Lots of creative accounting with business sales and none worse than the adjusted net profit. Understanding financials or hiring an adviser who understands numbers will enable you to strip the business down to its genuine performance and base your offer on reality.
5. Try to deal direct with vendors We’re not keen on the role that brokers play in deals. In our view, they often get in the way of 2 people doing a deal. Make sure you speak
direct with the vendors – helps accelerate the deal process and smooth out any issues.
6. Be flexible on the Business DEAL Most deals involve elements of deferred and/or earn out. Vendors don’t like it but cash deals are rare, unless it’s a quick and reduced sale. Try to understand the vendors motivations and needs and if necessary, offer them a large carrot within the deferred structure so they’re motivated to sell but they share some of the risk
7. Asset or Share Sale? An asset sale avoids you picking up any potential liabilities. Essentially, you can pick off the assets you want. Vendors don’t like it because a share sale is cleaner so this topic often forms part of the negotiation in buying a business.
8. Vendors price expectations Most sellers’ price expectations are removed from reality. Sometimes the deal or price just feels right but generally, understand the value drivers of the business, see where you can add immediate value, get a sense for what multiple the business should generate and what is fundable
9. Advisors Make sure your advisors have deal experience under their belt, real deal experience, not the occasional dabble. It will make a huge difference to the success of your acquisition strategy to have a lawyer on board who has seen it, done it and worn the t-shirt. Many deals go
west because of inexperienced advisors digging their heels over a minor point. Conduct a beauty parade of advisors using LawyerFair (the legal comparison service for businesses) and instruct someone you can get on with and who has the track record.
10. Due diligence Particularly crucial to have experience on your side at this stage. This is when you and your advisors get under the bonnet of that business and find out what is really going on. Hopefully you’re dealing with a very clean and transparent business and the process is easy but often it’s not and many a deal has fractured due to skeletons emerging. You need to understand quickly if those skeletons are genuine deal breakers. Alongside an experienced lawyer, consider bringing in a financial DD team (not just accountants but deal experts). Again, it will be worth the investment in buying a business.
11. Get a deal
If you like the business and nothing untoward emerges then do your best to find a deal. Buying a business is not easy and can be a very protracted process. Finding one you like with a vendor you can negotiate with means you should do all you can to get that completion. Understand the vendor motivations and try to absorb those within your consideration. As soon as the negotiation becomes a battle it makes the process much harder and often more expensive – in cost and time. If they’re demanding too much up front, try to structure a deal that really rewards them for sharing the risk with deferred and/or some earn out.
LawyerFair
Simplest way to get a deal savvy lawyer at the best price is by using the legal comparison service at LawyerFair. All of our pre-approved lawyers have been confirmed as experts in their field of law, not dabblers. All you need to do is access the website and find the best terms for you.