If you are considering buying a business, there are important challenges you need to take into account. With the outbreak of Covid-19 forcing many businesses to close and news of economic uncertainty, it may feel like a terrible time to buy. However, it is important to remember that the economy will bounce back. There are many good businesses out there that may not have the capital to get through this uncertain time. However, if you have the right amount of equity behind you, you could be in a strong position to take a business on and thrive when we are out the other side.
Perhaps you are looking for a long-term investment or maybe the crisis has forced you out of your current job and you have decided to try something new? Whatever your reason, it is important to carefully consider certain obstacles and how you might overcome them.
Buying any business is always going to be a bit of a gamble and a leap into the unknown. A crisis of confidence and the fear of it not succeeding is likely be the first obstacle you will face. Focus on your strengths and skill set. It is important you buy a business that suits your personality, interests and skills. Consider if you want to be a hands-on owner or if you’d prefer to employ managers to do the majority of the workload. Energy and passion are two key things you can give your business. You might need to put in a lot of unpaid hours initially and if it’s something you care about, that suits your personality, it’s far more likely to succeed.
If you’ve decided to buy a business, knowing where to buy it can often be the next hurdle. There are various online marketplaces that allows you to search easily and efficiently for your desired business. You can also contact business brokers who will offer up businesses they have on their roster for sale. Brokers will not cost you personally as they charge a one-off fee, or commission, to the seller. It is important to look around and contact numerous business brokers during your search. If you know where you want to buy your business, look at local publications and reach out to people in that sector who may be aware of businesses coming up for sale.
One of the most important things to do is your due diligence. You will need to look into the company’s finances, cash flow, customers and their employers. Find out what the current owners own, what they have borrowed, leased and what they might owe. You don’t want any nasty surprises later on.
It is also important to ascertain why the business is being sold. It might be easy to assume that everyone is selling due to the current economic crisis. However, it is advisable to check as this might not be the case. Perhaps the owners are changing their lifestyle, retiring or moving abroad. Or maybe there is a new competitor who is pushing the business out of the market place. It is important to understand why the business is being sold so you can unearth any underlying issues.
Buying a business can feel daunting but don’t be afraid to ask for help. If you don’t understand something, ask someone who does. Expert advisors, accountants and consultants can be hired to look into anything you don’t know about. Assemble a team of people you trust and who know more than you to assist.
If you feel nervous about taking on a business, consider buying a franchise instead. You will have a strong support system behind you and a team of people dedicated to ensuring it succeeds. In this uncertain period, find a franchise that has stood the test of time. You will need to know it can weather the storm and come out the other side.
There are many different ways to structure finance when buying a business. It is important to research the options, so you can be fully informed. The traditional approach is a business loan from the bank – a loan is agreed with the provider and then paid back, with interest. There are secured and unsecured loans. With a secured loan, you provide assets as security but with an unsecured loan you don’t. A business loan can often be the simplest form of finance but you should look at other options. Equity funding for example, where you sell a stake or share of your business, might be right for you. It means you won’t have as much control but the risk is spread and the shareholders will work with you to ensure the business succeeds. They also bring their experience, skills and resources, as well as equity. Or perhaps an Angel investor is a possibility. This is someone who invests on their own or through an angel syndicate or club. Angel investors will often invest in start-ups and back higher risk businesses with the potential of high returns. They tend to be high net worth individuals and found among the business buyer’s family and friends.
Once you’ve overcome these obstacles, there are thousands of options that you can chose from. Make sure you find one that aligns to your goals, do your research and don’t forget to ask for help along the way.
By Jo Thornley, Head of Brand and Partnerships at Dynamis. Joining in 2005 to co-ordinate PR and communications and produce editorial across all business brands. She earned her spurs managing the communications strategy and now creates and develops partnerships between BusinessesForSale.com, FranchiseSales.com and PropertySales.com and likeminded companies.