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10 Steps to Buying a Business

The best way to make sure your purchase goes smoothly is to follow a step-by-step process.

Purchasing a business is a massive financial commitment, and the best way to make sure that it goes smoothly is to follow a step-by-step process.

Choose the right sector

The first step in buying a business is to identify a sector which suits you. This may sound obvious, but many people are driven simply by finding a bargain.

However, even a cheap nightclub would be a foolish purchase for a teetotaller who doesn't enjoy dealing with crowds of people. After all, even if you do not have to work in the business yourself, you will inevitably have to be involved in some capacity.

Strategic understanding

Once you have chosen a sector, you will need to ensure that you become an expert. This doesn't simply entail understanding the practical, day-to-day requirements of your potential new enterprise.

It means comprehending the specific statutory and bureaucratic hurdles that you will face, as well as studying the existing opposition closely. By the time you own the business, you should know its route to success.

Realistic capital

In any sector, available enterprises will be of different sizes and reputations. You will need to carefully assess how much money you have to invest before making a decision about what sort of business to purchase.

Make sure that you don't spend all of your capital on the purchase because you will need at least a few months of reserves to deal with any teething problems which may arise.

Conduct a search

Having completed the steps above, you will be in a position to conduct a search. Decide whether you are willing to relocate if you find a bargain, and set your search radius accordingly.

Don't forget that there is no need for you to restrict yourself to businesses which are officially for sale. There is no reason that you cannot make a direct offer to an owner who wasn't previously considering selling.

Checking out the business

Once you have found the business you wish to purchase and make your initial approach to the owner, you will need to conduct an initial check to ensure that your assumptions about it are correct. If the owner is interested in selling he will make the business records available to you, subject to a confidentiality agreement. Check through them for any major issues, and ask questions if anything is unclear.

Valuing the business

Once you have had sight of the financial records, you will be in a position to value your purchase. For larger enterprises, the help of a professional will be of use at this stage.

Traditionally, the best measure of an offer is to select a multiple of projected future profit, although this can vary depending on the prospects of the company. You will also need to offer enough to cover the business' existing assets.

Contractual negotiations

Even if your offer is accepted, you will still need to agree a formal contract. As well as the sale price, you will also need to agree on issues such as confidentiality, possible non-competition clauses, and precise dates for handover.

You may also want to sign preliminary 'heads of agreement' whilst arranging the contract, which should temporarily prevent the owner from discussing terms with competing purchasers.

Due diligence

Before you sign on the dotted line, you will need to complete proper due diligence on the company. This is essentially a more detailed version of the initial checks mentioned above, and it is usually advisable to hire the services of a professional to undertake them.

After all, spending a small amount of money at this point could save you from discovering a major issue with the business after your purchase.

Payment and completion

Once due diligence is complete, all that remains is to complete the contract and take ownership of your new business. Make sure that you have arranged every detail of the handover with the old owner.

Nothing is worse than having legal ownership of an enterprise but not having control over its logistics for weeks due to forgetting minor details such as handover of keys and alarm codes.

Record keeping

It is sorely tempting to dive straight into your new business once the purchase is complete. Before you do, make sure that you have all of the purchase records, contracts and agreements in a safe place, and that your new financial and administrative systems are able to merge seamlessly with those used by the previous owner. Once that is done, enjoy. You're a business owner!

Matt Skinner

About the author

Matt Skinner writes for all titles in the Dynamis stable including, and as well as other industry publications.