Buying your first business is a heady mix of heart and head. Hopefully, you’ll quickly find a prospect that plays to your own strengths, leveraging your expertise and in a location of your choice. Consider whether it provides something you couldn’t achieve from bootstrapping your own business – an established brand, a long list of loyal customers or perfect premises (maybe all three) – but it should also ideally have potential so you can drive it to the next stage of its evolution.
The next steps will be largely procedural and are mostly concerned with validating the purchase price, checking finances and making sure there are no skeletons in the closet before you seal the deal. As a first-time buyer, it may feel tempting to skip some of the paperwork so you can get on with the business of doing business. But it’s crucial to tick all the due diligence boxes before you sign on the dotted line.
Help buying a business
Have an idea of the preferred size, location and turnover of your perfect business. You’ll also need a good feel for the budget at your disposal, including any portion that’s secured by finance. As a rule of thumb, you should plan on having around a third of the value of the business in cash. When you find a good match, embark on a bit of research – posing as a customer, if possible, to assess customer service levels – and trawling the internet for news and reviews.
What business to buy
If you’re thinking about buying a franchise rather than an independent business, you’ll have some additional considerations. Obviously, when first-time buyers go down this route, it’s generally because they’re attracted by the idea of tapping into ongoing training and support from a ‘parent’ organisation with a vested interest in their success. So, make sure you investigate the franchisor thoroughly and dig into the success rate of existing franchisees.
Open Negotiations
As soon as you feel ready to move forward, make contact with the owners or agents so you can establish initial terms – including agreeing on a price that’s acceptable to all parties. Remember that preliminary offers aren’t binding – any more than they are when you’re buying a house – because much will depend on the results of subsequent professional investigations into the state of the business.
Heads of Terms
Although not legally binding, the Heads of Terms agreement makes a useful staging point in your negotiations as it condenses the main points of a sale into a single document. Elements covered include the payment, responsibilities of all the parties and any required confidentiality clauses. It also sets a timetable towards completion, outlining deadlines for every stage and helping to keep things moving.
Due Diligence
Every business purchase is different. You may be looking to acquire a brand and a website upon which to build your business or you could be going all-in on a deal that includes premises, stock, equipment and forward orders. Make sure you consult legal, property and financial specialists to check leases, accounts and licences as the status of these will affect the valuation and may even give you cause to question the wisdom of pursuing your purchase.
Get Your New Team on Board
If you’re inheriting staff with your new business, you’ll want to give some early thought to how you plan to incentivise them to stay – especially if there are key team members that you’d be sorry to lose. Remember that the government’s regulations require that existing employees will automatically have their contracts transferred to the new owner. But there’s nothing to stop staff from jumping ship if they don’t like the way the wind is blowing. If you don’t want the business without the staff, ensure you make the retention of named staff a condition of your offer.
Sale and Purchase Agreement
As you enter the final furlong, you’ll be required to sign a binding sale and purchase agreement. Unlike the Heads of Terms, this will detail the precise legal obligations of both parties at the point of sale. This is the stage where you’ll need all your financing in place, whether it’s from private funding, investors or banks, and will need to be 100 per cent sure of your decision.
Plan Your Schedule
It usually takes a period of some months – may be between three and eight – to acquire a business. Naturally, the more complex the agreement, the lengthier the timescale. If you want things to run smoothly, make sure you maintain a cordial relationship with the seller and be prepared to conduct your own legal and financial processes promptly.
