How To Buy A Business

By: Lloyds Business Brokers

Buying a business is undoubtedly one of the most daunting investment prospects you can possibly undertake - possibly even riskier than getting married!

The safest and most cost-effective way to approach the actual purchase of a business is to look at it as a long process of elimination, involving a number of steps, like concentric rings, each reaching deeper towards the core. Each step should be taken only after successful completion of the previous step.

The important thing is to allow sufficient time to complete each stage of the investigative process comprehensively.

Do you really want to buy a business?

In order to have a reasonable chance of success, and before you even begin looking, you need to know the answers to a number of important questions:

• Why do I want to buy a business?
• What do I expect from the business?
• What can I contribute to the business?
• How much capital can I raise?
• What are my (truthfully, now!) business strengths, weaknesses and experience?
• Where do I want the business ideally to be located
• As a result of the above answers, what kind of business am I best suited to run?

Where to look to find a business

We can't help you with the answers to the above questions, but once you are satisfied with the answers you have come up with, the next most important question is: where to begin looking for a business? There are a number of possibilities:

• Private sale. You could look in the Businesses for sale section of various newspapers and magazines, or be referred by someone "in the know" for businesses for private sale, and, if you are very lucky, you could save yourself agents' fees by buying privately. However, the major drawback here is that you are subject to "Caveat Emptor" - "Let the buyer beware!", if things turn out to be not as you hoped they might be. Certainly you have an Accountant and a Solicitor to help you, but so does the Vendor!
• Through a Real Estate Agent advertising a business for sale. This does not involve you in any direct costs, as the Agents' Fees are paid by the Vendor. These people are generally licensed, and subject to Department of Consumer Affairs supervision and a strict code of conduct, and carry Professional Indemnity Insurance. But they generally have little specialist knowledge of business, and in any case, they are actually committed to their client, the Vendor, who is the party paying their costs, and are duty bound to obtain the best possible deal for them.
• Through a Business Broker advertising a business for sale. At least here, you are dealing with a specialist, and would expect someone with a deeper understanding of the business he is offering on behalf of his client. Otherwise, the same comments apply as for a Real Estate Agent.
• Through an Accountant. Here you would have a professional who understands business, carries Professional Insurance, and is not a salesman. But he may not be subject to the same Department of Consumer Affairs Licensing requirements, is generally acting on behalf of his Client, and has access only to a limited number of businesses belonging to his Clients.
• Through a Business Broker acting as your Buying Agent. This involves you paying the Agents' Fees directly, rather than indirectly, as when the Broker is acting on behalf of the Vendor. The advantage for you is that now, the Broker is acting FOR you, rather than against you. His legal duty of care, as well as his self interest, are working on your behalf. By law, he may only act for the one party in any transaction. And, as your Agent, if he does not have exactly what you are looking for, he can go and seek it out on your behalf.

I am not suggesting that any of these things will necessarily happen to you; in my experience, most people are honest. I am only pointing out the various risks and advantages that could occur. Careful diligence, research, and background checks are necessary to minimize the risks, and maximize the advantages. Don't be afraid to check references, experience, qualifications and licenses.

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Lloyds Business Brokers specialise in commercial business broking services to mid market enterprises. Visit their smallbusiness[HQ] listing here.

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