Buying or selling a business is no picnic. It requires careful deliberation and a proper plan before taking the plunge. Successful entrepreneurs believe that buying a growing business is always a better option than starting a new business from scratch. The latter may take a lot of energy and money into the bargain and yet it cannot bring in money in the beginning. In the beginning years, meeting all business expenses before your company begins to earn profits is the most challenging part. Finding target audience, pitching clients and reaching to breakeven point is extremely difficult. It requires a lot of time and patience and there is no guarantee that your business will go places. Therefore, finding an established business is a better option.
If you are selling a business, you need to consider several factors such as the right time to exist the business. You will have to make a plan, find out the right person to buy your business and create a marketing plan to invite potential buyers. Well, whether you are selling or buying a business, you need to complete your homework to ensure that you are not losing millions of pounds in the transaction.
Case 1: Selling a business
Selling a business is a time-consuming process. From choosing the right time to sell the business to pitching a potential buyer, everything requires careful deliberation. Here are the tips you need to bear in mind while selling your business.
- Do not inform your clients unless you get a potential buyer
A buyer will be interested in buying a business that has a wide spectrum of clients. Selling your business can be very sensitive information to your clients. If you are in a business where this news can cause a panic among them, you should keep it under the hat unless you find a potential buyer. Make sure that you have a transition plan for your customers.
- Hire a broker for listing your business for sale
You will have to market your business for sale to attract potential buyers. A broker understands more authentic ways to give your business market visibility than you. It will increase the chances of finding genuine buyers who are actually ready to pay prices you quote.
- Set a realistic price
Since your business has huge clients and making a lot of profits, it seems to be tempted to quote a very high price, but buyers consider various factors before making a decision. Before you quote a price, you should sit with your accountant and take a look at your income statement, cash flow statement, balance sheet. Estimate the worth of your tangible assets. Do not forget to include liabilities. It is likely that your business is making very high profits, but it can be under several debts. The right pricing depends on the value of your assets and liabilities.
- Get paperwork in order
Never think that a buyer will immediately get ready to buy your business. It may take a very long time even after finding potential buyers. Make sure that you have got your paperwork ready. All prospects would like to go through income tax return, financial statements, existing contracts, lawsuits and the like. Have some time to organise all things. It will ensure a smoother process from beginning to end.
Case 2: Buying a business
Buying a business involves huge risk. If you do not carefully assess the value of the business you want to buy, your efforts and money can go down the drain. While there are certain benefits that you get from buying a business such as existing clientele, there are plenty of challenges, if not taken seriously, can take a toll on your financial condition. Here are some tips you should consider before buying a business:
- Know the reason of buying a business
Buying a business is a major investment and hence you cannot be precipitous. Take some time to get the answers of these questions. Before buying a business you should go for best financial planning.
- Why do you want to buy this business?
- Do you have knowledge to run this type of business?
- How will you benefit from this purchase?
- Are you passionate about this business?
- Determine funding for the business
Before you buy a business, you should estimate the funding you will need. It is rare that you have enough money to pay for the pricing of the business. If you need very big amount, you will need to take out a long-term loan, and if you need smaller amount, you can take out small business loans from private direct lenders in the UK such as British-lenders.uk. Before you take out a loan, make sure that you have the repayment plan. Compare interest rates, APRs, and other expenses that will add up the cost of your loan. Since each lender follows different interest rates, comparison will help you get a better deal.
- Check the background of the company
Even if you feel confident about the purchase of an existing business, there is still risk. You should contact an attorney and an accountant to vet the background of the company. Accountants can help with understanding the financial background of the business by evaluating its financial statements of previous years. It will help you determine the cost involved with its purchase. Attorneys will help you draft documents such as contracts, leases, a letter of intent and the like.
- Consider all pros and cons of buying a business
While buying a business has several pros such as low operating costs, continuous cash flows etc, it is also associated with some drawbacks such as higher upfront cost, unfamiliarity with details and the risk of hidden problems. Make sure that you have potential to withstand them.
The bottom line
Whether you are looking forward to buying or selling a business, you need to complete your homework. Evaluate your options before making a choice. As a seller, you should know the ways to market your business for sale, get your paperwork done and set a realistic price. As a buyer, you should consider the background of the company, your budget, and your strategy to hit the ground running.
Description: Buying or selling a business is no picnic. It requires careful deliberation and a proper plan before taking the plunge. This blog discusses both perspectives.