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If you are a budding entrepreneur and you are considering buying a business or if you are in the middle of buying a business, then this system is a must have for you. I have used it myself to analyse hundreds of businesses before I make that all important offer! I then use the system to help sort out where the finance is to be sourced and to show how the business is able to pay for that funding post takeover. Before you begin, however...
The question you need to answer is: Do I set up a new business from scratch? or: Do I buy an existing business?
To answer this fundamental question it is important to consider the following factors:
1. Existing market - if you are buying an existing business you know that a market exists for the product or service that it sells. You might say - the new business that I intend to set up has an existing market. That might be true, however, it takes time and money to gain market share and to establish any business from scratch, so if you purchase one that already has customers, most of the hard work has been done.
2. Business marketing: Is the business you are looking to purchase doing well and does it have a good marketing strategy? I would suggest that you should try to target existing businesses that fair poorly on the marketing front, so that you are buying "Potential" in the business and can make "Easy" profits and fast gains, let me explain:
When I mention the word marketing - I mean it in the widest sense of the word so for example, does the business make full use of it's existing customer base for other products or services that it does and could sell? Are the premises of the business presentable and the employees welcoming and well dressed? What forms of advertising is the business using and are these being optimised?
There are many more questions of this type you could ask, which are all linked to the marketing of a business. There are some businesses that trade and survive despite themselves and they way in which they are run. You must have been to buy something from a company in the past and received shoddy customer service! Did you ask the question; how on earth does this business survive?
Well survive they sometimes do and these types of businesses come on the market for sale. So I commend you to buying this type of business and with a little bit of tweaking here and there you will likely turn a loss or a small profit into a good profit in no time. What's more you should be able to pick up a company like this for a cheap price because of the low profits and of how it is run. A more profitable business is worth more and will be easier to sell again.
3. The hard work has been done - There is no doubt that the hardest part of any business is the early days and getting it set up. Finding premises; employing staff; setting up computer systems; deciding on the marketing; getting to be known in the market place; finding suppliers; getting accounts with suppliers - which is not always easy for a new business ; funding and sorting out banks and finance; accountants and other financial advisers; setting up systems and processes within the business; business insurance; telephone systems; etc.
When you buy an existing business, most of this hard work has already been done for you and whilst you will probably want to appoint your own accountants and financial advisers, most of the other points will have been done already. You might want to change the way the business is run, especially on the marketing front, however, it is easier to change an existing set up than to start from scratch.
4. Existing customers - When you buy and existing business you are getting an existing client base to work on and to build upon. Most businesses forget to market to their existing client base with new products and services and this is normally the cheapest way to market your business - it costs much more to gain new customers than to sell to an existing one!
5. Assets at a discount - If you were to set up a business from scratch, it is likely that you will need to purchase the assets to run the company, at full retail price! For example, all businesses will have computers, telephone systems, office desks and chairs, together with the specific assets needed to run the type of business you might be looking to set up. However, when you purchase an already existing company you will get the assets thrown in for "FREE" because the business cannot be run without them.
Advantages and disadvantages of buying an existing business:
- Most of the groundwork will already have been done in getting the business up and running - I would suggest that if you are looking to buy an existing business that it should be at least 5 years old. Any younger than this and I would seriously question the owners, as to why they are selling so soon after setting it up!.
- Finance may be easier to obtain as the business will have a proven track record - banks and other lenders will have a business with a history, on which to base their lending decision. And more importantly, you should be able to obtain "vendor finance" to help with the purchase. Vendor finance is where the present owner lets you pay for part of the purchase price over a period of time, for example a business might be on the market for say £150,000 and you might only have £50,000 to hand or available from the banks - you could ask for vendor finance of £100,000 perhaps payable over two-three years.
- A market for the product or service has already been demonstrated - If you are setting up from scratch you might need to do some market research before investing in your new venture.
- There will be established customers, a reliable income and cash flow, a reputation to capitalise and build on, together with a useful network of contacts - Be careful, as noted above, when buying an existing business that the customers do not have a strong link with the present owners. The existing income stream can be used as your basis for borrowing and for cashflow forecasts for covering the loan repayments and a future income stream.
- A marketing method should already be in place and it is possible that a business plan has been set - Whether the marketing method in place is good or not, it will be there for you to review and decide whether it can be relied upon or improved on. I will mention that the majority of businesses do NOT have a business plan in place, so don't be disappointed when the company you look at does not have one.
Existing employees should have experience you can draw on - Experience and knowledge in any business is invaluable! Be careful however, that key personnel will be staying on with the business when it is sold and check what role the business owner takes. You need to ask the question - "What happens when the owner is no longer around?". Another good question to ask is; "How much holiday do you have and when was your last holiday abroad?" The answers to these questions will help you to build a picture about the business you are considering to buy.
Many of the problems will have been discovered and solved already - When you set out in business you always encounter unexpected problems and challenges! Buy an existing company and you reduce the risks associated with this.
- The present owner may have close relationships with the existing customers - Therefore, when the business is sold and the owner leaves, will the customers leave as too? An important question to ask, when you do your initial checks on a business for sale.
- You will very likely need to invest a large amount up front, and will also need to budget for professional fees for solicitors, surveyors and accountants - I always recommend that you carry out a due diligence check on the business, which is effectively an audit on the figures supporting the business valuation. You must always make sure you check for any outstanding claims on the business and whether there is insurance in place to deal with this eventuality. Solicitors are required to draw up and check the sales contract for the business, however, this can be done without a solicitor, if you are confident in what you are doing and can trust the business owner.
- The business might have been neglected so you might need to invest quite a bit more in addition to the purchase price to give it the best chance of success - If the business concerned is basically a good business in an established and stable market this might be to your favour in that you will be able to get the business for a lower price.
- You will need to honour or renegotiate any outstanding contracts the previous owner leaves in place - This is normally a good thing and you should look at the business order book to see whether looking forward, the business has a continuing income stream.
- You also need to consider why the current owner is selling up - As noted above you also need to look at how long the business has been operating for and why it is on the market so soon after it's inception, if that is the case. Usually there are genuine reasons for selling, for example, retirement; ill health; going overseas, etc. A commonly used reason is "The seller wants to concentrate on other business interests" I am always suspicious of this answer and look for clarification.
- Consider the feelings of the current staff - is it possible they may not be happy with a new boss, or the business might have been run badly and staff morale may be low - This is not an easily solvable problem pre-acquisition because in most cases the employees are not aware that the business is for sale. However, in most cases this is not a problem and employees are usually happy to keep their job. Where they are unhappy, they might be glad of a new owner and new ideas and a new management style.
Business buying funding system and guide
If you decide that buying as business is the route to take then please consider using our business buying system.
This system will encourage you to gather the right information to help you make informed decisions about each business you review - input the information you have gathered, the system does all the necessary calculations then simply print the reports.
The system is designed to focus your attention on paying the right price; the profit multiple you are paying; and how much discount you are receiving off the asking price; together with where the funding is to be found and how much you will need to find in terms of fees and working capital.
With the Business Purchase Funding System you can:
- Use it to work out the best purchase price for your target company.
- Help you start to think about company purchases in a whole new way.
- Use it to review what sources of finance are available to you - up to six loan types and four other funding sources to choose from with all the calculations done for you.
- Run various scenarios for each business before any offer is made.
- Review the accounting figures of the target business and it will highlight any major fluctuations - also review the figures for up to ten years post takeover using your own "profit increase percentage".
- Encourage you to think more carefully before you make an offer for any business - purchasing fees, working capital requirements and more.
The Business Purchase Funding System is easy to use and comes complete with a user manual. The program is written using Microsoft Excel and to use it you don't even need any Excel experience. You can copy it to review as many businesses as you wish. The manual will give you a step by step guide on how to use this software and it also gives some very useful tips on how to go about buying a business! It will encourage you to bargain hard and to search for the right business for you - don't pay a penny more than you have to and make sure you get the best financial deal you can.
For this Excel Template and Business buying guide we offer a no quibble money back guarantee that if you are not happy with the product after 90-days, return it for a full refund no questions asked.
Whenever you see a successful business, someone once made a courageous decision ” Peter F Drucker
An excellent web site to find a business to buy is "businesses for sale" where you will find hundreds to choose from across the UK and overseas. The other place to search is Daltons Business Website.
So get started and when you find your first business you can use our buying guide and funding system to help you with your decisions.