Starting a business is a tough task. The benefits of buying an existing company instead are huge – you already have the infrastructure, the customers, the cash flow and the team. So it makes sense, for some, to look at companies that are already out there, instead of beginning from scratch.
It’s not a smooth ride of course, so here, Jonathan Jay of Dealmakers.co.uk advises on the main things to consider before taking the plunge and buying a business.
Jonathan always advises people to buy a business operating in a sector they already know and understand. This doesn’t mean they have to be complete experts, there still needs to be research and diligence: but they need to have some awareness of how the market operates. There will be a lot of things to learn along the way anyway when buying a business: the staff, the culture, the reputation – and if you buy in a sector that you are completely new to, you’re going to have two huge learning curves. Don’t make it more complicated than it needs to be. Start with what you already know.
Ensure you secure a company that already has a good solid management structure in place. If not, you will end up being part of that management team and you are not doing this to buy yourself a job. It’s best to look at companies that have an annual revenue of at least £1m, with a team of over 15 people. People sell their businesses for different reasons – retirement, health, complete life pivot – but the key is to only buy that business if it can survive without them at the helm. If it is too small, then there is a chance it won’t cope well at first. If the team and structure is strong, a change in ownership means progress, not panic.
Only buy a company you can finance – but never finance it from your own purse. Jonathan compares it to buying a house: if you’re told you can’t get a mortgage large enough to cover the repayments on the house you want, that may be a sign you can’t afford it. You do not want to end up out of pocket here, so don’t dip into your life savings. There are many other ways to fund a business.
Always engage an accountant to do the due diligence. It sounds obvious but Jonathan says he has come across a lot of people who fancy doing it themselves. This is never a good idea, as you are simply not able to look at it objectively. Hire someone completely detached, and of course suitably qualified. The same goes for your lawyer: have a good proactive lawyer already in place who can get the deal done without any ego getting in the way.
Don’t fall in love with the business – this is business! You are looking for a motivated seller, but DO NOT BECOME A MOTIVATED BUYER. The key is to stay detached. Look into at least 20 businesses before deciding which one to buy. Buy that business based on its financials, not your feelings.
Why are you doing this? What is your motivation? For most people, the aim when buying a business is quite simple – to make money. It is to create a more secure future, one that involves accomplishment and provides security. So keep that goal in mind throughout the entire process. If you get too emotionally attached, or too involved in the running of the business, or don’t do the diligence up front, that success becomes compromised.
The main advice from Jonathan is to keep it objective, professional and detached. A published author and mentor with a track record in buying, selling and restructuring companies, Jonathan has helped many others acquire and successfully run businesses, with a focus on commercial success alongside a healthy work life balance. “Buying a business can be the best thing for everyone,” he concludes. “It can bring you the success you seek without personal financial risk, it gives the previous owner the departure they are hoping for, and it offers the team better prospects, thanks to the progress you will provide.”