With an increased working age and uncertain employment, more people are looking to be their own boss.
Typically buying an established business will sell for a premium because it has:
customer base + ongoing contracts + established market place position = intangible goodwill
The key things to look for when buying an existing business:
- Sustainable return : It needs enough ‘super’ or ‘surplus’ profit to repay the purchase fee after deducting a fair wage for the new owner’s working input
- Growth potential: The business has genuine potential that’s easy to exploit. It it was really easy to grow, why hasn’t the owner already grown the business?
- Specialist skills : In addition to financials, consider the prospective owner’s personal knowledge or expertise to run the business. Will you need a management team?
- External influences: ensure that these will not adversely affect ongoing sustainability. This is largely outside the control of either party but requires due diligence.
- Fair price : verify that the business is on sale at the right price – get it independently valued.
Remember, both sides of a business transfer rarely agree on a a true and fair valuation figure . In this economic climate also watch out for:
- Market conditions differing from sector to sector
- Demographics/competition differing for local (fish&chip shop) & international (online travel agent)
- Any regulation, red tape or litigation issues for any business for sale
Read more about how to buy a business here.