A step by step look at buying a business,
from choosing your field and fixing of value to due diligence and completing the purchase.
Decide, which industry to move into. You will need to analyze the mid-to-long-term prospects of the business activity before moving forward.
Pay particular attention to legal affairs, changes in regulations and have a look at local rivalry within the industry.
Trade magazines and newsletters are a good start – they put up to expert opinion about the prospects of your chosen business.
In such a way, you will be able to beat competitors in negotiations.
Don’t promise a deal that you can’t accomplish, just to open negotiations. A professional broker can be instructed to start negotiations discreetly on your behalf and help draw up mutually agreeable terms.
Because of a clearer understanding of its business activities, you can start negotiations directly to the current owners and work together to make a deal, which will meet the needs of both parties.
One of the first points of negotiation will be price, after a preliminary valuation. At this stage, you shouldn’t worry, because your initial offers have no legal force. Make a plan of working in order to pool all the efforts in the same direction.
An approach you use will differ depending on the type of business, which you are going to buy. Any asset valuation includes value from property and real estate to machinery and equipment.
Moreover, while preparing your offer, you shouldn’t put out of account the importance of turnover, profitability and ongoing contracts.
You can also draw on the resources of professionals and they will often provide expertise within a certain field or industry that can help to make your offer.
Having already undertaken your own, informal due diligence in the early stages of the purchase, you can draw on the resources of professionals, who will suggest you a more careful analysis of the target business’ accounts, practices and day-to-day operations.
Although you don’t want to take risks by cutting costs at this significant stage, don’t forget to stay in budget and keep your outgoings to a sensible ratio of the overall purchase: you do not want to be spending tens of thousands on accountants and lawyers for a firm worth only a hundred thousand.
Whereas the Heads of Agreement has no legal force, your Sales and Purchase agreement will give both parties their legal obligations for the sale.
A larger merger of multinational interests may involve complex financing from multiple sources. For a smaller scale buy-out, the most common method is a straightforward payment on completion agreement.
Financing can come from private means, angel investors, banks, loans companies or peer-to-peer lending platforms.
Sometimes, the current owners may relinquish full control of their business at sale, but take only a percentage of the full value on completion, in return for ongoing shares in company profits.
Congratulations: the business is yours!
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