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Navigating the Purchase of an Established Business: Key Considerations

Planning on purchasing a business? We’ve got five key considerations for you to think about before you dive in at the deep end and complete the acquisition.

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Entering the business realm by acquiring an established company, or expanding your current business, can be an exciting venture. However, this decision demands careful consideration and informed decision-making.

When you’re on the brink of becoming the owner of a new business, it’s imperative to conduct thorough research and collaborate closely with a team of advisers. Consider these essential considerations before finalising any deal:

  1. Understanding the Seller’s Motivation: Uncovering the reasons behind the sale is crucial. The current owner might be looking forward to retirement or a new venture, but there could also be underlying issues such as poor performance or legal troubles. Key inquiries should include:

    • Reasons for the owner’s departure.
    • Potential financial or legal complications.
    • Personal motives behind the sale.

  2. Financial Health of the Business: A common hurdle in both startups and established businesses can be cash flow challenges. It’s crucial to examine the financial health of the business meticulously:

    • Obtain and scrutinise the business’s financial statements, with professional help from an accountant.
    • Be on the lookout for red flags like debt, losses, or cash flow issues.
    • Confirm that the business is profitable with a robust financial base.

  3. Assessing the Workforce: Your team is a pivotal asset. It’s important to familiarise yourself with the staff before taking over the business:

    • Engage with key employees to understand their perspective.
    • Ensure the core team is committed to staying post-sale.
    • Consider the implications and costs of potential staff turnover.

  4. Due Diligence and Governance: Conducting thorough due diligence is vital for ensuring the business is a sound investment free from legal entanglements or undesirable connections:

    • Review all contracts and legal agreements.
    • Perform comprehensive checks on the company and its proprietors.
    • Seek legal counsel for any uncertainties.

  5. Securing a Fair Purchase Price: While acquiring a reputable business is advantageous, it’s important to negotiate a reasonable deal:

    • Research to ascertain the business’s market value.
    • Be prepared for negotiation to achieve a better price.
    • Be ready to withdraw if the deal doesn’t meet your valuation criteria.

Additional Assistance in Your Business Acquisition Journey

This list is not exhaustive, and purchasing a business involves many intricate factors. Partnering with professional advisers is key to navigating this complex process successfully.

As your adviser, we’re here to assist you with:

  • Running thorough due diligence checks.
  • Evaluating the business’s financials for potential issues.
  • Identifying suitable financing options.
  • Providing connections to M&A specialists.

If you’re contemplating a business acquisition soon, we encourage you to discuss your plans with us for expert guidance and support.

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