Purchasing a business can be a time-consuming and stressful event for any business owner, even those who have already run businesses before. Here are a few things that are often forgotten but best remembered.
- It always takes longer than you think it will – Occasionally the process of buying a business can be done in a matter of months, but normally for only small, less complex deals. Use a year as a rule of thumb. From the time you start enquires, engage professionals, do some due diligence, negotiate price and structure and close, I’ve seen it take a year or even longer.
- Do you know the vendor? – Knowing the vendor and being familiar with their business can make a deal go a lot smoother. A vendor who has integrity can make the process move faster and easier. Focus just as much on the person who runs the business as the business itself.
- Ask the customers what they think – If you want to know more about the business and are not already a customer or have not used their services, ask their current customers. After all, it’s the customers that will drive your revenue and business growth. No customers, no business.
- For a share purchase it’s not just the share price – When a business is structured as a share sale, it’s not just the share price that’s important. You’ll need to fix on an amount of working capital or retained earnings that you expect in the business on Day 1. Don’t leave this to the end of the negotiation or part way through the pricing discussion. Deal with it at the beginning.
- How are you getting out? – When buying a business you’re often focused on getting in. This is also the time you need to think about how you might get out, sometime down the track. Ensure your legal and tax advisors have had this discussion with you before you close the deal. The best time to plan getting out is when you’re getting in.