Buying Or Selling A Business For The First Time
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Written on 11 June 2014
a Potential Business
There are a lot of different factors to take into account when
looking to buy a business. The variety of things to take into account
can seem overwhelming but once you know what you are looking for, it
can be significantly easier to achieve.
I consider that the two most important things to take into
account are the information gathering and negotiations.
It can be said that doing thorough groundwork is very
important as the first step. For example, learning as much as possible
about the people behind the business, the business plan of the company,
company’s accounts, a clear account of where the business is heading,
etc. All this will give the investor an idea of how profitable the
There are three golden rules in order to know how the business
workers are the essence of the company: by putting a face to a name you
get to know what kind of staff and key figures are operating in the
business. It is also important to know their point of view about the
company and its performance at the time.
Business plan must be checked: it would be a good idea that somebody
within the industry had a look at this in order to ascertain whether
the business plan of the potential acquisition is viable and to provide
a realistic long term outline for growth.
the company’s books: the accounts must be checked thoroughly to get an
understanding of how well the business is doing and what sort of
financial inputs and outputs are involved. Look also for any debts, any
relationship with previous business partners and any feedback you can
get from them.
Once all the above have been checked and the business is
considered viable, there are a number of other factors to consider:
1- Are there
any opportunities for growth? Check the growth, sales and profits of
the business and see what the potential market is!
2- A SWOT
(Strength, Weakness, Opportunities & Threats) analysis would be
very useful to figure out the competitive landscape and your investment
position within it.
position in the business/company! Will you have voting rights on the
company’s board? What type of shares will you have? Will you be a
silent investor or sit on the board? Will the liability be limited?
What kind of share of profits will you benefit from?
On the other hand if you are looking to sell a business the
best indicators of when to sell will be the financial climate,
potential buyer profiles and market trends.
The process should begin by estimating the desired goals you
want to achieve, including the sale price and when you want to sell.
The main aim is to create a valuable and viable business which is
attractive to potential purchasers.
It is always important to put in place a strong management
team, who can both add value to a business and assist you with
preparing for the sale. The management can help develop specific areas,
for example, a sales director will focus on building client
relationships and improving sales, while a finance director will put in
place strong financial processes, enhance cash flow and oversee
expenditure. The management team will also provide the new owner with
stability after the sale process, which should enable you to exit more
quickly and smoothly. The team could even become a potential purchaser
via a management buy-out with venture capital funding.
It must be remembered that a business is only worth what the
highest bidder will pay. Your view of this may be very different from
the view of a prospective buyer, and a business that is profoundly
dependent on one person, product or customer may be more difficult to
sell. If the business is seen to orbit around you as the business
owner, it makes the business less attractive and less valuable. A
strong management team supported by a strong brand and reputation shows
a strength and depth which is more attractive to potential buyers.
Historic accounting facts are vital but the key to achieving a
good sale price is the current profitability, future earnings
and potential risks arising from the change of ownership, for instance
the potential loss of customers as a result of the sale. A business
that relies on a few customers can be considered high risk and
therefore less valuable. Spend time enhancing profitability, minimising
risk and working on future earnings forecasts.
As the proposed sale approaches, review every facet of the
business and address any problems that could occur during the sale
process or which could devalue the business, whether legal, accounting,
tax or environmental issues. An internal due diligence exercise must be
carried out in order to spot any problems within the company and then
In conclusion, it can be said that the most important part of
selling a business is preparation; the more prepared your business is
for sale, the faster it is likely to sell.
Written by Rodolfo Perera, an
under-graduate student of Law
About the Author
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Article Published/Sorted/Amended on Scopulus 2014-07-07 10:20:47 in Legal Articles