Researching a Business to Buy
Chapter 3: Researching the Business
Research is the most important part of buying a business. If it is not done properly you could end up buying a business that turns out to be your worst nightmare. By researching as much as you can, it will give you the confidence to go ahead with the deal or to walk away.
A business that has poor profitability and sales could be overlooked as you may have an idea that could change these figures: perhaps a new management style or production procedure.
The important thing is that your research tells you that the business is right for you and boasts future success. Every business has its bad points: being aware of them is half the battle.
Researching the business can be broken down into small defined areas and the article will later cover these individually.
3a) Using Assistance
Research is something that you should not attempt alone. Professional assistance should be used to help you value aspects of the company, analyze performance and make clear any legal constraints. An accountant should be consulted to help research the financial side of the business. They can be assigned to cover company accounts and also value any assets in the concern. A solicitor can be used to cover any legal issues assigned to the business on purchase: you may acquire them if you decide to buy.
See our Using Professional Services article for further information. As detailed in the ‘Finding the One for You’ section, a business broker is also professional assistance that you should seriously consider using.
3b) What Are You Trying to Find?
This list will determine what you are trying to find out from your research:
- The history of the business (how and when started, performance, growth)
- The current performance (sales, turnover, profit)
- The financial situation (cash flow, debts, expenses)
- Ability to perform, now and in the future (competition, expansion)
- The reputation (good at payments, customer service and relations)
- Any leasing/renting of premises or equipment (terms/conditions/assignment)
- The business environment (environmental concerns, fit for the purpose)
- The personal rewards of the business (your income and earnings)
- Customer details (payment methods, numbers and reliability)
- Supplier details (contracts, deliveries, prices, reputation)
- Legal issues (various and numerous, always seek help)
- Is the asking price of the business reasonable?
Add anything to the list if you feel it is important (no matter how small the issue).
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