We compiled a short guide about a company purchase.
Do you plan to own a business? Buying a business can be a complex process, so it it’s important you keep your head clear.
The company Brill Business Brokers has many different companies in the offering, some of which could come into consideration for you. Check whether the company fits your talents, skills and lifestyle. However, you must always remember that there is no such thing as a perfect company out there. It is important that you become entrepreneur, leaving the spectator’s lounge.
Please take the time to read our guide below and answer the questions for yourself. It will help you get a better idea of your goals and motivation and your financial and personal starting point.
Important questions to ask yourself and answer before buying
- The reasons for your purchase?
- What is it you should do if you want to buy a business?
- Why do you want to buy a business?
- What’s your time frame to find the right company?
- Are you willing to invest the majority of your capital in a company?
- Are you independent enough to make your own decisions?
- Support your family as a business owner?
- Are you open to what kind of business it should be or do you have fixed expectations?
- Are your expectations reasonable?
- Do you need a warranty?
- What makes your success?
- The buying process
- How can we help you as brokers?
- Do you need to engage a lawyer?
To acquire your own business is a big step in which you will have to overcome some fears. Nearly 90% of people who buy a company have never been in charge of a company. The surest way not to fail as an entrepreneur is never to become an enterpreneur.
When you begin your search, please note that running your own business is more than just a job. It’s a change of lifestyle. Often, this is significant: In general, you have to work longer, make all the decisions for yourself. In other words, you are responsible for all work that make the company successful and keep it going.
What goals do buyers mostly pursue?
- Control of their own destiny
- Proud of the service or the product
- Earning opportunities
- Contact with customers and employees
Second Important questions to ask yourself and answer before buying
a) Start-Up or Buy?
Nearly 50% of all bankruptcies occur in the first four years after the company was founded. This alarming statistic is based on three factors, the founders often overlooked: Poor location and / or bad product, inadequate capital, excessive expectations.
When taking over an existing business, you can assume that the company’s founder chose the right location and the right products in its portfolio, otherwise business operations would have long ceased to exist. The obstacle of excessive expectations can be overcome by an existing company owner who will mostly help out.
b) What to watch out for when buying a business?
Unfortunately, many potential buyers want to know a company’s sales price first. Only after that, they ask what’s there to earn. So we’re facing a misleading steps in the questioning process.
What is important is how much capital is needed to finance a purchase price. The financing can be taken by a bank or the seller depending on the situation. It makes no sense to deal with the acquisition of a company if the capital requirement is higher than you financing abilities.
It is recommendable to buy a company with which you can identify. Pride in one’s own company is an essential part of success. The operation of the company has to generate enough income for you to cover your living expenses and to cover the cost of financing.
Pay particular attention to the potential that lies dormant within the company. What you can improve, so that the company is more profitable?
c) Why do you want to buy a business?
If you are not really motivated to buy a company, you’re probably better off choosing a different path. Owning your own business is still the origin of the ” American Dream”, but not necessarily the best for everyone.
If you work in a large company and are no longer satisfied, working just to have a steady income, or have a job without perspective, becoming an entrepreneur may be the solution.
d) What is the time frame you have set for yourself to find the right company?
If you intend to buy in two years , you should already acquire the necessary knowledge. Other than that it makes no sense to begin the search for the right company now. Any company that is available now, will be sold until you want to buy it eventually.
e) Are you willing to invest the majority of your capital in a company?
The purchase of a company is a major financial commitment. If you are not a risk-taking personality – in financial terms – you should reconsider your decision to purchase your own company.
f) Are you independent enough to make your own decisions?
If you run a small business, you must make many decisions. You are the boss and you are responsible. All decisions are your decisions, right or wrong. Be assured you will also face consequences of false decisions at some point in your new venture. Can you handle a wrong decision? If you are in constant doubt and plagued by sleepless nights, the company may not be ideal.
g) Do you have family support?
If your family, especially the partners are not 100% behind you, you should think twice if you want to own a business. It is vital to be supported by your partner. He or she must know that running a business takes time. On the other hand you are an entrepreneur flexible enough to take off for an afternoon and do something with the family.
h) Are you looking for a certain kind of business or are you very open?
When buying a company, it is an advantage if you are open to different possibilities. There are many different companies and you should not limit your choice. You should look for a company that ensures the necessary income (or at least the option to do so) while being affordable.
i) Are your expectations reasonable?
It is important that you remain realistic about your expectations. Many owners have built their business for years, invested a lot of passion and they completely identify themselves with their company because it made their fortune in life. Many sellers will be willing to assist you financially with the purchase of the company.
j) Do you need a warranty?
When looking for guarantees and warranties, then the entrepreneur life is not for you. You can examine all books and records, but remember, these are figures from the past. A new owner always brings change, no matter how minor. Every man and his management style is different, and times are changing rapidly. Examine the company in terms of its potential for improvement. Of course, the financial data of the company in the past is important, but no guarantee for the future of the company. The guarantee is your person.
k) What is success?
Without a doubt you have enough capital to buy your dream company and make the necessary changes. In the event of starting difficulties it is advisable to have reserves.
The basis of your success is marked by a factor that you can affect significantly: Willingness to work long and hard. Successful business owners claim to be all in one person, a secretary, salesman, bookkeeper and manager. With precisely this attitude, you will succeed! You’re not just a “planner” – you are a “doer”!
3. The buying process
How to buy a business? There is no right or wrong way. It is important that you get answers to all your questions and obtain the necessary information so you can make an informed decision.
The following is the typical procedure:
a) Collection of basic facts
Gather advance information about prices, conditions, income, adjusted earnings and the general situation. Brill Business Brokers assembles a business profile with their clients providing a solid overview of the company’s value and structure.
b) Visit the company
Examine the company and see if you like what you see- both internally and externally. See the company through the eyes of a customer, identify potential improvements.
c) Insist on answers
If you like the company, you should seek answers. Example: How much is the rent? How long is the lease? What was the turnover in recent years? A seller should be able to verify numbers. At this point it is not important to examine the books of the seller in full. Check other important aspects during the business check-up(due diligence).
You should only seek answers that are important to your decision of purchase.
Carefully look at the following:
1. How old is the company?
A long company history is usually a confirmation that this is a profitable venture. The company has been a player on the market, product range and location were wisely chosen by the founder.
2. Since when is the current owner in operational business of the company?
An essential criterion for purchase decisions certainly is the question of the current owners. The longer the company has been led by the current owners, the more successful it is. Nobody keeps a company if he / she does not make money.
3. Reason for the sale?
This is a very important question. The reason of sale substantially determines the flexibility of the seller regarding the purchase price and terms of payment. If the seller has taken over only six months ago and wants to retire, you should be suspicious. However, always remember that business people can get tired after a while and are looking for a new challenge. Demand sincere answers for your decision.
4. Profit and loss accounts of small and medium businesses
Like a private individual companies have the goal to pay little taxes. Accordingly, the accounting includes many costs that may affect the private sector of the owner. Take a closer look at miscellaneous cost: Vehicle expenses, travel expenses, entertainment expenses, etc. Was the trip to southern France really business? Is the company car used for business only? We help you to get answers.
You need to be aware that the company figures reflect only the past. There is no guarantee for the future. What cost structure will there be under your leadership? What sales can you achieve with your dedication and your ideas? The company’s future is in your hands.
d) Review the company
Many sellers have a clear idea of their price. This idea is strongly influenced by subjective judgments and personal needs.
We have accumulated a profound knowledge of the market for corporate sales. We can precisely estimate the value of a company based on our experience. Our basis for assessment is always adjusted earnings: The money that you take back home as an owner after deducting financing costs.
In a review there will never be an absolute value. Rather, there is a corporate value from a range. It is important to carry out a valuation of the company. What is the company worth in your eyes? If you look at the rating and feel unsure, then you should consult a professional. We can make professional company purchase estimates for you unless the company is part of our own client portfolio to avoid conflicts of interest.
e) Make an offer
If your basic questions are answered and you are still interested in buying the company, you should try to reach a price agreement. This is usually done with a non-binding offer to purchase depending on certain conditions – e.g. a sustainability audit of the company figures.
The main purpose of this offer is to check whether the seller will accept your price range and related payment terms. Do not forget your offer is only binding if you submitted truthful information on yourself and all your requirements are met.
It makes no sense to call in external consultants now and perform a costly and time-consuming analysis when you have significant financial disagreements with the seller.
f) Due diligence
At this point, you have a common understanding with the seller and can now begin to perform a thorough audit.
4. What support can Brill Business Brokers offer?
Brill Business Brokers are an advising and consulting institution on purchases and sales of businesses. We like to take your advisory mandate for a targeted company search, an independent firm evaluation and or assist in negotiations. We can only accept the advisory mandate for you only if you accept that we are acting for two parties in most cases. That makes our business success and reduces your purchasing cost.
If you are interested in a company from our database, please contact us. We will inform you about our services in detail and after signing a confidentiality agreement we provide a comprehensive corporate documentation. We accompany the entire sales process.
The decision whether to start or to buy a business, or if you become self-employed at all is made by you.
Ultimately, it is up to you whether you take the big step towards independence as a successful entrepreneur.
We invite you to contact us by phone or email to arrange an initial meeting.