If you’re thinking about buying a business, we would absolutely urge you not to rush into it. We know that might be easier said than done because you are no doubt excited, but rushing into a massive decision like this can backfire terribly and leave you with mountains of debt and untold trouble.
Before you think about buying a business, there are several key factors you need to consider. In the article, we’ll lay them out for you.
Potential for growth
The world is changing and lots of companies that used to be profitable will no longer be needed in the not so distant future. Is the current owner of the business you are thinking about buying getting rid of it because they know that the future of their company is potentially non-existent?
Make sure you do your research. What is the natural next step for companies like the one you are looking to buy, and will your new company have the capacity to follow the lead?
If not, you might find yourself with an unprofitable company in a very short time.
Why is the seller leaving?
Once you are sure that your seller is not leaving because the company will be obsolete in a few years, you should try to find out exactly why they are selling.
You can’t guarantee you will get the truth, of course, but you should get a good idea.
You should trust your gut here. If something doesn’t sound like a legitimate reason, it probably isn’t.
What’s happening with the books?
This sits under the umbrella of ‘due diligence’ and should be done properly, preferably with the aid of a professional, such as a change management expert.
They’ll help you get a full understanding of the business you want to buy and highlight any potential risks to you.
Proper due diligence will involve serious investigation into finances, taxation, any legal issues, and property.
The results of this investigation into the state of the company might mean you want to renegotiate the price, or you might withdraw your offer altogether.
The price
It is really important that you don’t accept the price given to you by the seller and that you do your own investigation into how much the company is worth.
You need an independent assessment or business valuation to establish the future potential of the business and therefore inform your decision around the price.
This independent person will decide whether the price being asked is a fair one based on client retention, recurring revenues, and other basic financial information.
You might not want to invest money in this, but it is really important you do. You’ll potentially lose a lot more money in the future if you invest a lot of money in buying a company that isn’t financially strong.
Remember, businesses usually sell for between 15 and 25 percent lower than the seller’s asking price.
Can you integrate this new company with your existing one and effectively manage the change?
Don’t take for granted that this new company will merge easily with an existing one, even if they both do the same thing. That is never how it works, and getting it to work can cost a fortune, especially if you do it wrong in the beginning and have to start again.
You need to consider your company culture before you think about buying a company. The company being bought may be run by staff who are adverse to change and might make things difficult for you. Perhaps your current staff are in an unhappy place, and they might poison the minds of new employees.
Communication is very important and your change manager and dedicated change management team should meet with key members of staff from the business you are buying as soon as possible to find out how the business operates.
Communicate well with them at this stage and take them with you on your buying journey. They likely have influence over other staff, and will plead your case if they feel happy and comfortable.
Get a change manager
So many mergers and acquisitions fail. A whole load of business people buy companies and live to regret it. The main issue is improper planning.
If you are thinking of buying a company, our key piece of advice is that you employ a change manager as early in the process as you can. If you employ them before you find a company to purchase, they can even help you earmark potential targets.
That’s because change managers are experts at initiating and handling huge changes in companies.
Yorkshire Change are change management experts. For more information on our experienced experts and how we can help your company, please fill in the contact form on the homepage of our website.