There is a lot to consider when buying a business. It can be a complicated process, so you want to be thorough when researching what you’re getting for your money. Here we look at the top ten questions you need to ask to make sure it’s the right decision and to avoid unexpected problems arising once you’re at the helm.
Why is the business for sale?
This might seem like an obvious question to ask, but one reason the business is for sale could be because it isn’t doing well, or there are issues coming down the line that will could cause the business problems. If it’s been sold for a lower price than you’d expect, this needs to be queried too. The current owner may not be entirely open about the reasons, ask plenty of follow-up questions and seek clarity on any vague answers.
Investigate the business’ finances both past and present.
While it’s clear you need to know everything about the business’ current financial position, a look at the financial history may reveal some trends that you might want to examine further. Past financial records can show you how revenues fluctuate, times of higher and lower demand, mistakes made and where opportunities lie.
What type of sale is it?
Every business acquisition needs the services of an experienced solicitor. There are essentially two types of sales when it comes to businesses:
Share sale – This is where the shareholders sell the shares in a company to a buyer who becomes the new shareholder and owner of the company.
Asset sale – If the business is a company, this means that the company itself sells all or some of its assets. Unlike in a share sale, the ownership of the company does not change.
Each type of sale has its advantages and disadvantages but certainly in terms of an asset sale, the details can be complicated so having a formal contract is essential. Understanding the extent of the assets and liabilities you’ll be taking on is vital when weighing up whether you want to go ahead with the transaction.
What skills are needed for the business?
Every business is different and various soft and hard skills will be needed for success. These will inevitably vary from one business to the next. Even if you have a solid track record of running businesses in the past, it’s to your advantage to query just what the challenges are and the unique skills needed to achieve success with any new venture.
What work processes are in place?
Not every business runs the way that you’d expect. Find out what tools are in use and what the procedures and processes are in the daily running of the business. What policies are in place, for instance, regarding data, business terms and employees?
Has the business ever run into legal problems?
This isn’t something the current owner is likely to highlight so it’s important to delve into the history of the firm regarding anything that looks even remotely suspicious. Any outstanding legal issues could seriously affect the future of the business, so press for transparency.
A non-compete clause?
Just because someone is selling a business doesn’t mean they’re going out of business for good. If they set up a new business in the same industry, they could be a competitor and impact how well the older business fares in future. Most business sale agreements contain non-compete clauses. These can help prevent trade secrets being used and customers and staff being poached.
What is the business landscape?
Talking of competitors, before making any purchase, research what type of business environment you’ll be stepping into. What is the existing competition in the market like and how is it expected to evolve?
Who will you be working with?
If you’ll be taking on employees as part of the business acquisition, ask about who they are, how they contribute and how valuable they are. Likewise, get the lowdown on business partners, such as suppliers. The existing owner may have strong relationships with some and problems with others.
How much of your time will the business demand?
As mentioned earlier, every business is different and before jumping in, it’s an idea to get an idea of how much time you will need to dedicate to your venture. The current owner should be able to give you a good idea of how much time is involved in running the business, so you can weigh up whether you need extra resources, or staff. It also might be an idea to ask the seller whether they would be willing to stay on for a while in order to show you the ropes during a handover period.
Buying a business is an exciting but daunting experience. It requires a lot of planning, research and due diligence. It’s vital that you get the right legal advice so you don’t run into any issues during or after the sale. Start by contacting the Mergers, Acquisitions and Disposals team at JPP Law for a free 15-minute consultation which can be booked using the link below.
