Take Over A Business: A Guide To Buying Points & Negotiating Tips
What aspects to evaluate before taking over and buying a business that has already started to avoid the proverbial “hole in the water”? To become a successful entrepreneur, you don’t have to start from scratch. Sometimes it may be a good idea to consider taking over a business that has already started. This solution can be valid whatever the type of activity in question: a shop, a bar, a company or a more generic commercial activity. In buying an existing business, it is essential to evaluate some aspects. If not, you may soon find yourself with difficulties that, at worst, could become insurmountable. So let’s see what these aspects are.
Consider The Benefits (And Risks) Of Taking Over An Existing Business
Before acquiring an existing business, consider the reasons for this choice. Are you an aspiring entrepreneur? Taking over a business might cost more than starting a business from scratch. Still, the business risks would be lower, and you could also count on a customer base and existing contacts and relationships. Starting a business involves basing all profit prospects on projections and statistics, while the health of an existing business is already defined by its financial and accounting situation.
You can then easily identify strengths and weaknesses and plan a strategy based on factual data. Do you have an entrepreneurial career already started? Buying a business could be an opportunity to expand your business. It is a fairly common prejudice to become suspicious if an entrepreneur decides to sell his business and thinks that if he has made this decision, there must be something wrong, but it is not necessarily so. People can have many reasons to change things, even in business. Maybe she just got tired of a business that no longer offers her the stimuli it used to, or for several things, the activity she started has come into conflict with other aspects of her life di lei, such as family ties, affections, and passions.
The sale of the business may have been its main objective; there are, in fact, serial entrepreneurs who relaunch professional activities and then reap the rewards of the sale. There are still people who, after a lifetime of work, decide to pull the oars in a boat, reap the rewards and spend the rest of their life running a kiosk in the Caribbean. Unfortunately, there are also classic rip-offs, so before making such an important decision, it goes without saying that it is appropriate to take all the necessary precautions to avoid being at the helm of a sinking ship and making the proverbial hole in the water.
Decide What You Are Looking For
You are about to make a decision that will affect your life and those around you. Therefore, before taking over an asset, you must evaluate several factors, including:
- Position: do you want something close to home, or are you willing to move? Again, do you have no constraints, and one place is as good as another? If you feel the possibility of moving abroad is valid, find out how labor and commodity costs, taxes and regulations could affect your business. Some countries may offer more good opportunities than others, but perhaps at the expense of other aspects, such as quality of life. Carefully consider the pros and cons of each possible scenario.
- Size: are you looking for a business to manage on your own or perhaps with your family members, or are you aiming for a multinational? There is a big difference between taking over a shop or an oil industry. Clearly, the bigger the company, the bigger the profits can be, but the same will be true for the purchase investment and the difficulty of the negotiation.
- Sector: What is the field in which you have the most experience? What are your competencies and your skills? And don’t forget your hobbies and passions, which you may be able to put to good use.
- Lifestyle: Do you like to travel, and are you looking for an activity that allows you to do it? Are you willing to sacrifice weekends or evenings or wake up at 5:00 in the morning every day?
Look At The Options At Hand First
After defining what type of business you would like to take over, it’s time to find out what’s on the square. DO NOT google. Not yet, at least. First of all, think about what your circle of acquaintances offers. Are your friends who have been successfully developing a winning business ready to sell it to move on to a new project? Do the restaurant owners where you have worked for many years want to retire and leave their place in trustworthy hands? You may have the right opportunity at your fingertips, and perhaps by a relationship of friendship or mutual esteem and trust, you may even have an advantage over another buyer.
After going through your contacts, you can expand your field by searching through classifieds and online resources. Search wisely; first of all, evaluate the authoritativeness of the sites on which the advertisements are published, in how many carry the same offer, with what differences, what type of guarantees they offer and under what conditions they publish the advertisements. An offer on a free classifieds site may have a different weight than a paid classifieds site. An advertisement on a portal that sells anything is less serious than one on a site specializing in a particular sector (catering, commercial activities, etc.).
Consider Getting A Consultant.
If your searches have not proved fruitful, you can consider contacting a consultant who will search and select a range of options to help you define the sectors and areas most suitable for you and support you in the acquisition negotiation. Many accountants and law firms offer professional assistance and consultancy services in the processes of acquisition and sale of companies, business units and shareholdings, from the negotiation phase with the counterparty to the definition of the transaction., As well as in the evaluation of financing options. Necessary for the acquisition. Usually, these forms of advice are paid based on a percentage of the final value of the transaction. A serious and prepared consultant will be able to grasp details that may escape you, especially as regards the economic and financial situation of the company you would like to take over, thus reducing the risk of nasty surprises when the deal is now closed.
Do Not Neglect The Analysis Of Balance Sheet Data
Is the investigation activity aimed at collecting and verifying all data and information relating to the subject of a negotiation, that is, the state of health and activities of the company object of your interest? To summarize: the verification of the data of a company’s financial statements. Unless you are an expert in this field, you will hardly be able to carry out this delicate but fundamental task alone. The consultants offer this service we have just talked about. Alternatively, it would help if you had a team of professionals – at least an accountant and a business consultant – to support you in this phase.
It is not just a question of verifying the company’s accounts, its cash flow and whether or not there are any outstanding claims against suppliers or creditors, but a careful analysis of its business. Let’s say the company seems to be doing well; what could happen when it changes hands? How much do the current management’s experience and relationships influence the business’s performance? What does the current owner intend to do after selling his business? How will suppliers and customers themselves react to the change of management? No detail can be overlooked; everything must be clear and crystalline. If something remains vague, it must be considered suspicious, so calm down, cool and keep your eyes open!
Get The Capital You Need To Take Over The Business
Once you have defined the cost of the acquisition, you will have to think about how to support it. This means identifying and obtaining external financing unless you have sufficient personal assets.
- Seller financing (financing by the seller)
- Opening a loan is not always sensible or simple; in some cases, the seller may agree to be the “lender” by accepting a deferred payment. It is easier for this condition to be fulfilled if the transfer is not immediate but accompanied by the current ownership.
- Business Angel or Venture Capital
- Even with the due differences, or both cases, these are external lenders who decide to invest in your business idea, with whom you will establish a partnership relationship. They bring the capital, and you make it bear fruit.
- These solutions mean less freedom in business management, and that part of the profits will benefit investors. The good thing is that if things go wrong, you won’t be the one to lose out and have to deal with the consequences.
- Bank financing
- If your target company is in good health, banks and credit institutions will be willing to finance acquisitions, but of course, you will need to be able to provide all the required collateral.
Pay Attention To The Contract
You have identified the right business to take over, concluded the economic negotiation, and won the necessary capital for the acquisition. Only the contract and a lot of signatures are missing. Except for exceptions, the first contract is proposed by the selling party. It will tend to be for his benefit and protection of him, so you will have to pay the utmost attention to every single line, point, clause, and note. Also, at this stage, it is essential to rely on a professional, a legal consultant able to understand all the terms and possibly identify parts on which to ask for clarifications and changes before signing the commitment.
Bonus: 9 Tips And Tricks For Conducting The Negotiation
It is not every day that you take over a business. As much as you consider yourself a skilled negotiator, another league is being played here.
- Prepare for the meeting in advance by making a list of all the pain points, the aspects that are not clear to you, the conditions you do not want to compromise on, the research you have done and the assessments you have made. It will give you more security, and you will not risk finding yourself unprepared and vulnerable. If you have the opportunity, simulate negotiating with a trusted person to prepare yourself better.
- Maintain a firm and determined attitude from the start. Remember that you are negotiating to get a deal, not to get others to do it. Firmness does not mean arrogance, so respect those who have led the company so far and avoid any criticism or comment that could put the counterpart on the defensive.
- Do not directly accept the price offered, but immediately propose a good discount by providing plausible reasons based on concrete analyzes and assessments.
- Until you use this point to limit the price, use this as your strength to negotiate and not as a weakness the other party could leverage.
- During the negotiation, do not be afraid to ask the seller all the ” What would happen if … ” that comes to mind. What would happen if a major customer went bankrupt?
- If the selling party makes a concession, don’t feel compelled to reciprocate. You are negotiating a trade, and nowhere is it written that it should end in an agreement that fully satisfies both parties. If you want to explore possible solutions to close the deal, always hypothetically propose them: ” If we decide to accept this point .”
- Whatever the other party’s attitude, do not let it affect how you act during the negotiation. Keep yourself confident, and do not let yourself be intimidated or put in a position of subjection or, on the contrary, pity.
- Consider how much it is worth maintaining good relations with the previous owner after they sell you the business. Could it influence the relationship with suppliers and customers? Is there a risk that he could speak badly and harm you? Evaluate this point carefully and if you think it is the case, be available to a minimum of compromise to maintain good relations.
- If possible, ensure that part of the price to be paid is tied to the future performance of the company’s business.