Buying a business can provide enormous financial opportunity. However, the process can be more complicated than many budding entrepreneurs might think.

In this guide, we’ll help you understand the steps you need to take when considering buying a new business. If you require specific advice or are looking into what business finance options are available for your needs, contact the ScotPac team directly today. 

Understanding the reality of how to buy a business

Buying a business may not be exactly the same as starting a business from scratch, but many of the challenges can be similar.

Hard work and self-discipline

Owning and running a business requires a lot of hard work and–by extension–significant self-discipline. In the early stages of the business you may find yourself working extended hours to either turn the business around or help it grow sustainably and successfully.

 

Jack-of-all-trades

Similarly, you may need to work across all roles in the business. From sales and marketing to finance and procurement, buying a business comes with a lot of potential, but also a lot of responsibility. 

Choosing the type of business to buy

The first step in knowing how to buy a business is choosing whether you’re going to be looking for an independent business or, alternatively, a franchise. Ultimately, the decision depends on your preferences, personality and, of course, your finances. 

Buying a business that’s independent offers more freedom and opportunity. Whereas a franchise chain will need to operate in line with the franchisor but comes with more security in the form of established brand recognition. 

Utilise experience and passion

For many entrepreneurs looking to buy a business, the best success comes from leveraging experience and passion. A suitable business for you will differ from one for your friend or colleague. If you have unique experience in a particular industry or a passion for a particular product/service, that’s a good starting point for looking for a business to buy.

A Guide on How to Buy a Business

Step 1 – Do your research

The most important part of buying a business is the due diligence conducted before you even purchase the business, or consider it!

By carrying out as much research as possible you’ll be better informed in evaluating the value of a particular business, the opportunities in the market and the various strengths/weaknesses associated with the business in question. 

 

Step 2 – Analyse your chosen business

Every business has strengths and weaknesses. Businesses that are up for sale in particular. The more information and pointed questions you can ask whilst buying a business, the more informed you’ll be and the better positioned for success. 

As part of your analysis make sure to work out the following:

  • Why is the business being sold?
  • What is the credit history of the business like? (ASIC provides good information on the topic.)
  • What do past customers/clients say about the business? Check online reviews on Google and social media. 
  • What do suppliers, partners and other stakeholders say about the business?
  • Who are the competitors of the business in the market? What are their strengths and weaknesses?
  • What’s the general market sentiment and demand for the business’s products or service?

 

Step 3 – Work out the costs

Working out the costs of a business can be tricky. After all, it’s not just about the cost of sale and your own financial standing. From the ongoing running costs to the investment required to turn the business around or continue growing it, there’s a lot to take into consideration. 

You may need a loan to buy a business, which is where ScotPac comes in, and knowing how much you’ll need to borrow as early as possible is essential. 

 

Step 4 – Conduct due diligence 

Due diligence comes once you have agreed in principle to purchase a business but before any binding contract has been signed off on. Lawyers, accountants and financial advisors should all be utilised in ensuring your due diligence is conducted properly and all financial aspects considered. 

Whether it’s the company’s balance sheets, stock levels, intellectual property, registered patents or trademarks, there’s a lot to consider. That’s why we highly recommend getting professional assistance. 

 

Step 5 – Business valuation

Valuing a business can be tricky as there are a range of different assets and factors that go into it. In general, you can either look at the overall net worth of the business or its capitalised future earnings to help you determine its value. 

Remember to compare this with other similar businesses on the market.

 

Step 6 – Buying the business

At this step you will make an initial offer and the seller will likely counter with their offer, after which you will enter negotiations around the price and arrangement of buying the business. If you are armed with the knowledge from your research and valuation, and are aware of your price limits, you’ll be in a strong position to negotiate fairly yet forcefully. 

Once you have both come to an arrangement that’s mutually satisfactory, you’ll engage lawyers to draw up a purchase contract outlining all of the agreed to terms and conditions. 

 

Step 7 – Organising finance 

There are a few ways in which you can finance your purchase. The most common way is by taking a loan to buy a business. Business loans come in the form of secured and secured options mainly, but there are other lines of credit as well. By working with a team of business finance specialists, you can rest assured you’re buying a business in the most financially effective and economical way possible. 

Buying a business? Contact ScotPac today!

ScotPac has been helping businesses throughout Australia and New Zealand access flexible financial and working capital solutions for many years. If you’re wondering how to buy a business or how to finance your purchase, make sure to contact our team today.