Taking over a business is a fantastic way of getting yourself into the entrepreneurial game, without the stress and strain of starting from scratch! If you are looking to run your own business, but lack experience or just don’t have that big idea yet… why not consider taking over a business? Still not sure? Keep reading and we’ll fill you in on exactly why it’s a good idea, address some of those worries that are nagging at you and give you 7 things to think about when you’re considering taking over a business.
Why business owners sell their business
Something that might put you off taking over a business is the idea that if a business is being sold there must be something wrong with it: because why would anyone sell a business that was doing well? The truth is that there are actually many reasons why a business owner might decide to sell, that are nothing to do with how the business itself is doing. It’s like choosing to change your job; It doesn’t necessarily mean that there is anything wrong with the position you were in, perhaps it just isn’t right for you anymore. Many peoples’ life circumstances change or they simply don’t want to play the entrepreneurial game anymore. Alternatively, some are always looking for the next big thing and now that their first business venture is successfully up and running they want a new challenge and to start all over again! Remember…what is no longer working for someone else might be your entrepreneurial dream, don’t be put off by the second-hand status of a business!
Why you should take over a business instead of starting one
There are many reasons to favour buying an existing business rather than starting one; starting a business from scratch is no small feat. It requires a lot of time and energy in the early stages, which then needs to be maintained to keep the business up and running. By taking over a company you skip past the gruelling start-up work (such as building a client base, creating cash flow, hiring employees etc.) and get straight down to business!
Of course, taking over a business also comes with a necessary process and some things to think about, but it is a lot less risky than starting your own business and you will have a clearer idea of your potential prospects when taking over an already established business.
1. Decide on the type of business you want to take over
With so many options out there of potential businesses to buy into, you want to be clear on exactly what type of business is going to suit you, your lifestyle and your ideas for the future.
There are a few things to consider when deciding what type of business to take over. Firstly, where is your experience? Taking over a business in an industry that you already have some previous knowledge of or some connections will make for a smoother ride. That being said, running a business takes hard work and commitment so making sure your new business is based around something that you are passionate about is also important. You may want to think about the size and model of the business; Bigger businesses will, of course, require more work and delegation and when looking at franchises versus independent businesses you will need to consider how much control you personally want to have over the business.
2. Do your research
Do your own research into markets, locations and industry trends. If you know you are interested in going into business in a certain industry, research everything you can about that industry! Even if you have years of experience working in an area, running a business requires a more in depth knowledge.
Not sure where to start? Speak to other experienced business owners and entrepreneurs who made the decision to take over a business and find out where their hurdles and successes have been. Perhaps most importantly, make sure you look into the market for your product or service and can identify a solid and consistent demand for it.
3. Partner up with a business broker
Even after conducting your own research and deciding what type of business you want to take over, there are still a lot of things to consider to ensure that the process runs smoothly. Negotiations and legalities can be tricky to handle alone, especially if you are inexperienced, which is why it is a good idea to consider teaming up with a business broker. A business broker will be helpful on a number of levels including providing you with the right contacts to help you with the different legal and financial areas that need attention. They can also help you with purchase agreements and honest, effective communication between you and the seller, ensuring everybody is clear on exactly what they are getting from the transaction.
4. Do more research
So you’ve researched the industry, you’ve looked at market trends and you’ve even found a few companies that seem like they could be what you’re looking for… it’s time for more research, yes more research. Knowing as much as you can about the business you are looking to take over is your responsibility as well as just pure common sense. Before signing on the dotted line it is absolutely essential that you have a clear idea of what you are buying into, to make sure that you don’t throw money at a failing business or end up taking over a business with a bad reputation. When there are a few businesses that you think have potential, conducting thorough research will help you to make the best decision. Leave no stone unturned and be sure to dive into the business’ history, assets, customer base and staff.
5. Business due diligence
Once you have decided on your business and put in an initial offer, you will be expected to perform due diligence before the sale can go ahead. Due diligence looks into many of the things you should have come across when conducting your research of the business but it is more official and considered a ‘must’ by anyone buying or selling a business. There are a number of reasons why business due diligence is an important part of taking over a business for both the buyer and the seller. As the buyer, it ensures that you know exactly where the business stands right now and that you know exactly what you are buying. For sellers, it ensures that their business will not be devalued and that all legalities are presented before the sale ensuring a smooth transaction. Unsatisfactory due diligence on either side will often lead to a return of the deposit and no sale.
6. Get the financial picture in place
One of the pros of taking over a business rather than starting your own is that there are more financing options available to you. Like with starting your own business, using your own funds is the simplest way to finance yourself, however, unless you are blessed enough to be rolling around in dollars it is unlikely that this method alone will be enough. It is common for buyers to combine using their own funds with another method such as seller financing or bank loans. Seller financing involves an agreement with the seller to amortize the payment for the company- you should expect that this method will only be an option after the seller has performed due diligence on you. On the other hand, bank loans and how available they are to you will depend a lot on the business you purchase and the assets it has.
7. Sales agreement
A sales agreement is a written agreement between the buyer and the seller stating exactly what is and isn’t included in the sale, the payment and any other conditions that come with the sale. It should include things such as assets, copyrighted material and any unpaid debts. The sales agreement may also include some prohibitive agreements covering issues such as confidentiality and will clearly state legal issues such as assumed liabilities. This is an important legal document acknowledging full disclosure between both parties and not something to be missed out!
Take over a business with GMO business brokers
With so many things to think about, taking over a business can seem a little daunting. At GMO we aim to help you keep the excitement that you started out with by ensuring that the process is as simple and stress-free as possible. With an extensive database of businesses for sale at our fingertips, we consider it our mission to pair buyers with their ideal business and give them a positive start to their entrepreneurial journey. Our experienced business brokers are hand to assist with any legal, structural and financial queries and to make sure things run smoothly. We also put clients in contact with other professionals that can assist with the process, such as lawyers, finance brokers and accountants. Taking over a business is an adventure and we want to put you on the right path!
