Starting a business from scratch can actually be onerous.This is is why some entrepreneurs consider the option of buying an existing business or company and growing it to success. Buying an existing business saves the business owner the hassles of building a customer base, marketing the new business, hiring employees and establishing cash flow.
There are essential things a prospective buyer must consider before buying an existing business should look out for before making a commitment.Some of these critical issues are discussed below.
Identify the right Business
The first step is to identify the right business. This would be dependent on the Buyers preferences but it is important to put into consideration the skills, experience, time, resources, vision and commitment required to make the business a success.
It is crucial for the buyer to evaluate the business properly to ascertain the viability or otherwise of the investment and in doing this is very necessary to conduct due diligence and evaluate the risk of purchase. This must be done with the aid of professionals who have a clear understanding of what to look out for in conducting an appraisal of the business.
The necessary due diligence includes evaluation of the business, assessment of existing contracts and obligations etc. In doing this you will need to obtain the following from the existing business owner and it is important not to sign any offers or pay any money until you have been provided with all necessary documents and taken independent professional advice based on the information provided.
- Financial Statements and Balance Sheets– It is important to evaluate the financial history of the business in order clearly interpret the health of the business. It is important to verify the validity of the financials by engaging an accountant/auditor who is skilled at looking at these documents below the surface value.
- List of Assets and Liabilities– Taking a detailed inventory of the assets and liabilities is another important part of the evaluation process and includes an assessment of the condition of the assets and market value of the assets and also a review of all outstanding debts to which the business has agreed.
- Contracts- This would include all lease and purchase agreements, distribution agreements, subcontractor agreements, sales contracts registered intellectual property etc. It is important to engage the services of a commercial lawyer to properly vet and advise on this subject.
- Reputation of the Business – The image of the business in the eyes of customers and suppliers is extremely important. It is important to interview customers, suppliers and the bank, as well as the owners of other businesses in the area, to determine the reputation of the business.
- Personnel obligations– Evaluate the employment contracts of the existing personnel of the business and look at the management practices of the company.
Close the Deal
After evaluating the information provided, you will need a lawyer to draw up a legally binding offer and contract. It is important for your lawyer to include appropriate conditions which will allow you to terminate the contract if the vendor does not meet the agreed conditions.
It is important to note that whilst buying an established business the resources needed might be more because you are buying both the tangible and intangible assets and as such it is necessary to weigh your decision carefully with the aid of professionals so as to avoid picking up a business which seems too good to be true particularly in Nigeria.