Thinking of buying a business? Whether you’re new to business ownership, or a seasoned business owner, we’ve got the key questions you need to ask prior to the purchase.
Purchasing an existing business is a great way to get into business ownership or expand your business empire. You could buy a business that matches an interest or area of expertise you have. If you have an existing business you could buy out a close competitor, buy a business that compliments your current business, or dip a toe into a new industry. Whatever the reason for the purchase, you need to ensure you’re not buying a lemon!
Doing your research and due diligence is a crucial part of the purchase process. As is asking some probing and insightful questions to help you determine if this acquisition is a good (or bad) idea.
Buying another company is a major business decision. It’s a large outlay of capital and a big responsibility to take on. If you’re going to take the leap, it’s important to make sure the company in question is stable, well-managed and has a good future ahead of it.
Here are five vital questions to ask before entering into a purchase:
1. Why is the business for sale? There are many reasons why an owner might want to offload a company, not all of them good. Their sales may be dropping, they may have rising debts, there may be internal problems with staff or the market for their product/services may be coming to an end. Find out why, so you don’t buy a clanger.
2. Is this a good industry to step into? Do your research on the industry, competitors, and marketplace that the business currently trades in. It’s important that you step into an industry sector that has potential for sales, growth, stable revenues and potential profits. With volatile markets post-pandemic, looking at predictions and forecasts for your chosen industry niche makes good sense and helps you make an informed decision.
3. Have you done your due diligence into the business? Do your due diligence to make sure there are no financial, legal, HR or other skeletons in the cupboard that may jump out to surprise you. Is there an unpaid tax bill? Are there loans that are being defaulted on? Are there any legal cases being brought against the company? Has the business filed all its returns and accounts? As the new owner, some of these issues may become your responsibility, make sure you check the company’s records and history in as much detail as possible. This will reduce the likelihood of headaches further down the line.
4. Does it have an existing business plan and budget? You’ll need a business plan and budget that takes the company forwards and gives you a pathway for your next steps as the owner. Is there a business plan and budget you can use? When were these last updated? How well are they tracking against the milestones and goals in that original plan? No business plan is written in stone, so you’ll almost certainly need to review, update and refine this strategy post-acquisition.
5. Is the management team and staff up to scratch? When you buy the business, you’ll usually inherit the team behind that company. Does the management team have the skills, experience and motivation that’s needed? Are the employees engaged and is the team the right size and have the correct skill set to meet your goals for the business? The team will be vital to your future success, so you want the best possible people and talent behind you as you steer a new course for the company.
Talk to us if you’re considering buying a business
Purchasing a business can be a complex and protracted process, even once you’ve completed all your due diligence and background checks. If you’re in the market for buying a business, do come and talk to us so we can help you sort the top deals from the big risks.
We’ll help you complete the relevant checks and can also work with you to create a new business plan and strategy that’s designed to turn your new purchase into a business success.
Get in touch to talk through your plans.
About Pathfinder Solutions
Pathfinder Solutions advisory team members have either owned or managed businesses, or are investors themselves, so we know first-hand the challenges you face in your world.
Sure we’re Accountants, but the best solutions in business come from focusing on more than just the numbers. Our real-world business experience delivers just that.
