How to Buy a Business Safely                          

When you know what sort of business you can run, how much you can afford to pay for it and how profitable it should be, it is time to get looking.

Where to start.

• Watch the Business for Sale columns, placed both by brokers and private sellers. Every week the daily papers run many adverts, 75% placed by brokers and 25% private.  American statistics tell us anything from 10% to 15% of firms tend to be for sale at any one time.

• Approach a broker and remember, he can’t force you to buy a business and there is no charge for his services. He is paid a commission by the seller on the successful sale of the business.

• Place your own advert in the Businesses For Sale column. Remember the Kiss ( keep it simple stupid ) principle. Say something like "Genuine buyer seeks established service business with provable profits of R5 000 a month. Contact Mike on Tel: 911". It’s cheap and a very effective way to obtain a business.

• Canvass businesses that have some appeal to you, then approach the owner and ask him or her if they’ve considered selling. One golden rule is never to speak to the owner in front of his staff. They are the last people he wants to know he is thinking of selling.

• Speak to suppliers in the industry. It is amazing how much the representatives hear about businesses for sale.

• Let your accountant, bank manager, attorney, insurance consultant know you are on the acquisition trail.

Advisers / Acquisition Team

Unless you are a highly prospective buyer you are going to need sound advice. So start now by putting your team together. Choose only people who are experts in their respective fields. Forget about your brother in law and other suspect advisers, unless they have both the knowledge and experience in their own business and may be of assistance to you. I have seen many potential buyers lose first class opportunities through poor advise from unqualified advisors. Everybody you speak to is an expert on business acquisition, but most have not the faintest idea what they are talking about. Have these people on your team;

• An accountant, one with hands on experience in business acquisition and prepared to leave the office and actually view the business of your choice; prepare cashflows and go with you to see your bank manager.

• An attorney specialising in drafting business agreements and able to look after your interest without getting everybody else’s back up. He will draw up a win-win agreement for both the buyer and the seller.

• A consultant, especially for first time buyers. He is right at home with the industry you are interested in and will spend time checking the business out

He could be a retired person who had a similar type of business. He would be able to advise on old, unsaleable stock or if any of the assets ( like plant or machinery ) are obsolete and would have to be replaced with new technology.

Buying a business is a major decision that will affect your future and your bank balance. It has been said that 80% of businesses purchased are purchased on emotion and not logic. Do not be hurried, but rather work quickly, systematically and do investigations thoroughly.

Beware

All sellers believe their business is a goldmine – even if it isn’t making any money. They expect some "naive little buyer" is going to come along and pay them top price, in cash and how dare he doubt the profits by asking to see provable figures.

Why anyone would want to sell a profitable business is always asked. A partnership could be breaking up, as could the marriage an owner. A seller too long in the business may feel the need for change, or he could want to retire and not have children interested in coming into the firm. The business may be owned by someone who bought it but feels it is not suitable for him. The seller could be suffering from cashflow problems.

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