How to buy a business

[MarkOnline]

I am looking for resources on how to buy a micro business. I dont want the "Buy a business for a £1" type stuff. Ive watched a couple of you tube videos but they are all part of a web funnel for online courses, I realise I dont know much about this subject so was looking at basic stuff as well as more specialised information.
I know what I would like to do, just dont know enough to be able to do it.
Any good advice is also welcome.
Thanks

 

[AllUpHere]

On this forum (if you are considering buying or selling a business) the first step is for Clinton to tell you that you're an idiot. After that it's fairly straightforward.

 

[John Hemming]

The point about corporate finance, however, is that there are so many different ways of buying a business that the question has not got enough information to be answered.

a) How much is your budget?
b) Would you expect to be employed in running the business?
c) What are your skills?

"a micro business" does have some sort of definition
https://en.wikipedia.org/wiki/Micro-enterprise

However, within that you can have all sorts of things.

 

[Paul Kelly ICHYB]

Do your research on the business, the area, the owner.

Understand the accounts, why the owner wants to sell, how reliant on the owner/s the business is and what is happening locally and in the market.

 

[MarkOnline]

The point about corporate finance, however, is that there are so many different ways of buying a business that the question has not got enough information to be answered.

a) How much is your budget?
b) Would you expect to be employed in running the business?
c) What are your skills?

"a micro business" does have some sort of definition
https://en.wikipedia.org/wiki/Micro-enterprise

However, within that you can have all sorts of things.

Thanks for the reply I am not looking for corporate finance as such. I am seeking resources which dont just say "get a solicitor to look over it. I need more knowledge of the process.

My skills in buying a business are zero, Ive never bought one before, I dont even know what I dont know fully yet.

 

[MarkOnline]

Do your research on the business, the area, the owner.

Understand the accounts, why the owner wants to sell, how reliant on the owner/s the business is and what is happening locally and in the market.

I know which sector and what I want to achieve, I dont know enough to move forward so havent done so. I want to educate myself first before I do.

 

[John Hemming]

My skills in buying a business are zero, Ive never bought one before, I dont even know what I dont know fully yet.

Why are you asking?

Do you have a couple of million lying around that you just want to spend?

 

[Mr D]

Thanks for the reply I am not looking for corporate finance as such. I am seeking resources which dont just say "get a solicitor to look over it. I need more knowledge of the process.

My skills in buying a business are zero, Ive never bought one before, I dont even know what I dont know fully yet.

Unfortunately you will need experts to explain what you are looking at.

A business presented for selling can be quite different from the business you are buying.

For one thing, check everything. They say a bill is £1200 a year, check the bill for that is indeed £1200 a year.
They say it makes £59k profit then look at how that profit is arrived at.

Some businesses presented as making a profit are in reality making a loss - just the boss doesn't take a wage and his income is that £10k profit the books show.

And whatever the seller or their agent tell you - check. They are not on your side and they are not working for you. The people you can rely on are the people who are working for you. Your solicitor, your accountant.

And the price the seller is asking is not necessarily any relation to what you end up paying. Or even how you end up paying.
Buying a business is a bit different than buying a mars bar. Handing over cash and walking off with the item is one way, there are others.

For many small business buyers they aren't buying a business so much as they are buying a job. The job may be 100 hours a week at 50p an hour. Or lower pay and higher hours.

Or you may be lucky and find a business for sale that has been altered to simply slot in new owner and carry on running like it was. With management team, staff, processes, ongoing orders etc.

 

[MarkOnline]

Why are you asking?

Do you have a couple of million lying around that you just want to spend?

With all due respect, what has how much money is available got to do with anything. Read the OP.

 

[Ozzy]

I'm not what I would consider an expert but I've sold more than a handful of businesses, and I've purchased just under a handful. The ones I have purchased have had a strategic alignment to something I've already got a vested interest in, so I've never bought one "for fun".

The process in buying a business varies depending on quite a few variables, so I'll just list some variables and considerations to take into account.

Are you wanting to work in the business? Is this to provide you with a wage, and if so are you looking to replace the current business owner with yourself, or are you looking to recruit someone to replace them, or are you hoping they'll stay in place for a few years?
This will make a difference to planning and investment costs, and also how reliant is the business on the current owner. Is there an existing senior management team in place who can take over the running?

Are you looking to buy a business aligned to an existing business, such as becoming part of your own business? or are you wanting to go into a new sector, spread your wings and try out something new?
If you have resources in your own business to support the new business that makes a huge difference on how relaxed you can be on due-diligence. If you're going into something new then you have to be a lot more careful.

There's also loads of questions around what you would be buying. Generally speaking buying a micro business carries so much more risk on your investment than a larger business, because they are usually so reliant on the business owner you need to have quite a high appetite to risk.
I've walked away from buying a really great looking, profitable, and symbiotic business once I realised how reliant the whole operation was on the founder. We just couldn't take that risk.

 

[John Hemming]

With all due respect, what has how much money is available got to do with anything. Read the OP.

Actually it does matter.

If a Micro business (see above for definition) is a turnover up to about 2M then it is entirely possible that such a business would sell for 2m (depending on lots of things). However, people often buy self-employed jobs for the costs of stock and a bit more.

If someone is working in the 50K arena then the costs of professional advice are likely to be more material than say 1m-10m.

Budget has to be one of the first things to look at.

In the end if someone has some cash and they would like a yield of say 10% there are reasonably reliable traded investments they can buy.

 

[Ozzy]

With all due respect, what has how much money is available got to do with anything. Read the OP.

To be fair, you can buy some reasonable businesses for just a few hundred grand. Doesn't need to be millions, but what the budget is does play a significant part in what approach you would take towards buying a business.

I'm in the process of overseeing a 8-figure business sale at the moment, unfortunately not one I own , but the procedure is very different to the process involved in selling these forums 14 years ago for just a few hundred grand.

 

[UKSBD]

It really depends on your definition of micro business and how risk averse you are.

 

[John Hemming]

It comes down to the difficulty of dealing with this sort of thing via online forums. Good advice even if free requires sufficient information. Quite a few people who post on UKBF have bought/sold or invested in companies as well as those who have created their own businesses. However, there is such a wide range of situations that there needs to be some information to go on.

 

[The Byre]

1. I've done a couple of videos on this subject.
2. Have a shoofti at @Cinton's site here http://ukbusinessbrokers.com/services/
3. Always remember that you should be looking for real equity first, such as real and growing profits, property, IP, machines - all that gubbins about goodwill and potential is just fugazi and pixie-dust.

 

[MarkOnline]

I'm not what I would consider an expert but I've sold more than a handful of businesses, and I've purchased just under a handful. The ones I have purchased have had a strategic alignment to something I've already got a vested interest in, so I've never bought one "for fun".

The process in buying a business varies depending on quite a few variables, so I'll just list some variables and considerations to take into account.

Are you wanting to work in the business? Is this to provide you with a wage, and if so are you looking to replace the current business owner with yourself, or are you looking to recruit someone to replace them, or are you hoping they'll stay in place for a few years?
This will make a difference to planning and investment costs, and also how reliant is the business on the current owner. Is there an existing senior management team in place who can take over the running?

Are you looking to buy a business aligned to an existing business, such as becoming part of your own business? or are you wanting to go into a new sector, spread your wings and try out something new?
If you have resources in your own business to support the new business that makes a huge difference on how relaxed you can be on due-diligence. If you're going into something new then you have to be a lot more careful.

There's also loads of questions around what you would be buying. Generally speaking buying a micro business carries so much more risk on your investment than a larger business, because they are usually so reliant on the business owner you need to have quite a high appetite to risk.
I've walked away from buying a really great looking, profitable, and symbiotic business once I realised how reliant the whole operation was on the founder. We just couldn't take that risk.

Thanks.
We currently manufacture and retail goods online into a specific market sector. We have been prudent with our cash and relatively successful. So we want to move into the bricks and mortar side of our retail offer.( the bricks and mortar businesses will, on the whole, be distressed as they have had to endure lockdowns over the past 12 months.) We can add significant margin to our own specialisation within that sector and also increase our manufactured ranges to fit into other segments within the same space.
So its a market we understand well in the segment we occupy and a learning curve on other segments of the same space that we dont. It fits into what we already do, albeit online, I have previous experience in volume retailing (not this particular space though)
We have the resources to stock 10-20 stores, I would like to start with 1 learn some more and possibly then scale a bit more.
We will put management into it, I am aware how dangerous retail is, but we have margins many retailers can only dream about.
I dont have enough knowledge on how buying a business works, and just as importantly where specific dangers lie. We have worked too hard to throw money away by being unprepared.
I hope this additional information is of help, we are not seeking a lifestyle business, we are looking to make more money by trying to exploit a weakened retail environment by having a sensible entry price.

 

[MarkOnline]

To be fair, you can buy some reasonable businesses for just a few hundred grand. Doesn't need to be millions, but what the budget is does play a significant part in what approach you would take towards buying a business.

I'm in the process of overseeing a 8-figure business sale at the moment, unfortunately not one I own , but the procedure is very different to the process involved in selling these forums 14 years ago for just a few hundred grand.

And you can buy some for less, if you know how to play the game properly. Unfortunately I dont know how it works sufficiently to join in. I am not risk averse, I am averse to not having sufficient knowledge to know what and where some of those risks are.

 

[Ozzy]

I hope this additional information is of help, we are not seeking a lifestyle business, we are looking to make more money by trying to exploit a weakened retail environment by having a sensible entry price.

Perfect explanation

I'm working on the basis then you are looking to acquire a location based retailer that has an existing recognised brand who is struggling at the moment, so the main attraction for you is the brand goodwill and infrastructure already in place. Correct assumption?

I cannot help but wonder if you are going to put your own management in, why not secure a good deal on a retail unit and start up from scratch? Will be must more cost effective, and there are good deals to be done at the moment on commercial leases.

Anyway, back on track. This would be a pretty straight forward acquisition. You will need solicitors, and use them to check the details. It's their job to look over the due-diligence and tell you where the risks are, use them for that. Work out what you really want from the deal so the solicitors can make sure you get it.

I'm typing all this out but my mind keeps coming back to, if I was in your shoes I'd open a retail outlet myself, take on a good lease, and hire an experienced retail managed myself to manage it and bring in the skills I don't have.

 

[John Hemming]

It looks to me like you have two options
a) Buy a shop already retailing in the same sector (which probably won't own the freehold anyway)
b) Open a shop by taking on a new lease.

I would hazard a guess that you could get a lease with a reasonably short break point and a rent free period at the moment and that b) would be a lower risk approach to progress and investigating if it works. An existing shop that has not gone through some form of rent renegotiation is likely to be paying a higher rent anyway.

 

[MarkOnline]

Perfect explanation

I'm working on the basis then you are looking to acquire a location based retailer that has an existing recognised brand who is struggling at the moment, so the main attraction for you is the brand goodwill and infrastructure already in place. Correct assumption?

I cannot help but wonder if you are going to put your own management in, why not secure a good deal on a retail unit and start up from scratch? Will be must more cost effective, and there are good deals to be done at the moment on commercial leases.

Anyway, back on track. This would be a pretty straight forward acquisition. You will need solicitors, and use them to check the details. It's their job to look over the due-diligence and tell you where the risks are, use them for that. Work out what you really want from the deal so the solicitors can make sure you get it.

I'm typing all this out but my mind keeps coming back to, if I was in your shoes I'd open a retail outlet myself, take on a good lease, and hire an experienced retail managed myself to manage it and bring in the skills I don't have.

Yes, thats my thought process, acquire their customer base and even if the turnover isnt increased substantially, the additional 30-40% POR on (for arguments sake, 50% of their range) will make the numbers work and speed up payback.

I have considered the "open from scratch" model for a while, however I dont think our current range is broad enough to produce enough stand alone profit to sustain a retail outlet while we learn about what works. Therefore I feel much more comfortable buying some previous expertise in terms of padding out the retail offer and a certain level of exsisting revenue (which will be even harder to forecast moving forward.)

 

[Ozzy]

Ah yes, I hadn't considered the existing retail range. I'd also taken your comment of putting your own management in very literally, my bad . I get the logic now.
Make a list of what you would want from a deal, identify some target opportunities, and then engage either an adviser or solicitor to handle it for you. It is their responsibility to spot the risks and bring them to your attention for you to make a decision on.

 

[John Hemming]

There are also issues of timescale. I once bought a couple of businesses from administration. That sadly did not turn out well, but the timescale was very rapid (really enough time for a TUPE wash and that was it). On the other hand we had a process for selling a business that I was involved in which took over a year from starting a long list of purchasers.

 

[MarkOnline]

There are also issues of timescale. I once bought a couple of businesses from administration. That sadly did not turn out well, but the timescale was very rapid (really enough time for a TUPE wash and that was it). On the other hand we had a process for selling a business that I was involved in which took over a year from starting a long list of purchasers.

Time is always the enemy, but as time passes the unpaid bills become even more overdue. Thanks for the info.

 

[John Hemming]

but as time passes the unpaid bills become even more overdue.

I think you should think about this from the vendor's point of view. If they can survive this period then now is not the time to sell. However, if they cannot then administration beckons. Hence they should be in touch with insolvency advisors.

Hence if you want that sort of thing I think you should be specifically looking for it. You will need solicitors to do the SAP from your point of view, but you should start rummaging around the insolvency advisors
https://www.begbies-traynorgroup.co...usiness-when-it-is-sold-out-of-administration

 

[Mr D]

Yes, thats my thought process, acquire their customer base and even if the turnover isnt increased substantially, the additional 30-40% POR on (for arguments sake, 50% of their range) will make the numbers work and speed up payback.

I have considered the "open from scratch" model for a while, however I dont think our current range is broad enough to produce enough stand alone profit to sustain a retail outlet while we learn about what works. Therefore I feel much more comfortable buying some previous expertise in terms of padding out the retail offer and a certain level of exsisting revenue (which will be even harder to forecast moving forward.)

Ah yes, the joy of finding out what works in a location.

We used to do markets and events years ago. While we could take pretty much what we wanted to the stall, subject to existing limits, what actually sold could be quite area specific based on local supply and name recognition of the brands.

What sold well online was often not the stuff that sold well in person - took months of experimenting to figure out what mix of products could sell offline.
Price usually not a factor - choice was.

 

[The Byre]

It is also worth bearing in mind that some landlords are REALLY struggling to get rents in. According to property analysts 'ReMit', shopping malls were the hardest hit and only 36% of rents were collected in Q1 this year.

 

[MarkOnline]

I think you should think about this from the vendor's point of view. If they can survive this period then now is not the time to sell. However, if they cannot then administration beckons. Hence they should be in touch with insolvency advisors.

Hence if you want that sort of thing I think you should be specifically looking for it. You will need solicitors to do the SAP from your point of view, but you should start rummaging around the insolvency advisors
https://www.begbies-traynorgroup.co...usiness-when-it-is-sold-out-of-administration

I have, I always try to think like my customer (what they would want from an offer). Certain segements of my target seller will have already gone. I think the majority will be hanging on with the belief that when things re open they will have a deluge of grateful customers (I dont think that will happen), I think it will take time and their margins wont support the reduction in turnover.

Couple that with the increase in the price of stock and it may be enough for the better operators to realise that the writing is on the wall, the online operators have gained too much momentum and that the earnings they once enjoyed are no longer there ( they may even be online adding to an already crowded space and realising it takes time to build a viable living there, but as Ive said we manufacture and have more margin to play with. We can cope with an even more agressive marketplace, although we have moved our price points up.

I think it is still early yet and our target seller isnt someone many other investor/buyers would be interested in. Small potatoes (relatively)

 

[Paul Norman]

I have purchased a good number of businesses in my career, and been on the teams purchasing others.

The good news is that you don't need a massive budget, unless you intend buying a massive business. You do need some budget, though - for decent solicitors, for example.

The bad news is that a LOT of the businesses that are on the market are on the market because they are broken. Like my neighbour selling his 17 year old car, because in truth, it needs taking to the scrapyard.

But you know that, which is why you are asking.

A key skill is to be able to do the work needed to be as sure as you can be that you understand exactly what you are buying. In considerable detail. Even if the cost is just 87p - because businesses have a nasty habit of coming with baggage and liabilities.

I have a fairly detailed checklist I work through, starting with their detailed financial information, and a detailed prognosis of how I believe the business will perform under my ownership.

I remember my boss, early in my involvement in this kind of thing, saying to me 'Keep it dispassionate. Keep it about the economics. Don't get carried away'. Whilst working for him we bought about 15 businesses. And rejected about 100. That ought not to discourage you, though. If you get it right, it can be a great way of growing.

 

[MarkOnline]

I have purchased a good number of businesses in my career, and been on the teams purchasing others.

The good news is that you don't need a massive budget, unless you intend buying a massive business. You do need some budget, though - for decent solicitors, for example.

The bad news is that a LOT of the businesses that are on the market are on the market because they are broken. Like my neighbour selling his 17 year old car, because in truth, it needs taking to the scrapyard.

But you know that, which is why you are asking.

A key skill is to be able to do the work needed to be as sure as you can be that you understand exactly what you are buying. In considerable detail. Even if the cost is just 87p - because businesses have a nasty habit of coming with baggage and liabilities.

I have a fairly detailed checklist I work through, starting with their detailed financial information, and a detailed prognosis of how I believe the business will perform under my ownership.

I remember my boss, early in my involvement in this kind of thing, saying to me 'Keep it dispassionate. Keep it about the economics. Don't get carried away'. Whilst working for him we bought about 15 businesses. And rejected about 100. That ought not to discourage you, though. If you get it right, it can be a great way of growing.

Thanks, I think it could be a great way of growing, but as you said "If you do it right" I'm just trying to learn what I need to learn to do it right.
I could probably do some sort of a checklist now, but there will be things I miss because I dont know enough to protect myself sufficently.

I will add, Im not looking for something for nothing, I want a good operator for a fair (to me) price. I can find stuff worth nothing for nothing, thats not what I am looking for.

 

[Mark T Jones]

I'll just throw in a warning

Don't, under any circumstances fall into the trap of selling an 'opportunity ' to yourself, or kidding yourself it's a once in a lifetime opportunity

 

[MarkOnline]

Well Ive spent acouple of days reading and listening. So far I have come to this conclusion ,If your thinking of buying or selling a business do your homework its a potential minefeld and there are some very sharp cookies out there good guys and bad, they will beat you up and use your lack of knowledge against you. The quest continues.

 

[MarkOnline]

On this forum (if you are considering buying or selling a business) the first step is for Clinton to tell you that you're an idiot. After that it's fairly straightforward.

Just reading this thread and I have to say I watched a youtube video which incuded Mr Clinton, he comes across as an extremely knowledgable pussycat. The phrase "tough love" comes to mind although I dont think love comes into it at all. Its the type of business where a BS filter is mandatory. Oh and its what someone doesnt say which tells you what you need to know.

Watched The Byre too(subscribed a while ago), straight talking good stuff. Thanks

 

[SillyBill]

I would say the key learned experience is knowing to what extent to have solicitors on it and when, I've had eye watering bills which delivered questionable value other than to the pockets of those advising. Not sure how you can get to that point without having navigated it though, I've personally never learned much of anything without losing money or spending it unwisely. Such is business. Always worth pointing this out as the "get professional advice", while good advice, should come with a disclaimer. If you are not used to dealing with professional services as a business owner (many are not apart from run-of-the-mill accounts) you may be in for a big surprise. Too easy to wrack up massive professional fees that are out-of-whack with the deal itself and seller and buyer come away feeling the only winners are the accountants and lawyers. Knowing when to engage the advice and when to reign it in are key skills. Solicitors going off on tangents...they will always advise something else which needs to be looked at. The rest I expect anyone to know given if you run a business successfully you should be able to analyse the fundamentals of a target business. If you can't then not fit to buy it in the first place IMO. Knowing the right questions to ask then...not particularly helpful I suspect.

 

[Clinton]

Just reading this thread and I have to say I watched a youtube video which incuded Mr Clinton, he comes across as an extremely knowledgable pussycat.

Pussycat?

PUSSYCAT??!!

After all this time cultivating my image in UKBF?

I give up!

 

[MarkOnline]

Just another update;

Found a fantastic resource from a "good guy" good advice. David Barnett on youtube
(Clinton contributes to the channel too- is that bonus footage?)