There are two major phases involved in buying a business: Obtaining the vendor information and the negotiations (which should start after you have had discussions with your professional advisors).
Information on a business to be bought should be well presented, comprehensive yet easy to read. Ideally it should contain information on all of the following:
- Ownership & history
- Financials – balance sheet as well as profit and loss accounts for the last five years and projections for the next two.
- Nature of operations.
- Customers and competitors (may be part of a SWOT analysis)
- Facilities and plant
- Management and organisational structure
- Other staff
- Future development potential
- Reasons for sale
- Hand over details – ongoing vendor help - Term
- Lease details of any premises - Rights of renewal and rent reviews due
Before entering negotiations with a prospective seller, the following assessments should have been made:
- How the seller came up with his or her asking price, are you happy with the values.
- Why you want to buy the business
- The current market value of similar businesses
- Your cash flow expectations under your circumstances, will it cover your income, debt servicing etc.
- Alternatives to buying (self start new)
- What return on your capital will the business provide, after salary allowance for owners input.