Are You Buying or Selling a Business?
Whether you are seriously decided or just starting to consider buying a business, below you may find some useful information that can provide basic guidance. This article can be likewise useful to sellers as well. Sales of businesses have proven to gone much smoother in instances where both sides were adequately educated about the process ahead.
What’s the profile of a typical buyer?
Companies producing a single product are at a greater risk of being valued lower than companies with multiple offerings.
Usually, buyers interested in purchasing small businesses have never owned a business before and often want to make a change in their life by leaving a job and working on their own. Since their funds are usually personal savings or family money, their buying power is quite limited. Their focus in a new company is not primarily driven by money – even though that is important as well – and they understand that it is necessary to take a leap of faith.
Negotiating the Deal
Equally important as finding the right business is negotiating the right terms. However, with many facets of buying a business, some matters may be more important and others, and vice versa. If you are bringing a large sum of money to the deal as a down payment, you may expect the seller to reduce the final price accordingly. It would be foolish to think the same with a little down payment though. Similarly, try to negotiate financing that you can actually afford. However you decide, be aware of maintaining a good relationship with the seller as your co-operation will typically continue long after the sale in a form of the owner showing you the rope. As a result, don’t try to push the seller to the wall too much, but let the deal be favourable to both sides.
What about due diligence?
Due diligence is a responsibility of a buyer and should be approached accountably as any misconduct may lead to buying a pig in a poke. It’s good to start with diligence before the tentative agreement has been reached and remember that there will always be some risks in the deal. The goal of due diligence is not to remove risk completely, but merely to minimise it.