Tips for Buying a Small Business in 2020
Buying a business is an exciting time. We’ve been in business for over 20 years, and in that time we’ve helped connect thousands of business sellers with business buyers.
Here are our top tips for buying a small business in 2020.
Engage with a good lawyer
Whether this is your first or fifth business purchase, engaging in legal help is absolutely paramount to ensuring a smooth and safe transaction. A legal representative will be able to ask the right questions, check contracts are sound, negotiate fairly and alert you of your rights and responsibilities throughout the buying process.
Understand existing lease agreements
Something that is often overlooked in a business purchase, is the current lease agreement with the owner. If the business is set up in a particular location, it’s important to find out if you can assume the seller’s existing lease. Also understanding what the current terms are on the lease, for instance how long is left on the agreement, or if the landlord is thinking of selling the property could make or break your business deal.
Current and expiring contractual obligations
Ensuring you’re across all current and expiring contractual obligations could mean the difference between profit and loss. Going through business financials can be messy and sometimes items can be missed. It’s important that all subscriptions, contracts, partnerships, and affiliates are accounted for to paint a clear idea of your realistic outgoings. It’s also crucial to know if important contracts are up for renewal which could mean an increase in spend or change in partnership circumstances with you and a third party.
Get an indemnity from the seller
Regardless of how much research and due diligence you’ve put into the current business landscape, it’s strongly advised to get an indemnity from the seller. An indemnity is a security or protection against a loss or other financial burden. It means that should something sinister be at play, you cannot be sued for the actions of the previous owner. It should also be said that you should be prepared to give the seller an indemnity too to ensure your actions do not affect them after the business is exchanged.
Understand the current culture
Culture is so incredibly important within a business. It not only affects employees but also your clientele. If the culture has been unpleasant, you could see yourself with a handful of unsatisfied employees which will need to be managed. A bad business culture is a bad business strategy. It can suck resources and be quite costly in HR fees or remunerations. Understanding how your employees are feeling will likely give you a strong indication of how your customers are feeling too. They often go hand in hand. If your customers are not being treated well, or have a positive mindset towards the business, you’re going to have to work harder to win them and their loyalty back.
Buying a business should be an exciting time - and it is! But it is still important that you look at the facts in front of you, do your research and engage with relevant professionals who can help you throughout the buying process with confidence.