Before you start investing your time and resources on this quest, we strongly suggest you gear up and do some prerequisite planning to answer some important questions.
First, define your real buying motives.
Is it that you want to diversify your investment portfolio? Or you are planning your early retirement and want to earn a passive income? You may want to buy because you want to expand your existing business. Your motives can be such as taking over the competition or buying a complementary product to your business.
Sometimes business owners tend to buy other existing businesses just because of their believe that its easier than building a business from scratch or the industry looks profitable.
Set your expectations right.
You need to clearly pinpoint your added value or gain from this business deal. Only then you can plan on how to achieve and maximize your profit from the acquisition.
Now that the vision behind the business acquisition is clear. You are ready to invest on research, valuation, due diligence, and negotiation.
Step 1: Hunt for a business to buy.
Online brokerage platforms can be a good start. However, following social media network groups for business owners, industry leaders and entrepreneurs on LinkedIn, Facebook can lead you to your dream business to buy. Understanding the industry/market ecosystem dynamics and identifying its key players will help you recognize a potential buying opportunity.
Step 2: Understand the seller’s motive
Why does the owner want to sell his/her precious business? This is an extremely important question and accordingly major decisions will be made. Here are some common motives for selling a business:
· More capital equity needed to meet potential expansion
· Mature industry
· No clear successor
· Partnership disputes
Step 3: Value the business
Valuing a business can be a complicated process; you may need the service of a professional firm to determine the true value of the business you looking to buy.
In-depth evaluation is conducted including inventories, sales, debts, location, market demand annual cash flow, financial health, reputation, intellectual property and intangible assets, equipment, real estate, and others; to identify opportunities and clarify the realistic price. Make sure to obtain this data from audited financials of the company which is certified by licensed third party and not just an excel file with numbers without any backup.
Step 4: Perform due diligence
You will invest time and effort to perform extensive due diligence. Here are some important things to cover in your investigation about the company you want to buy:
· Industry research
· Operational part of the business review (from manuals to systems)
· Past 3-5 business audits and tax return submissions
· Corporate documentations review and verify
· Reputation of the business & positioning
· Disruption & Technology
· Customer base
· Pricing and cost allocation
· Team and Employees qualifications
· Legal contracts with suppliers
· Current business strategy
· Banking relationship
· Legal issues
· Exit strategy and non-compete
If you find it difficult to execute this step by yourself, then it is time to look for professional advice and assistance which may save you lots of effort, resources and financial losses in the future.
Step 5: Negotiate a purchase price.
Extensive due diligence and the motive of the seller along a time frame will give you plenty of areas/reasons to negotiate the price in your favor. You have to set your priorities because at the end, the offer has to be agreed by both parties. So, pick your most important aspects and include it on the offer.
Step 6: Submit a Letter of Intent (LOI)
A letter of intent (LOI) is a document defining the agreement between two or more parties which they aim to honor in a legally binding contract. The concept is similar to memorandum of understanding. There are plenty of ready templates online which you may use. And you can also hire a qualified lawyer to put it on paper.
Step 7: Close the transaction.
At closing, most likely you will sign many documents related to the sale of specific assets, including non-compete agreement signed by the current owner for an agreed-upon period. And of course, all the above is part of the most important document which is the sale document.
Buying an existing business is a critical financial decision. Detailed planning, putting a team of people together, doing your homework,
Most Importantly, what value Bowarr Experts will bring in the process of buying an existing business in the UAE:
- Over two decades of business expertise in the UAE
- Industry research
- Business valuation
- Extensive due diligence
- Help to negotiate favorable deal terms on the purchase
- Feasibility Studies and budgeting
- Managing complete projects
The process of buying a small business follows the same pattern. From finding and evaluating the right business, to closing the transaction, we’ll walk you through the whole process, so you know what’s coming. Design creates culture. Culture shapes values. Values determine the future.