Tips for buying your first business

Buying your first business can be exciting and daunting in equal measure and, despite how prepared you might feel, the entire process is likely to be a learning curve. Making some mistakes along the way is natural and these are things that you’ll learn from and will stand you in good stead when making future acquisitions.

That said, you’ll want your first acquisition to be as successful as possible. A well-executed first acquisition can give you both the confidence and the capital to move forward with your business ventures, providing the perfect springboard for future deals.

Here, then, are four tips to bear in mind when buying your first business. This is by no means a comprehensive guide and, in any business acquisition, unforeseen occurrences are likely to crop up. However, following these fundamental steps can help to provide the framework for a successful first acquisition.

Do your research
When it comes to starting out on the acquisition path, whether you’re striking your first or your 31st deal, thorough research is always key. Research will be crucial to gauging so many things about a potential deal, from the factors affecting businesses in the sector you’re looking at and common management styles at the sorts of companies you’re considering to typical valuations for different sectors.

Once you’ve compiled a list of target businesses, your research should turn to performing due diligence on each of these. Due diligence, which an expert adviser can provide valuable help on, will be key to deciding the kind of valuation you’ll approach negotiations with, any issues that you might have to deal with should you take over the business, or whether you should even make a move for a company at all.

Get your finances in place
It effectively goes without saying that buying a business requires financing. Whether that’s from your own capital, a bank loan or private investment, getting the financing in place ahead of time will be crucial to both budgeting for your acquisition and demonstrating your credentials to sellers.

Due diligence isn’t a one-way street and if someone’s considering selling their business to you, they will of course be carrying out their own process to examine your suitability and credibility as a buyer.

One of the fundamental things they will look at is whether you have the financing in place to fund an acquisition. Therefore, being able to quickly, efficiently and persuasively demonstrate that you have the necessary funding will be crucial to striking a deal. What’s more, proper organisation and preparedness in this regard will help to make the seller’s due diligence that much easier – always a good thing for demonstrating that you’re a serious, capable and trustworthy buyer.

Approach negotiations in the right way
When negotiating, you’ll be going in with your own set of priorities and your own valuation. You should, of course, vigorously set out your case for and seek to attain these things. However, just as important for successful negotiations and, ultimately, a successful acquisition, will be recognising and respecting that the seller will have their own priorities and valuation.

Providing you’ve done sufficient research and due diligence, you should have a fairly clear idea of an accurate valuation of the business. This will be important in helping you to identify whether a seller’s valuation is reasonable or not. It might be the case that the seller knows you’re a first-time buyer and will seek to take advantage of that by ramping up the price and hoping you go for it.

However, even if a seller’s asking price seems reasonable, it may be that there is still a significant gap between your respective valuations. In these instances, it pays to be patient, calm and approach talks in a respectful, open way with a recognition that compromise might sometimes be necessary.

You should by no means instantly acquiesce to the seller’s demands and pay up – be prepared to stand your ground and argue your case - but, going in with a total unwillingness to compromise could damage the prospects of a deal.

Complete the deal properly
Following successful negotiations, it might be easy to relax and assume that the rest will take care of itself. However, even after negotiations have concluded, there are still factors that could derail a deal. Maintaining focus and having all your financial and legal documents prepared for closing the acquisition can help to expedite its completion and ensure that your takeover is smooth and successful.

Featured Listings