Did you know that most mergers and acquisitions fail? That’s because the process is so incredibly complicated, with so many moving parts and potential pitfalls, that most people don’t make it to the finish line.
There are ways to ensure the process runs as smoothly as possible, and a big part of this is assessing and valuing a business before you commit to buy. You must also analyse your obligations to any existing staff, as agreements in place with existing employees can cause issues if you are looking to restructure.
Here is our guide to assessing and valuing a potential new business and its obligations.
Commit to finding the right business to buy
Don’t rush into buying a business or you will run into all sorts of issues. Instead, search properly for an established business, with a clear budget in mind, and use as many professionals as you can get your hands on to help you through the process. This is the best way to make sure the process runs smoothly and will give you the best chance of success.
Advantages and disadvantages of buying a business
There are many advantages to buying an existing business instead of starting one from scratch. These include:
- the business is already functioning on some level and lots of the initial work in terms of setup has been done,
- the business has clients and a track record, which means investors and financiers are more likely to step in and help,
- the market for the product is demonstrable,
- a business plan and marketing method are likely already up and running, which means business can continue as usual,
- a productive team is likely already in place.
There are disadvantages too, of course. You’ll need a lot of cash upfront, including the amount you will need to buy the business and a few months of working capital to see you through. You may be tied into contracts that come with the business, staff might be upset and play up, and there might be hidden reasons why the seller is selling up.
If you’re planning on buying a business, you must carefully consider the disadvantages as well as the advantages.
How to assess if a business is right for you
You might come across what you think is the most perfect opportunity, but you need to properly assess whether a business is for you. You should carefully consider whether or not you have the abilities needed to achieve what you want to achieve and the money you will need to invest. You’ll need to know how much money you’ll need to earn to reach your goals and be committed to working hard. You’ll need to know what strengths you bring to the business and where there are gaps you need to fill.
It is also really important that you know plenty about the sector you are about to enter. If it is not familiar to you, talk to people with similar businesses to determine how you need to function.
How to value a business
There are several ways to value a business. The first way is to consider the actual valuation of a company is to employ a business broker or corporate financier, who will look at the history of the business, performance, projections, its financial situation, why the business is being sold, any outstanding or major litigation the business is involved in, and any changes that might impact the business going forward.
You will also need to add value for the company’s intangible assets, including the company’s reputation, relationship with suppliers, value of goodwill, licences, patents, and intellectual property, location, stock, products, debtors and creditors, employee talent, competition, and the economic climate.
When we consider all of this, it is obvious why we would need a professional to help.
Buying a Business: Due diligence
Once you’ve made an offer, you’ll be given a period of time to access the business records and perform due diligence. This is so you can get a good idea of how the business is performing now and forecast for the future. This is your chance to find any issues and problems.
You’ll need three types of professionals to conduct three types of due diligence checks: legal, financial, and commercial.
Taking care of existing employees
You should be aware that there are regulations in place to protect employees when you take over a business. These apply to all employees and prevent employees from mistreating existing workers.
You must provide comparable pension arrangements, for example.
Yorkshire Change can help
If you’re buying a business, you probably already know that you are about to undergo major changes. Yorkshire Change can help. We’re change management experts, and we can help your new employees settle in under new management so that business can continue as usual.
We’re all about working closely with our clients from day one and matching them to our best consultants. If you would like to find out how we can help you, or if you just want to find out a bit more about our approach or our current projects and clients, please contact us for a no obligations discussion.
Call 0333 090 8710 to speak to a dedicated member of our team. If you would rather receive a call back, please fill in the contact form on our ‘contact us’ page.