Advice on buying a business

I have been offered the chance to buy a small business as a going concern. The current owner is taking a lucrative position with a company abroad and is looking for someone to take the reins.

The company is a simple business that according to the owner has a turnover of 250k per annum, and an existing client base with plenty of room for growth.

I am interested, but I have no experience in this area.

KPMG offer a Financial due diligence service, will this highlight everything for me including any tax or creditor issues?

What other factors should I be considering, and what questions should I ask?

KPMG would be expensive, maybe you could get a local firm to do the same work, its fairly routine stuff.
You should look at the industry and make sure its growing just as the seller is claiming, check out the competitors and see if they are making money and how good an operation do they run.
Make sure there are no skeletons lurking in the business, e.g. has a key member of staff left recently? are all taxes and returns upto date, have rates been paid (often one of the last bills to get attention) are there any insurance or legal claims pending, these can often be hidden from the sale.
Bear in mind if you buy the company, then you are assuming all responsibilities for the last seven years. Think about that one, maybe you'll want guarantees from the sellers for a few years to allow any nasties to come out.
Finally, appoint experts to get the routine analysis done and you should research the big picture, e.g do you like the business, hours of work, is there growth, is there profit?

hope this helps

8till8 said:

hope this helps

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Great help. Thank you.

When you say that you have no experience in this area do you mean business valuation or running a business or the sector in general?
For what it’s worth in my opinion the most important thing to know about is the sector and how to win and keep business within in. The rest you can learn as you go but I wouldn’t buy into a sector that I don’t know about.

You will need a share purchase agreement otherwise you are exposing yourself to financial risk.
Watch out for, hidden tax liabilities, law suits, contractual commitments, labour relations difficulties or defective title to its properties, etc.
Please make sure you get the necessary tax guarantees or better still, a tax indemnity.

If you want further advice, please feel free to PM me.