The decision to run their own business presents for most
people a radical change in their way of living. It means
abandoning the relative security of employment for the
“amazing” but insecure world of entrepreneurship. There
can be significant benefits in such a move. But have you
ever thought that there are many risks involved in such
a decision as well?
Before you make such a decision, you must have thought
or even better have found the answers to the following
- Why should I buy a business instead of establishing
- Am I prepared for acquiring a business?
- What is the acquisition process like?
- What are the tax and legal issues that arise when acquiring
- How much money am I willing to invest for the acquisition
of a business?
- How can my business acquisition decision be financed?
- How can I
know what I am buying?
- Why is a
business being sold?
- How will the seller or the business broker going to
- How can a business broker assist me?
It is worth knowing
- Irrespective of the qualifications (professional,
academic) that a potential buyer may possess, he should
embark on the acquisition procedure well-informed
- The acquisition of freedom that is accomplished with
the transition from employment to personal business ownership
does not imply lack of responsibilities or risks!
- You should not accept to pay any price for a business,
unless you conduct, through specialized consultants,
a legal and financial due diligence on the business.
- Most often business brokers do not have contractual
obligations towards buyers.
- During the acquisition process it is not only yourself
who is performing an evaluation (of the business). The
seller-business owner is also conducting an appraisal
- The decision regarding
the purchase of the “right” – according to your standards
– business is yours and
- Do not proceed with drastic changes in the business
just after its acquisition.
Why buy an existing business
instead of starting it from scratch?
The purchase of an existing profitable business significantly
reduces the risk compared to starting a business from scratch.
Not only does an existing business have in place the operational
infrastructure, the customer base and the relationships
with suppliers, it also has a proven track record of profits
that will most likely continue after the business sale
or even improve, as you – the new owner – will apply your
energy and renewed dynamics to the business. In the meantime,
in your transition to entrepreneurship, the acquired business
will offer immediate cash flow. On the other hand, the
vast majority of start-ups start making profits - in the
best cases - during the second year of operation and till
then the owner will has to finance it through his own
How do I get prepared to
enter the world of entrepreneurship?
The process of acquiring a business requires planning.
Before evaluating potential businesses – targets, you must
have made your decisions on the following issues:
Alternative means of business search
The team of legal
and financial advisors that you are going to use for
evaluating the business opportunities and for the closing
of the transaction.
- Funds available to finance the acquisition
- Required level of income from the business
business type and sector
- The size of the business
- Your role in management and your participation
in the business.
How do I evaluate a business
Your research on a business opportunity should definitely
cover the following issues: the owner’s reason of selling,
the history and reputation of the business, the financial
and legal standing of the business, the existence of any
pending legal, tax or other matters that may be “transferred”
along with the ownership, the opportunities, the threats,
the weaknesses and the strengths of both the business and
the sector it operates in. Your accounting and legal advisors
should assist you with this information. The business broker
will coordinate this team of advisors and will guide it
through all steps of the transaction, from the very beginning.
However note that a lot of the above data will be withheld
from the seller and will not be disclosed to you unless
you make a binding offer subject to certain conditions
being satisfied. Moreover, your research must be conducted
in such a manner that it does not risk the violation of
the confidential nature of the fact that the business is
for sale and you should be prepared to commit yourself
to this respect.
How can the acquisition
of a business be financed?
If you do not have the required funds to finance the acquisition
of a business, you should examine whether the seller is
willing to finance the transaction.
What services can a
business broker offer me?
should examine the possibility of getting granted a loan
from a financial institution. The amount and terms of the
loan will depend on your personal credit standing and on
the prospects of the business to be acquired, although
such information cannot be disclosed to the bank unless
you have the seller’s written consent.
You should be aware
that apart from the funds that will be required to pay
for the acquisition, it is likely that you will need additional
funds for working capital. If you cannot obtain financing
from the bank, then you should be prepared to finance the
operation of the business through personal funds.
Business brokers bring together prospective sellers and
buyers of small and medium-sized businesses and assist
them in compromising, becoming partners rather than adversaries.
Clients benefit from the fact that business brokers know
what worries both parties.
But as business brokers normally represent the seller
how can the buyer benefit from the provision of their services?
Business brokers invest money and time for the promotion
of the businesses they have undertaken to sell and their
fee depends on the closing of the transaction. So it serves
their interests to:
- facilitate your business search
- assist in reducing the
risk of encountering unpleasant surprises
- guide you throughout
the transaction procedure.