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A true business guru, Philip de Lisle lives and breathes SMEs. A seasoned entrepreneur, non-exec chairman, speaker and author, Philip is now highly sought after via his mentoring service, Enhancing Clarity Ltd., which enables corporates, small and medium sized businesses and owner managers to reach their full potential through his insightful guidance.
Here, Philip covers the basics for anyone thinking of buying a business:
1.What type of initial research should a potential business buyer conduct in order to choose the right business sector for them?
If you are buying a business for the first time (i.e. you're buying an existing company rather than starting one from scratch), I'd suggest picking a sector that you know with 100% certainty you are going to enjoy working in. If you don't you'll be a slave to your own venture and will not enjoy it.
If you are looking to bolt another company onto your existing one, it boils down to whether you are looking to grow in your own sector or whether you want to move into a complementary sector to expand.
Clearly the internet is your friend initially, as are your accountant, lawyer, friends etc. But once you have your long list of potential targets, your research should be around the financials and trading history, i.e. try to find out what their client base looks like, how fast have they grown (difficult to assess for small companies but the debt/equity ratio, debtors and cash on the balance sheet trends will give you a feel). If they are not growing, can you identify either why, or have you got another way of turning it around?
2. What are the key considerations when targeting a specific business for sale?
How good is the fit? For me with it, and for it with me. This is a cultural thing as much as anything else. Other than that, it will entirely depend on what your plans are as this will dictate how you evaluate your target(s).
3. Once negotiations have opened, what is the correct procedure for reaching an agreed sale price and what role should financial and legal professionals play?
I'd suggest always leaving this bit to your professional advisers be they accountants, lawyers or company brokers. By and large they have more experience at this and they are not emotional. If you've set your heart on a particular acquisition (and believe me it does happen) you can end up over-paying - how many times have you, or someone you know, overpaid for something on an online auction?
4. What should be included in the Heads of Agreement?
This is completely deal dependent. There is no "one size fits all" answer. At the least it should be an agreed price subject to variation downwards once due diligence is complete and the time frame to do the deal or walk away. The latter is important as it concentrates everyone's minds especially the professional advisers.
5. Why is having an envisaged exit strategy important before purchasing a business?
I'm not sure that it is. I've always behaved that way, but I bought businesses specifically to enhance my exit after only a few years. Many people want to buy a business to work at it and give them a livelihood for several years. There is nothing wrong with having a lifestyle business - many people I know have grown rich from it. It really depends on your personal drivers.
Having decided on a particular business, you’ll need to work out how to fund it. Click here to read advice from alternative financing expert, CreditSquare’s Bjorn Lindvall.
