Behind the Scenes: Navigating the Acquisition of an Established Business

Ever wondered what really happens behind closed doors when buying a business? We uncover the hidden process of acquiring an established company

Note: We’ve really enjoyed writing about the acquisition of established aka “boring businesses” and we’re soon going to round this up and get back to Yommy’s musings around tech and business. It’s been a great research piece for all of us involved.

Also, England - it’s gotta be coming home 🏴󠁧󠁢󠁥󠁮󠁧󠁿 ⚽️

---

The last issue generated a lot of interest in what goes on in the background when buying a business. I really wanted to get the interview with Optician. However, I can’t say I was super surprised that he didn’t want to open up fully to me. I did learn a few things about him though:

The 62 year old owner of an Opticians that has been running for 20 years is open to selling and he’s got health issues which he is finding more about in a few weeks. 

Even if I want to sell pension lasts 22 years but standard age is 35 years. I’ve got no pension and from a generation that doesn’t have a lot of trust. I know of a family that were in business that eventually went at each other…

As I was opening up the convo he had questions about who he would pass it to and mentioned a local optician in the neighbouring area who he thought could run it should the event ever occur

At least he understands opticianry.

Photo Credit: @floyd_strickland

Insights into the acquisition of an established business

However we did get to speak to Rupert who has been in the trade of helping business owners sell their business for decades. He kindly spared some time out of his day to share the insight of what happens when acquiring a business.

To save. Here are the key area’s he broke down 

• Capital

• ⁠Due diligence / Industry experience

• Term agreement 

• ⁠The Transition

His advice is as follows:

Capital 

Let’s suppose you’ve identified a business that you’d like to acquire, either through contacting someone like Rupert or visiting the many broker sites online, you will more than likely be asked for proof of funds. This would either be in the form of a letter from your bank or a redacted bank statement. Just as you need a deposit to buy a property, to acquire a business you will need to have funds to get to the negotiating table. Having proof of funds will fast track the process and help you and the seller agree the sale term quicker. Failing to show proof of funds will likely result in you wasting everyone’s time including your own.

Due diligence / Industry experience

Like everything else, buying a business is subject to due diligence. Rupert advises to conduct your own review on the business and you should also expect the same from the buyer.

Things to consider when conducting due diligence are:

1.⁠ ⁠Business valuation 

2.⁠ ⁠Market opportunities 

3.⁠ ⁠Goodwill etc..

There isn’t a formula to all of this, which is why relying on people like Rupert is a great help. 

Term agreement 

Once the formalities are taken care of, you will naturally progress to a point where you’re able to discuss your purchase plan with the seller. We would all love to be in a position where a single transaction settles the deal but that isn’t realistic, and if you did, you probably wouldn’t want to part ways with all the capital in case you need to inject capital  into the business after acquiring it. it. 

Small transactions can be agreed between the buyer and seller with no 3rd party involvement. Other transactions are slightly complex and require legal involvement and potentially other professionals such as auditors etc.. 

As a general rule of thumb, the more parties involved in the transaction, the slower the acquisition.

An example of term agreement would be, percentage of Ebita + fixed quarterly payment with an agreed end date. 

The Transition

Some business owners are keen to stick around and slowly let you familiarise yourself with the business and others may hand you the keys and walk away. All of this are subject to your term agreement but what is important is that you have a plan. Rupert’s number 1 advice is for you to buy a business in an industry that you already understand.