Buying a company is one of the ways to start or expand a business, but it is not without risk. How does the whole process work and what should you watch out for?
A new business or buying an existing one?
A fundamental difference is whether you want to start a completely new business or if your goal is to buy an existing business that generates revenue.
Buying a new ready-made company
In the first case, by buying a so-called ready-made company, you can save a large amount of administrative duties that a company specialising in company sales has already arranged for you.
Buying a ready-made “empty” company is one of the fastest and easiest ways to start doing business. You choose from the current offer of prepared companies, pay the required price and transfer the company to yourself. The selling company usually helps you with the whole process. The total investment can range in the thousands of crowns.
What to watch out for when buying a company without a history?
Even buying a ready-made company does not have to be risk-free. You should check several facts.
- Company history, Check that the company truly has no history except for the steps necessary for its establishment.
- Company debt-free status, Verify that the company has no outstanding liabilities or other unfulfilled obligations that could complicate your business right at the start.
- Check the business activity – When buying a ready-made company, you can generally choose from many companies. Choose the one whose business activity suits your business plan.
- Check who you are buying the company from – Many companies deal with company sales. Take advantage of the fact that you have a choice and bet on the one that has a great reputation and provides quality services.
Buying an established business
If, on the other hand, you have a larger amount of financial funds that you want to invest effectively, you might be interested in buying an older business with a history. Such a business may already have an established brand, stable premises, many employees and regular customers. However, the price of such businesses usually ranges in millions of crowns and the path to buying them will be relatively long. The process generally looks approximately like this.
- Defining your idea of what kind of business you want to buy.
- Finding companies that match your idea. Approaching the current owners.
- Due diligence (in-depth inspection) of the company whose owners are open to selling.
- Valuation of the company and negotiation of the purchase price and all conditions of the share transfer.
- Carrying out the transaction, taking over the business.
What to watch out for when buying an established business
Thoroughly check all information you receive. Sellers want to make as much profit as possible from the sale of the company. It is therefore logical that they will try to make the company look as good as possible. Your task, on the other hand, is to uncover problematic and risky areas that will help you push the price of the business down during negotiations.
In addition to the financial situation of the business, you should also try to get to know the current owners, business partners or employees. Find out in an informal way what the reason for the sale is, whether the company is truly prospering and whether the employees feel satisfied there. Sometimes a little is enough to find out whether the purchase makes sense or whether it will be better to quickly back out of the negotiations.
It is a good idea to also bring in experienced legal advisors, financial experts and an expert on mergers and acquisitions for help.
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