Recent research indicates that between 70% and 90% of business acquisitions fail.
These are figures for an existing business hoping to expand by purchasing another business. Where it is someone starting out by buying a going concern, the probability of success improves – but there is still a high possibility of failure.
Improve the odds
You can make the probability of success greater by being careful and carrying out sensible checks on the business you are thinking of buying.
Over the years, we have seen quite a few “horror stories” many of which, on reflection, should have been avoided.
Someone bought a motor repair business and paid, what seemed to be, a fair price. The problem which came to light was that there was no restriction on the seller after the sale. In fact, the contract specifically said that the seller could work in a similar business with no geographical restriction and no restriction on contacting customers.
The vendor’s brother ran a similar business less than one mile away. The vendor sold his business, moved straight into his brother’s premises and contacted the larger customers of the business sold.
Result was that the trade in the purchased business halved and, because there had been some borrowing, the borrowing could not be serviced and the poor purchaser was declared bankrupt.
Purchase of a takeaway retail shop at what appeared to be a fair price. What wasn’t revealed and what was significant, is that the road on which the shop was located was going to be closed and traffic re-routed. This happened a few months later and, because customers couldn’t park close to the shop, sales plummeted.
A pub making good profit with an asking price reflecting the, apparent, profit. A client was thinking of buying at close to the asking price.
We were suspicious because the profit looked better than we expected, so carried out a more detailed look at the accounts, including a cross-examination of the seller.
Eventually, we discovered that the landlord’s brother ran a similar business and barrels of beer had been “donated” by the brother, making his profit lower (and saving him tax) and inflating the profit on the pub being sold to get a better price.
We advised our client not to buy.
Get someone on your side
Remember that a business sales agent is not working for the purchaser. They want to get the best price to maximise their commission.
On the other hand, we are independent and work for you. We have done it before and know what to look for. If you are considering buying a business, ask us to help before agreeing to anything. An initial consultation is absolutely free and we want to help you make your business a success.
You can call us anytime on 01509 816150, contact us by email (firstname.lastname@example.org) or use the form below.