Buying a business

If you have an existing business, there are various advantages to acquiring a business owned by another. Acquisition of another’s business enables the owner to expand the geographical reach of the company, allowing a business to establish its trade in a different area. It also increases market share and reduces start up costs, which are encountered when forming a new business was formed.Â

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When deciding on buying a business, certain steps should be considered prior to making an offer. It is important to establish precisely what kind of business you would want to buy and in doing so determine whether the proposed acquisition of such a business would be feasible.

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Once this has been determined, establishing the overall value of the business you would want to buy forms a key part in making an informed decision on the offer price made to the seller. Determining the value of a business is ordinarily achieved by conducting due diligence. This process involves a thorough investigation into the business in order to determine its financial and legal status.Â

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Traditionally there are three types of due diligence which are used.

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Commercial due diligence: This enables the buyer to determine the business’ standing in the market place, to research its competitors and also check the regulatory space that the business trades in. Â

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Legal due diligence: This process is important in ensuring that the business has ownership of all of its assets, that there are no threats of litigation against the business and that the business has legal title to sell.

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Financial due diligence: This includes an in-depth analysis of the historic performance, cash flows, liabilities and assets of the business. This process helps to determine the financial value of the business prior to committing to its purchase.Â

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Where the buyer is satisfied regarding the findings of the due diligence, the next step is to compile an appropriate deal structure for the proposed acquisition. This is where the buyer would use the information gathered to determine a range of offer prices for the seller and begin the negotiation process.

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There are various risks associated with buying an existing business, in order to avoid coming across such problems, it is advised to follow every cautionary step prior to committing to buying of the business.

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