I am buying a business. What happens next?

A well-considered decision to buy a business

Many people think that buying a business and running a company is a simple matter. The purchase itself, after the initial verification of the advertisement “I will buy a business”, does not actually require any special skills. However, running the business after the purchase will require some skills. As statistics show, as many as 80% of new companies are unable to stay on the market for two years from the beginning of their operation.

The basis of a company's operation is undoubtedly a good business plan. Lack of market knowledge, lack of experience, lack of target customer groups, or an unsuitable niche can result in the failure of our activities. The most important of these turns out to be the lack of liquidity of such a company. The entrepreneur then begins to have serious financial problems with the day-to-day running of the business, which increase overnight. It goes without saying that this situation can lead to huge debts and, consequently, the closure of the business. This is, of course, the best option in such a situation because financial troubles can affect not only the company's assets but also go much further, leaving an unwise buyer high and dry.

Financial analysis before buying a business

A prudent future entrepreneur should meticulously control the balance sheet (a statement of fixed and variable costs and revenues) of his company, which will allow him to fully control the company's operations. There is no room for guesswork and intuitive market feeling, although the latter skill is also useful. A thorough analysis allows for success in the actions taken.

An investor buying a business should have knowledge of the operational activities within the structure of the business. They do not need to personally know all the nuances of accounting, but they can have a trusted accountant who will carry out a financial analysis. This is important because each industry has its own specific rules. The new buyer's approach to costs may be different from what the company has been doing up to now. A new perspective on business and new ideas can radically change costs. The new buyer may also have their own trusted team of people (family) who will start running the business together, significantly reducing service costs. Furthermore, the company can move from rented premises to a home address if possible. There are many examples of cost cutting.

There is also a somewhat forgotten issue that is worth noting. The profit generated by the company must be large enough to cover the expected costs of its owners' basic needs (which is often forgotten in the cost estimate). It is often said that a cobbler always wears shoes with holes in them, but that's not what this is about!

Fixed and variable costs of a purchased business

Once we have responded to the advertisement to buy a business, it is time to take the next steps. When running our own business, we have to take into account the fixed and variable costs that will periodically occur in our company. These will include all kinds of taxes, contributions to the Social Insurance Institution (ZUS) or the Tax Office, employee salaries, rental fees, rent, land tax, property security, monitoring, vehicle insurance, technical inspections, utility bills (electricity, gas, water), telephone bills, accounting programs, company websites and Internet, loans taken or to be taken, leasing. It is impossible to list all the costs here because they depend on the specifics of the business in question.

The variable costs include costs directly related to the business, such as the costs of manufacturing a product or service, purchasing raw materials or semi-finished products for production or providing services. In addition, there are operating costs for machinery and equipment, as well as for the vehicle fleet if the company has delivery vehicles. Advertising and promotion also generate costs, as well as business trips including tickets, accommodation, fuel, per diems, and highway tolls. Costs related to office work, cleaning products, etc.

Key figures for business

Cost analysis is a fundamental part of a thorough operational analysis for every buyer. Regardless of whether we are dealing with the purchase or sale of a business, new or existing, it will always be important to take a thorough approach to the buyer, allowing us to determine in which direction the activities should be directed in order to bring the expected financial benefits. Certainly, one should not underestimate the costs that occur or may occur in the course of our activities. In practice, many entrepreneurs have overestimated their revenues without focusing on correctly estimating costs, which has forced them to take actions they had not planned at all. Therefore, let us be careful when responding to a buy a business ad and only decide on the next steps after a thorough, professional analysis.

Categories: I'm looking for a business partner, I'm selling my business, I'm selling a limited liability company

//M.K.

Photo byhttps://unsplash.com/photos/3Tf1J8q9bBA