Go to our contacts page and the the other pages on our web. Once you are satisfied with the answers you have come up with, the next most important question is: where to begin looking for a business? There are a number of possibilities:

	Private Sale. You could look in the "Business For Sale" section of various newspapers and magazines, or be referred by someone "in the know" for businesses for private sale, and, if you are very lucky, you could find a business with all the right requirements. However, the major drawback here is that you are subject to "Caveat Emptor" - "Let the Buyer Beware!", if things turn out to be not as you hoped they might be. You have most probably already been stung or know someone who already has. Certainly you have an Accountant and a Solicitor to help you, but so does the Seller! There is also a risk that you are on your own and you invite a strong possibly of being sued by an Agent. The days are gone when your solicitor can defend you successfully if you are dishonest. We have found with experience that one cannot rely on the opinions of accountants and solicitors who are often wrong or do not appreciate your circumstances and motivations when giving advice.
	Through an Estate Agent. This does not involve you in any direct costs. These people are generally licensed, and subject to Department of Consumer Affairs supervision and a strict code of conduct, and carry Professional Indemnity Insurance. They do not have much business knowledge and would probably fall down on your third question.
	Through a Business Transfer Agent such as Pegasus Business Sales advertising a business for sale. At least here, you are dealing with a specialist, and would expect someone with a deeper understanding of the business he is offering on behalf of his client. Otherwise, the same comments apply as for an ordinary Estate Agent. At Pegasus you will find that you will get correct answers to all your questions and even answers to questions you had not considered. There is, however, a danger that they will advise you against buying a business if they feel that you may fail.
	Through an Accountant. Here you would have a professional who understands business, carries Professional Insurance, and is not a salesman. But he may not be subject to the same Department of Consumer Affairs Licensing requirements, is generally acting on behalf of his Client, and can comment only on what is presented to him. They do not, however have knowledge of proper market values of businesses although many will take guesses based on calculations. If only life was that simple....
	Through a Business Transfer Agent such as Pegasus Business Sales acting as your Buying Agent. This involves you paying the Agents' Fees directly, rather than indirectly, as when the Agent is acting on behalf of the Seller. The advantage for you is that now, the Broker is acting for you exclusively. His Legal Duty of Care, as well as his Self Interest, are working on your behalf only. By law, he may only act for the one Party in any Transaction. And, as your Agent, if he does not have exactly what you are looking for, he can go and seek it out on your behalf although this involves you paying a finder's fee in advance. The upside is that you can target any type of business you fancy with pinpoint accuracy. If the business exists anywhere in the UK, they will find it. You will have to consider how much you are prepared to pay for the business. You may have to pay a higher price if you want to convince an owner to consider selling but you will get what you want.

We are not suggesting that any of these things will necessarily happen to you; in our experience, most people are honest. We are only pointing out the various risks and advantages that could occur. Careful diligence, research, and background checks are necessary to minimize the risks, and maximize the advantages. Don't be afraid to check references, experience, qualifications and licenses where appropriate. Hire a good Business Transfer Agent such as Pegasus Business Sales and save yourself time and money. The most experienced businessman in the country cannot hope to compete with an Agent whose life it is to transact business sales and Acquisitions.

Buying a business with a good set of figures is no guarantee that you will be able to make a success of it. In a small to medium business, those figures are often a record of what the previous owner did, and may be only a very poor predictor of how you will perform in the business. Most small business accounts do not show the true figures. If you do come across a business whose accounts reflect actual takings and expenses, expect to pay a higher price than normal. Some of these pointers might sound obvious, but there have been many triumphs of optimism over basic common sense, resulting in financial ruin for the people concerned.

In most cases, the Balance Sheet and Profit/Loss statements presented will be tax figures. You may be surprised to learn that many business owners go to considerable lengths to minimize, by legitimate means or otherwise, the amount of tax payable. This means that, in order to determine the true return to an owner of a business, we need to "add-back" certain allowable deductions in respect of financing costs and proprietorship issues not directly related to the operation of the business, to determine EBIT (Earnings Before Interest and Tax). These "add-backs" could include:

In each case, it would be necessary to verify these claims, as part of the "due diligence" process, which constitutes the last phase of the purchase process.

You may consider it odd that we have left discussion of this factor until last, but there is a very good reason for this. Most of the above questions can be resolved through your own research and diligence. But determining the value of the business is the stage of the purchase that requires Professional help, and therefore begins to involve you in Serious Costs. Unless you are happy with all of the above issues, it would seem pointless to advance to this stage. There are many books available on how to value a business. Most of them have masses of theoretical information, with formulae and graphs and reams of calculations. Most have not got the point that a Barber Shop has no value to a Plumber, but may have a lot of value to another barber, who wants to increase his own business. Basically, the purchase price should be such that the business can allow you to repay your investment in a reasonable time, having regard to the risks and effort involved. This might vary from 4-5 years in the case of, say, a Post Office Agency, down to less than 2 years, in the case of a pizza parlour or video hire shop. Manufacturing, service and wholesale businesses would generally fall somewhere in between, once again depending on the security, and level of assets involved. In general, it would seem wiser to pay a little more for a sound business, than less for a "bargain" that could send you broke. The total cost of acquiring a business should be taken into account, and can be divided into a number of components, covering both tangible and intangible assets.:

Tangible Assets

	Freehold Property (if applicable). This can be valued by comparison with other similar property in the area. Take care that the business is paying rent, or allowing sufficient return to cover imputed rent.
	Plant and Equipment. The book (depreciated) value may vary from the auction value, which may vary again from its "going concern", or current market value. This may occur if it has been subjected to accelerated depreciation, or expensed rather than capitalized. There is also the factor of installation, commissioning and tooling costs. Basically, plant and equipment in a profitable business is worth what you are confident it can earn for you, otherwise it is only worth resale value.
	Stock. You should ensure that you only purchase good and salable stock, at the Vendor's landed cost. The amount of stockholding should be at a level commensurate with the demonstrated stock-turn of the business, and historical logistics considerations. Excess or obsolescent stock should only be purchased if the terms are favourable.

	Intellectual Property. This is the value of licenses, leases, agreements, patents, processes, tooling and know-how, which are necessary to the successful operation of the business. Generally they would have cost time and money to accumulate, and would certainly cost time and money to duplicate. It is generally lumped in with "goodwill".
	Goodwill. This is the difference between the value of the business on a "return-on-investment" basis, and the net value of the tangible and intellectual property assets. A business acquires an element of goodwill if it can demonstrate to your satisfaction a reasonable expectation of future super profits in excess of the value of the other assets, so that the return on the total investment in the business is financially viable.
	Stock. You should ensure that you only purchase good and salable stock, at the Vendor's landed cost. The amount of stockholding should be at a level commensurate with the demonstrated stock-turn of the business, and historical logistics considerations. Excess or obsolescent stock should only be purchased if the terms are favourable.

In Scotland, there is a standard Contract for purchase of a business drawn by Business Agents, which enables you to secure the business, at the agreed price (effectively an option), with a nominal refundable deposit (usually no more than 10% of the agreed price) subject to a number of criteria, which you can set according to your circumstances. These can include:

Each of these conditions would specify a time frame. At the expiration of this time frame, you then have the option to reject the business, in which case your deposit is refunded, or confirm the contract by payment of the balance of deposit (10%). Settlement would then usually take place within 30 days.

Once you own the business, it is important to remember that the figures presented to you by the previous owner, were a record of his achievements in the business. They have no magical life of their own, and will only continue if you continue to operate the business. The business can be seen as a car. It will only move if you drive it, and it will only avoid the inevitable obstacles that will come your way if you operate the steering wheel and controls accordingly. I remember an ex Bank Manager who purchased a Fruit Shop. After the first month, he complained that the previous owner had lied about the figures. Even though he had conducted due diligence and a trial to verify the figures, the previous owner "must have faked them", because the business was now doing nowhere near the figures quoted. I approached the previous owner about this. He told me he had indeed lied about the figures - the real figures were actually 10% better than he had let on. The problem, he explained to me, was "you must-a sell-a da fruit". Where the new owner was sitting in his office watching and fretting about the figures, the previous owner had been out the front of his shop urging customers to "buy-a the lovely tomatoes".