Many new business owners decide that purchasing a going concern is an easier way to get into a certain market. Buying a business that is already in operation allows you, quite simply, to step into the shoes of the current owners and continue to run the business as it is currently being run.
In reality, it is not quite as simple and there are multiple additional considerations that come into play when purchasing a going concern.
Businesses tend to fall into one or more generic categories that have the same sorts of characteristics as each other and, therefore, react in a similar way to market fluctuations and other unexpected events.
One of the largest divides is between service and product based businesses. Quite simply, a service based business sells the time of staff, for example, a legal firm or a cleaning company, where the main asset is the employee’s time.
Finding suitable job applicants, interviewing them, obtaining references, agreeing salaries and other benefits can be time consuming and expensive for an employer. Even after an individual has been appointed, this new member of staff may require a lengthy induction and training programme before they become a productive member of the company’s workforce. Human Resources departments face an increasing burden, not just in the recruitment area; like other sections of an organisation they, too, often find themselves stretched.
In order to maintain business continuity, companies need to adjust their staff numbers to match their changing workload. In many cases, staffing levels will follow a company’s budget cycle. For example, if a major new project is to be initiated, budget approval will be required in advance for the purchase of necessary equipment and services, together with forecasts of additional personnel costs.
Because of the volume of paperwork involved in the recruitment process, much of which results from the need to comply with anti-discrimination legislation, recruitment campaigns need to be planned carefully in advance, wherever possible.
Without the right staffing balance, a business cannot expect to be a success. Recruiting suitable staff, as and when they are needed, at remuneration levels that the company can afford, is vital for the continuing prosperity of any type of business.
Due diligence is the official process, often conducted by lawyers, of appraising a business that is already in existence. A thorough due diligence involves an in-depth scrutiny of all aspects of the business, not only to ensure that all relevant information is known, but also to ensure that the price being paid for the business accurately reflects the true status and value of the business.
Having decided on the type of business that is likely to prove successful for you, given all the factors such as your personal skills, available time and personal motives, then it is important that you turn your attention to assessing the actual business itself.
The process of analysing an existing business before you buy it is known as ‘due diligence’. This task is an absolutely vital part of the purchasing decision. Similarly, the process of analysing a potential start-up is just as important, but is based more on projection and supposition, meaning that a greater degree of caution is needed.
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