Chapter 1: Buying a business — how it works

Buying a business is an alternative to starting from scratch. You take over customers, revenue, systems and often employees from day one, and you can see from the accounts how the business has performed. In return, you also take on the weaknesses that come with it, and you pay for earnings you have not yet created yourself. This guide follows the whole process in nine chapters: from the first search through price assessment, financing and due diligence to the negotiation and your first months as the new owner.

The guide applies both to digital businesses such as webshops, SaaS and content sites and to physical businesses such as shops, restaurants, trade and service businesses. The differences are greatest in due diligence and the takeover, and we cover them along the way.

Is buying a business right for you?

Before you start looking at listings, it is worth getting clear about what you want from a purchase. Your answers determine which businesses to look for, how much you can pay and how the deal should be structured.

• Do I want to work in the business every day, or am I looking for an investment with a manager who stays?
• Which industries do I know, and where can my experience make a difference?
• How large a purchase price can I realistically finance, and how much equity do I have?
• Can I live with the uncertainty of the first months, when earnings may fluctuate?
• Am I prepared to take over employees, customers and suppliers that others have chosen?
• How far am I willing to commute, or should the business be possible to run remotely?

Buy or start your own?

How buying a business works

1. Clarification: what do you want to buy, why, and how much can you pay?
2. Search: find businesses for sale, set up search alerts and a wanted ad, and express interest in businesses that are not for sale.
3. First contact and NDA: message the seller and sign a non-disclosure agreement to see the confidential information.
4. Price assessment: go through the figures, normalise the earnings and assess what the business is worth to you.
5. Financing: talk to the bank early and clarify equity, seller financing and any earn-out.
6. Offer and letter of intent: make an offer with your terms and conditions, and agree the main points.
7. Due diligence: go through the documents in the data room and get your findings clarified.
8. Purchase agreement: negotiate warranties, conditions and payment, and sign.
9. Takeover: pay, take over keys, access and customers, and get off to a good start as owner.

How long does it take?

It depends mostly on the size of the business and on how quickly the financing falls into place. A small webshop or content site that you pay for out of your own pocket can be taken over in a few weeks. Buying a physical business with employees, a lease and a bank loan often takes six months or more from the first search to the takeover. The search alone can take months, because the first business you look at is rarely the one that turns out to be right. Allow plenty of time, and do not let a seller or a bidding deadline push you into skipping steps.

What does it cost to buy a business?

The purchase price is the largest item, but far from the only one. Draw up a budget for the whole purchase before you make an offer:

• The purchase price and any stock, which is often settled separately on the takeover date.
• Advisers: an accountant for figures and tax, a lawyer for agreements and possibly an adviser with industry knowledge.
• Financing: arrangement fees, interest, any guarantee premium and the costs of security.
• Working capital: money for wages, rent and purchasing in the first months, before income comes in.
• Setting up a company, if you buy through a new company, and registering changes in the CVR register.
• Unexpected costs: replacing equipment, systems or employees that due diligence did not reveal.

Do you need an adviser?

You can buy a small digital business with a thorough checklist and Sitavo’s agreements. The larger and more complex the deal, the stronger the case for professional help. Remember that a broker is in most cases hired by the seller and looks after the seller’s interests, not yours.

You can invite your own adviser into the deal on Sitavo or find one among Sitavo’s advisers. See also Advisers on Sitavo.

How the buyer guide is structured

1. Buying a business: overview, time, costs and advisers.
2. Find the right business: listings, wanted ads, express interest and off-market.
3. Assess the price: normalisation, multiples and red flags.
4. Asset or share purchase: liability, agreements, employees and VAT.
5. Financing: equity, bank, EIFO and seller financing.
6. Due diligence: from NDA and data room to your findings.
7. Negotiation and agreement: offer, letter of intent and purchase agreement.
8. Takeover and the first 100 days: employees, customers and systems.
9. Buying from a bankruptcy estate: trustee, assets and risks.

If you would rather have a short version of the process, read buy a business – step by step. If you are ready to look, you can start with businesses for sale.