Making decisions
Once a review of the business has been undertaken then the prospective purchaser is left with two key questions:
To buy or not to buy; and
How much to pay
Both of these questions are critical and it is important that careful consideration should be given before making a decision. Advice should be sought to ensure that the risks are properly considered and an appropriate price paid.
Whether to buy
Making this decision can be difficult and there are many factors to consider. Those with experience in the particular market or involved in the business have the advantage of improved information with which to make a decision.
Key areas to consider and address include:
What was the cause of the failure of the business and has this cause been addressed;
Is there room within the market for the business, does it operate a niche and how does it compete (price v quality);
Is it currently a viable business and/or what needs to be done to improve its performance. What is the cost of achieving this;
What is the investment strategy, is it a short, medium or long term investment, what is the likely exit strategy and what needs to be achieved to realise this;
Are key customers, suppliers, landlords, plant and machinery finance companies, etc. willing to support the business in the future; and
Have any actions taken by the Insolvency practitioner affected the deal, such as loss of key employees or customers or sale or return of key items of plant.
There will always be an increased risk of purchasing distressed businesses and these risks have to be weighed against the opportunities and the price that is paid.
Information relating to offers is covered on the next page.
