Buying a business can be a more straightforward way to operate a venture without having to navigate the legal and financial complexities of establishing a business from scratch. It often saves time and effort that would have been invested in establishing a business from scratch. Whether it is an existing business or a new one, buying a business can be incredibly rewarding and beneficial, especially when the business has a good foundation. However, it does not eliminate the need for thorough background research, reviews, and inspections. This article examines how to buy a business in Nigeria and the considerations before finalizing your purchase.
HOW CAN I ASCERTAIN MY READINESS TO BUY A BUSINESS?
Before you proceed to seal the deal, it is essential that you first count the cost before you leap. In other words, run a check on your readiness to buy and operate a business by simply following the guide below:
- Identify the type of business and business structure you wish to purchase
- Determine the potentiality or success margin of the business you want to purchase
- Determine the amount of capital you want to invest in the success of the business
- Ensure you are emotionally and physically ready to handle to pressures and demands of the business
- Set your personal goals, growth plan, and standards of achievement
- Have a clear vision or projection of the business
The above list is inexhaustible. However, considering the above guidelines is a great way to start if you are looking to take a step in buying a business.
WHAT ARE THE PROS AND CONS OF BUYING A BUSINESS?
Now that you have ascertained your readiness to purchase a business, we will look at the pros and cons of buying a business
Pros of Buying a Business
- Proven Foundation – Purchasing an existing business provides you with an established customer base, a trained team, a functional business plan, and a running operation.
- Revenue Advantage – The most attractive acquisition opportunities often already generate steady sales and profits, whereas starting a new venture can take considerable time to build revenue and achieve profitability, with a much higher risk of failure.
- Easier Financing – The assets of the acquired business can serve as collateral to secure funding, making lenders more willing to approve loans compared to funding a start-up.
- Vendor Support – In many cases, current owners assist with the purchase by offering vendor financing. This not only serves as patient capital but also encourages the seller to ensure a seamless transition, as they remain invested in the business’s success.
- Industry and Market Access – Buying an existing company can be an effective strategy for entering a new industry or expanding into a different region where you have limited contacts or experience.
Cons of Buying a Business
- Staff Challenges – Employees may choose to leave when new management takes over, particularly if they are unhappy with the transition. Some departures may also involve costs such as severance or other entitlements.
- Reputation Issues – The business might carry a poor reputation that can be difficult and costly to repair.
- High Cost of Goodwill – Building or regaining customer trust and goodwill can require significant time and financial investment.
- Inherited Obligations – You may be required to uphold contracts entered into by the previous owner, even if they are unfavorable.
- Lease or Tenancy Complications – The lease or tenancy arrangement could present difficulties, especially if the relationship between the landlord and former owner was strained.
- Space Limitations – The existing premises may be too small, restricting the business’s potential for future growth.
- Vision Mismatch – Introducing your vision can be more challenging in an established company with its own culture and history compared to expanding a business you already own. Some entrepreneurs, however, prefer the thrill and satisfaction of launching a new venture or expanding an existing one, where they can shape the direction and identity from the ground up.
HOW TO BUY A BUSINESS IN NIGERIA
- Conduct a market survey and sourcing
This is where you source the kind of business that best fits your style and vision, either through the appropriate channel, usually through a merger and acquisition firm, or your advisors and business contacts.
2. Explore your financing options
Before purchasing a business, consult with potential lenders and investors to understand your funding possibilities. Most banks are willing to review your financial standing and discuss what type of deal may be feasible. Doing this in advance helps you avoid committing to a purchase agreement you can’t afford to finance.
3. Meet with the seller
At this point, you have been able to determine the kind of business you wish to purchase. Meeting with the seller will close the gaps in information about the business you may not get from third parties, agents, or just by observing from the outside.
4. Engage legal and finance professionals to guide you through the process
At this stage, hiring legal and finance professionals is required to handle areas of due diligence, valuation, negotiation, and documentation. A legal expert (preferably a business or commercial law expert) will assist with conducting legal due diligence on the legal aspects of the business in question, while a finance expert will interpret the financial records of the business and provide insight on the financial position of the business if it’s in operation. If you’re planning to purchase an existing business, below are some of the areas to be reviewed:
Incorporation documents: You can request this from the seller or run a search on the business or company incorporation portal to determine the status of the business as well as the originality of the documents.
Financials: Request for up-to-date financial statements or accounting records of the business. This will help identify the assets and liabilities of the business. Having a debt-free business is a breath of fresh air that should never be ignored.
Tax Returns: It is important to know whether the business is up to date with the payment of taxes and that there are no outstanding taxes to be paid
Licenses and Permits – Determine which federal, state, and local licenses or permits are required to operate. Find out whether the licences or permits are one-off or subject to renewal. You may need to obtain these directly from the current owner or apply for them yourself.
Compliance with Regulations – Verify that the business complies with local, State, and federal laws, as these regulations can impact how the business operates.
Environmental Considerations – If the purchase includes real property, investigate any environmental regulations or restrictions in the area to avoid potential liabilities.
Staff List and Payroll: Having knowledge of the number of staff and the payroll will help determine the capacity or quality of staff you would be working with and whether there is any outstanding remuneration or salaries yet to be paid.
5. Negotiate
Negotiation is a critical stage in buying a business, as it determines not only the purchase price but also the terms, conditions, and future success of the deal. It’s important to highlight the fact that the outcome of a due diligence exercise gives clarity on grounds for negotiating the transaction in your favour. A successful negotiation balances your interests with those of the seller while ensuring the transaction remains fair and sustainable.
6. Prepare agreements and ensure adequate handover
Once the terms of purchase are favourable to both parties, you can engage the services of a legal practitioner to draft a proper and detailed agreement to better capture the intent of all parties involved. This will pass as evidence of the existence of an agreement where a breach occurs.
7. Payment and signatures
After the price or consideration has been paid, parties can then append their signatures to the agreement. At this point, the seller can now hand over all documents about the business to the buyer.
8. Seek regulatory approvals where applicable
Where the business is large, several documents have to be filed with the Securities and Exchange Commission (SEC) and the Corporate Affairs Commission, notifying them of the said transaction and change of ownership.
Some business purchase transactions may not follow the steps listed above in the order it has been laid out in this article as a result of special circumstances that may arise in the transaction. However, each step highlighted is vital to ensuring a successful business purchase transaction.
CONCLUSION
Buying a business can be one of the most rewarding decisions you can make. It offers a ready-made foundation for growth, profit, and long-term success. However, a successful acquisition requires more than just capital. It demands careful planning, thorough research, strategic negotiation, and a clear understanding of the risks and opportunities involved. By conducting due diligence, securing the right financing, and ensuring the business aligns with your vision and goals, you position yourself to make a purchase that not only sustains itself but thrives under your ownership. With the right approach, buying a business can be the fastest path to entrepreneurship and a powerful way to build lasting wealth.
For inquiries on how to buy a business in Nigeria, or how we can help with buying a business in Nigeria, you may contact us through the WhatsApp icon on this page or send an email HERE, and we’ll respond to you.
