Starting a business from scratch is not the only way to get into business. You can buy an existing business outright or buy into an existing business. There’s an opportunity to create a platform that allows people to buy or buy into businesses and sell businesses. Providing a marketplace for such transactions is nowhere near simple but can certainly be made and successfully so.
To be successful the platform would need to provide an environment that facilitates the processes involved in the sale of a business. And while you may initially think it’s simply the sale of a business entity that is incorporated to someone else businesses tend to have complex setups. Add to the tax issues brought into the mix Income tax, Capital Gains Tax and Value Added Tax you have some very tricky situations involved in the process. It is wise to have experts in those fields providing ancillary services to those who need them. Your platform will facilitate transactions but provide access to those experts where necessary.
Business vs assets – there’s a difference
It’s important to note the difference between the sale of a business and the sale of business assets. The best way to draw this distinction is to illustrate with the example of a retail market or grocery store. If you buy the building that is the sale of an asset, the premises. If you buy the building, stock, employees, contracts and all other systems involved that is buying the business. While your platform can cater to the sale of business assets as well, we will focus on the sale of complete businesses.
Listing and Introductions
Primarily you will need some sellers to get the platform rolling. You will need to create a listing system and structure. It’s easy to say you can do this online but there is a lot to consider. The questions a business buyer would have will sooner or later include financial information. This is, of course, very sensitive information and cannot be listed immediately. You will position yourself as a transaction broker and those experts I spoke about earlier will come in handy here. Your listing process should include sufficient information about the business to solicit enquiries from interested parties.
Once a party has identified a business they are interested in buying into they enter a brokerage agreement with you. This agreement secures you as the intermediary for the deal and may also include a non-disclosure agreement. It is also smart to have a similar agreement with the seller of the business to secure your position.
After facilitating the introductions your job is helping the parties through the negotiation process. This is where issues to do with registration, taxation and other legal matters are ironed out. You advocate for both sides of the transaction through your revenue source will inform on this. Many hurdles need to be overcome in some complex businesses. For example, a franchise business would need the new business owner to agree to all franchise terms in their agreement. Your role in this phase is to make sure both parties are fully aware of the implications of business acquisition.
It is customary but not always the case that the facilitator or agent, that’s you, is paid from the proceeds of the sale. Therefore the buyer of the business pays you. A commission fee works best and this is gross, so from the full purchase price. Other arrangements can be made including soliciting payment from both sides but this can be very tricky. For the seller, tying your interests to theirs assures them of your motivations. For the buyer, your known end game eases the transaction for them.
The various types of businesses and their complex arrangements make going into detail difficult. It may be wise to specialise in businesses in a particular industry to start with and branch out as you go. Your role is to provide an introduction, negotiation and closing assistance for both parties.