How to Buy a Small or Medium Scale Business in Nigeria: A Practical Guide

Are you looking for a way to invest your money, diversify your income, or pursue your passion? Buying an existing small or medium scale business in Nigeria may be a smart option for you. Unlike starting a business from scratch, buying a business allows you to skip the challenges of market research, product development, and customer acquisition. You can also benefit from the existing brand, customer base, and cash flow of the business.

However, buying a business is not a walk in the park. It requires careful planning, due diligence, and negotiation. You also need to consider the legal, financial, and operational aspects of the business, as well as the market conditions and industry trends. To help you navigate this process, we have prepared this practical guide on how to buy a small or medium scale business in Nigeria. We will cover the following topics:

• Key business metrics to evaluate
• Common pitfalls to avoid
• Process for taking over the business
• First steps to improving the performance of the business
• General good advice on running a business

Let’s get started!

Key Business Metrics to Evaluate

Before you buy a business, you need to evaluate its performance, potential, and value. This will help you determine if the business is worth buying, how much you should pay for it, and what areas you need to improve or change. To do this, you need to look at some key business metrics, such as:

• Revenue: This is the amount of money the business earns from selling its products or services. Revenue indicates the size and growth of the business, as well as its market share and demand. You should look at the revenue trends over time, as well as the seasonality and cyclicality of the business.
• Profit margin: This is the percentage of revenue that the business keeps as profit after deducting all expenses. Profit margin measures the profitability and efficiency of the business, as well as its pricing and cost management. You should compare the profit margin of the business with the industry average and the competitors.
• Customer lifetime value (CLV): This is the estimated amount of money that a customer will spend on the business over their entire relationship. CLV reflects the loyalty and retention of the customers, as well as the quality and value of the products or services. You should calculate the CLV of the business and compare it with the customer acquisition cost (CAC).
• Customer acquisition cost (CAC): This is the average amount of money that the business spends to acquire a new customer. CAC includes the marketing, advertising, and sales expenses that the business incurs to attract and convert customers. You should calculate the CAC of the business and compare it with the CLV and the industry average.
• Cash flow: This is the amount of money that flows in and out of the business over a period of time. Cash flow shows the liquidity and solvency of the business, as well as its ability to generate and use cash. You should look at the cash flow statement of the business and analyze its sources and uses of cash.

These are some of the most important business metrics to evaluate, but there are many others that you can use depending on the type and industry of the business. For example, you may want to look at the inventory turnover, the return on assets, the debt-to-equity ratio, the net promoter score, and the customer satisfaction rate. You can find more information on how to measure and analyze these metrics in this article¹.

Common Pitfalls to Avoid

Buying a business can be a rewarding and profitable venture, but it can also be a risky and costly one if you make some common mistakes. Here are some of the pitfalls that you should avoid when buying a business:

• Buying the wrong business for you: Not every business is suitable for every buyer. You need to find a business that matches your skills, interests, goals, and budget. You also need to consider the location, the culture, and the reputation of the business. Don’t buy a business just because it is cheap or popular. Do your research and due diligence before you make an offer.
• Signing contracts or agreements in your own name: When you buy a business, you are not only buying its assets and liabilities, but also its contracts and agreements with suppliers, customers, employees, and other parties. These contracts and agreements may have terms and conditions that are unfavorable or binding to you. To protect yourself, you should sign them in the name of the business entity, not in your own name. You should also review them carefully and consult with a lawyer if necessary.
• Not doing proper due diligence: Due diligence is the process of verifying and validating the information and claims that the seller provides about the business. It involves checking the financial statements, the tax returns, the legal documents, the customer reviews, the industry trends, and other relevant data. Due diligence helps you uncover any hidden problems, risks, or liabilities that may affect the value and performance of the business. You should conduct due diligence thoroughly and independently, and not rely solely on the seller’s word or documents.
• Not knowing why the business is being sold: The seller may have various reasons for selling the business, such as retirement, relocation, health issues, personal problems, or boredom. However, they may also have some ulterior motives, such as declining sales, increasing competition, legal troubles, or customer complaints. You should ask the seller why they are selling the business and verify their answer with other sources. You should also be wary of any seller who is in a hurry to sell or who is unwilling to disclose important information.
• Ignoring the company image: The company image is the perception and reputation that the business has in the market and among its stakeholders. It affects the customer loyalty, the employee morale, the supplier relations, and the public opinion of the business. You should assess the company image of the business and see if it aligns with your vision and values. You should also consider how you can improve or change the company image after you buy the business.
• Not having a favorable purchase contract: The purchase contract is the legal document that outlines the terms and conditions of the sale of the business. It specifies the price, the payment method, the closing date, the warranties, the representations, the contingencies, and the responsibilities of both parties. You should negotiate a purchase contract that is favorable and fair to you, and that protects your interests and rights. You should also have a lawyer review the purchase contract before you sign it.

Process for Taking Over the Business

After you have negotiated and signed the purchase contract, you need to take over the business and make it your own. This involves transferring the ownership, the assets, and the liabilities of the business, as well as introducing yourself to the stakeholders and implementing your plans. Here are some steps that you should follow to take over the business smoothly and successfully:

• Notify the relevant authorities: You need to inform the government agencies, the regulatory bodies, and the tax authorities that you have bought the business and that you are the new owner. You also need to register the business under your name and obtain the necessary licenses and permits to operate the business legally. You should consult with a lawyer or an accountant to help you with this process.
• Transfer the funds and the documents: You need to pay the seller the agreed amount of money and receive the documents that prove your ownership of the business. These documents may include the title deeds, the share certificates, the bills of sale, the contracts, and the agreements. You should verify that the documents are authentic and complete, and that they match the terms and conditions of the purchase contract.
• Take inventory of the assets and the liabilities: You need to take stock of the physical and intangible assets and the liabilities that you have acquired with the business. These may include the property, the equipment, the inventory, the intellectual property, the debts, the loans, and the obligations. You should inspect the condition and the value of the assets and the liabilities, and make sure that they are consistent with what the seller disclosed and what you expected.
• Meet the employees and the customers: You need to introduce yourself to the employees and the customers of the business and establish a rapport with them. You should communicate your vision and your goals for the business, and listen to their feedback and suggestions. You should also reassure them that you will honor the existing contracts and agreements, and that you will respect their rights and interests. You should try to retain the key employees and the loyal customers, and address any concerns or issues that they may have.
• Meet the suppliers and the partners: You need to introduce yourself to the suppliers and the partners of the business and establish a relationship with them. You should review the terms and the quality of the products or services that they provide, and negotiate any changes or improvements that you may want. You should also confirm that you will honor the existing contracts and agreements, and that you will pay them on time and in full. You should try to maintain the good reputation and the trust that the business has with its suppliers and partners, and resolve any disputes or problems that may arise.
• Implement your plans and strategies: You need to execute your plans and strategies for the business, and make any changes or improvements that you deem necessary. You may want to change the name, the logo, the website, the marketing, the pricing, the product line, the customer service, or the operations of the business. You should also monitor and measure the results and the impact of your actions, and adjust them accordingly. You should be prepared to face some challenges and resistance, and be flexible and adaptable to the changing market and customer needs.

First Steps to Improving the Performance of the Business

Once you have taken over the business, you need to focus on improving its performance and increasing its value. You need to identify the strengths and the weaknesses of the business, and leverage the opportunities and the threats in the market. You also need to set realistic and measurable goals and objectives, and implement effective and efficient actions and processes. Here are some first steps that you can take to improve the performance of the business:

• Conduct a SWOT analysis: A SWOT analysis is a tool that helps you evaluate the internal and external factors that affect the business. It stands for Strengths, Weaknesses, Opportunities, and Threats. You should conduct a SWOT analysis of the business and identify its competitive advantages and disadvantages, as well as the potential risks and rewards in the market. You should use the SWOT analysis to formulate your plans and strategies for the business, and to prioritize your actions and resources.
• Analyze the financial performance: You should analyze the financial performance of the business and see how it compares to the industry standards and the competitors. You should look at the key financial ratios, such as the gross profit margin, the net profit margin, the return on investment, the current ratio, and the debt-to-equity ratio. You should also look at the cash flow statement and the income statement of the business, and see how they reflect the revenue, the expenses, and the profit of the business. You should use the financial analysis to identify the areas where you can increase the income, reduce the costs, or improve the efficiency of the business.
• Analyze the customer behavior: You should analyze the customer behavior of the business and see how it affects the sales and the retention of the business. You should look at the customer segments, the customer profiles, the customer needs, and the customer preferences of the business. You should also look at the customer feedback, the customer reviews, and the customer complaints of the business, and see how they reflect the satisfaction, the loyalty, and the referrals of the customers. You should use the customer analysis to identify the ways that you can attract, retain, and delight the customers of the business.
• Analyze the market trends: You should analyze the market trends of the business and see how they influence the demand and the competition of the business. You should look at the market size, the market growth, the market share, and the market segmentation of the business. You should also look at the industry trends, the technological trends, the social trends, and the environmental trends of the business, and see how they affect the opportunities and the threats of the business. You should use the market analysis to identify the gaps and the niches that you can fill or exploit with the business.
• Implement the best practices: You should implement the best practices of the business and see how they improve the quality and the value of the business. You should look at the best practices of the industry, the competitors, and the successful businesses, and see how they apply to your business. You should also look at the best practices of the management, the marketing, the operations, and the customer service of the business, and see how they enhance the performance and the reputation of the business. You should use the best practices to benchmark and standardize your actions and processes, and to differentiate and optimize your products and services.

General Good Advice on Running a Business

Running a business is not easy, but it can be rewarding and enjoyable if you follow some general good advice. Here are some tips and tricks that can help you run a business successfully and sustainably:

• Have a clear vision and mission: You should have a clear vision and mission for your business, and communicate them to your stakeholders. Your vision is your long-term goal and aspiration for your business, and your mission is your short-term purpose and direction for your business. Your vision and mission should guide your decisions and actions, and inspire your employees and customers.
• Have a strong team and culture: You should have a strong team and culture for your business, and nurture them with your leadership. Your team is your most valuable asset and resource for your business, and your culture is your shared values and beliefs for your business. Your team and culture should support your vision and mission, and foster your collaboration and innovation.
• Have a solid plan and budget: You should have a solid plan and budget for your business, and follow them with your discipline. Your plan is your roadmap and strategy for your business, and your budget is your estimate and constraint for your business. Your plan and budget should reflect your vision and mission, and align with your goals and objectives.
• Have a customer-centric approach: You should have a customer-centric approach for your business, and deliver it with your excellence. Your customer is your most important stakeholder and source of income for your business, and your approach is your way of meeting and exceeding their expectations. Your customer-centric approach should involve your research and analysis, your product and service development, your marketing and promotion, and your customer service and support.
• Have a growth mindset and attitude: You should have a growth mindset and attitude for your business, and demonstrate it with your actions and results. Your mindset is your way of thinking and learning for your business, and your attitude is your way of feeling and behaving for your business. Your growth mindset and attitude should embrace your challenges and failures, and seek your opportunities and improvements.

We hope that this article has given you some useful and practical information on how to buy a small or medium scale business in Nigeria. We wish you all the best in your business venture, and we hope that you will enjoy the journey and the rewards of being a business owner. Remember, buying a business is not the end, but the beginning of your entrepreneurial adventure!