10 Questions to Ask Yourself Before You Buy a Business In Singapore

As a business brokerage firm specializing in Singapore’s lower SME market, we often see enthusiastic acquisition entrepreneurs ready to leap into business ownership. However, acquiring a micro-SME (businesses with revenue typically below S$10 million) is a full-on endeavour. Unlike buying stocks, you are buying a highly illiquid entity that require your commitment over an extended period of time. Quite the opposite of looking for a job, in a sense.

Before you start browsing at business listing in Singapore or sign your first Non-Disclosure Agreement (NDA), I invite you to take a quiet moment to reflect on these 10 questions. It does make sense for you to take a few days or weeks to ponder over it, before you take any action.

1. How will you finance the deal?

I often come across enthusiastic acquisition entrepreneur looking to buy business in Singapore. However they often hit the road block in the late stage, when they discover that neither banks nor their ‘perceived’ investors are willing to provide them with monies. In the lower SME bracket, getting traditional bank loans as an individual is close to impossible as there simply isn’t any of such facilities. (Unless you are already a business owner with good credit rating)

• Self-Check: Do you have the financial resources? Do you have a committed bench of investors? Are you able to show the proof of funds during the early stage when requested?

• The Buffer: Remember, you don't just need the purchase price; you need "dry powder" for professional fees (to cover legal cost, due diligence) and at least 6 months of working capital. You will need to set aside an amount for business expansion too. E.g. marketing, hiring additional headcount, additional inventory purchase

  
  

Insight: If you are unable to finance the deal and have to pull out from the deal at the late stage, you would have wasted all the time and effort of the parties involved. Business brokers / M&A advisors may have reservation working with you in the future.

Next Article: What Is Seller Financing? How It Can Be Used In Businesses For Sale

2. What is your "Edge" over the current owner?

The current owner has run this business for the past 10, 20, or even 30 years. They know the ecosystem and the specific temperaments of their industry.

• Reflect: Why will the business perform better under your watch? Is it due to your ability to digitalize their operation? Your experience in regional expansion into Malaysia or Indonesia? Or perhaps you can bring in the capital needed for growth? If you don't have a clear "alpha," you may want to revisit your professional experience.

3. Do you have the bandwidth to source and close the deal?

Buying a business can a full-time job before it even becomes your career. At the very least, you need to set aside 5 – 10 hours a week for an extended period of time if you are serious about buying a business in Singapore.

• The Reality: It can take 6 to 24 months of searching, vetting 100+ teasers, meeting >20 business owners, and performing due diligence on 3–5 serious targets before one closes. Do you have the mental and temporal capacity to do this while maintaining your current day job? It’s necessary to make time to meet business brokers and business owners on a regular basis. If you are unable to make time for it, you might want to postpone this entrepreneurial acquisition pursuit to a later stage.

Next Article: The Role and Contribution of a Singapore Business Broker

4. Are you buying an investment or a job?

Many SMEs in Singapore are "owner-operator" models where the founder is the main person driving the business.

• The Distinction: Are you looking to acquire a business where you manage a team as a sleeping investor, or are you looking to be an active operator aka a job? While it may look the same, it requires a different set of consideration when evaluating these 2 types of investment opportunities.

5. What is your "Walk-Away" threshold?

"Deal Fever" is a real phenomenon. You spend S$30,000 on due diligence and suddenly you start ignoring red flags because you’ve already invested so much time and money.

• Strategy: Set a hard "red line" before you start. Whether it's an undisclosed debt of a certain amount or a lack of clear employment contracts for key staff, know exactly when you will walk away from the table.

6. What is your exit strategy?

It seems premature, but in M&A, you should "begin with the end in mind."

• The Goal: Are you building this to pass to your children, to sell to a larger private equity firm in 5 - 7 years, or to integrate it into a larger group? Your exit strategy dictates how you should manage the business from Day 1.

7. Are you prepared for a 60-hour work week?

The "100-Day Integration" period is brutal. You will be learning new systems, reassuring nervous employees, and potentially "firefighting" issues the previous owner managed via "gut feel."

• Expectation: Can you handle the transition from a structured corporate environment to the "all-hands-on-deck" chaos of a small firm?

Insight: There are individuals who are looking to acquire a business, in order to escape from the corporate grind. They might end up realizing that running a small business is more tedious and stressful. It’s likely to require more time commitment than their former corporate job.

8. Do you have the support and commitment of your family?

A business acquisition for an individual is a family decision. The capital you are risking is often the family’s safety net.

• The Conversation: Does your spouse understand that for the next 12–18 months, your time and financial resources will be heavily skewed toward the business? Without a solid "home front," the pressure of a new acquisition can become overwhelming.

9. What is the real reason for you to take on this risk?

"I want to be my own boss" is the most common answer, but it’s rarely enough to sustain you through challenging moment. (There will be plenty of such moment)

• Dig Deeper: Is it a passion for the industry? A desire to build a legacy? A specific gap in the Singapore market you are dying to fill? Identifying your "Why" will keep you grounded when the "How" gets difficult.

Insight: While this question might sound lame, I did came across a few acquisition entrepreneurs who wants to call it a quit 12 – 24 months after acquiring the business. Knowing your why is incredibly important.

Next Article: 6 Reasons Why People Buy Business in Singapore

10. Can you truly stomach the risk?

In the lower SME market, things go wrong. A key supplier might hike prices, a key account might move to a competitor, or a global pandemic could shift the landscape again. Imagine COVID 19 or Bird Flu strikes again in 2028…

• Final Check: If the business failed and you lost your initial investment, would you be able to recover? You must be able to sleep at night while knowing that the buck stops entirely with you.

A Note: The most successful acquirers in Singapore aren't the ones with the most money—they are the ones with the most clarity. They know exactly what they are buying, why they are buying it, and what they are willing to lose to make it work.

At Fey Day, we help SME owners to sell their business or fundraise. Explore our business for sales sg listings to take the first step towards owning your dream business in this region.