While many entrepreneurs choose to start their own business, just as many choose to buy an already established business. Not only do they avoid starting a business from scratch, but they can acquire an up-and-coming competitor and build their investment portfolio.
But, it's not as simple as it sounds.
Buying a business is a complex process and entrepreneurs looking to do so should spend sufficient time researching the market, shopping for the right business, negotiating with the seller, and finally closing the deal - this process could take months to years to complete depending on the complexity. While you don't have to start from scratch, you inherit both the good and the bad depending on what type of business it is and how the deal is structured.
Let's discuss what you should know if you are looking to buy a business.
1. Prepare Yourself and Your Family
If this is your first business, one of the most important things you can do before making this big life decision is to prepare yourself and your family. Take the time to assess your strengths, weaknesses, tolerance for risk, time available to work in and on the business, and your financial situation.
- How are you funding the purchase of the business? If it's your own money, how much are you willing to invest? Does this number include additional investments in the future?
- Are you financially prepared if the business takes longer than anticipated to provide the expected revenues and profit?
- Are you ready to put in long hours as needed to ensure the business is successful?
- Will you still be able to fulfill your personal responsibilities and goals while running the business?
- Do you need to recruit anyone to complement your skills set?
Bringing your loved ones into the conversation and having their support (and insight) will make the challenging days running your business more manageable.
2. Determine the type of business that you want to buy
Determining and narrowing down your passions, interests, experience, and goals will ensure you find a business that aligns with intentions. What industry are you interested in? Are you an expert in a certain field where you can use those skills in your business?
Additionally, you should consider if you want to buy an independent business or a franchise.
Franchises offer plenty of support and a network of resources, but the franchise company and customers will have certain expectations. Whereas, an independent business frees you up to make decisions based on your own preferences and goals.
3. Find a business to purchase
Once you've determined the type of business you want, it's time to go out and find one available to purchase. Thankfully, with the internet, it's much easier to do so.
Entrepreneurs can find businesses through:
- Online business marketplaces
- Newspaper ads
- Referrals from your network and friends
- Calling local businesses
- Networking with other business organizations and professionals
- Working with a business broker
Discuss and look in as many places as possible. Then, narrow down your list until you find the one that best suits your budget, goals, skills, and resources.
4. Evaluate the business
Congratulations! You selected the business you want to buy. But don't let that excitement cause you to rush the process.
It's now time to get the full financial picture by signing a letter of intent (aka an LOI) with the seller and entering the due diligence review period. It's during this process that you will get access to any financial and legal information that will help you finalize the sale.
Ask for balance sheets, financial statements, tax returns, lists of products and services, any inventory and contracts included in the sale, history of the business, any required licenses, future obligations or warranties, and even consider asking the owner to provide guidance as you take over.
5. Secure your capital
After your full review, it's time to focus on how you will fund this purchase. Luckily, there are many ways to finance your purchase that don't involve draining your life's savings.
- Small business administration (SBA) loans
- Business acquisition term loans
- Seller financing
- Business partner(s)
Keep in mind that when buying a business with a partner or investor money, you'll want to be clear on how much they will be involved, what their share of revenue and expenses will be, and how you will handle any conflicts.
6. Close the sale and start your new journey
It's time to close the sale. Meaning your months of research, dedication, and work have finally paid off.
After reviewing the sales agreement with your team, you can purchase and officially transition into ownership. Spend at least the first thirty days getting to know your employees, how the business functions, and assessing what changes need to be made.
Most of all, don't forget to celebrate your accomplishment in making your dreams as a business owner come true!
Are you looking to buy a business or start your own? Or, maybe you're in mid-process, but feeling lost, dazed, and confused?
Wherever you are in your journey, we are here to help. We use our personal experience and expertise to ensure you are protected legally so you can focus on what really matters.
Meet with us and we'll get to know you and your goals to guide you through the steps to business ownership.