Buying a business requires a significant amount of capital. But with the right amount of research and due diligence, it’s possible to buy a small business that aligns with your skills, interests and resources.
Buying an existing business is a popular option for entrepreneurs who want to skip the time-consuming process of starting their own company from scratch. Here are some things to keep in mind as you shop around.
Do Your Research
Buying an existing business is a great way to skip many of the startup costs and growing pains associated with starting a business from scratch. However, it’s important to do your research before making any final decisions. You’ll want to find a business that aligns with your skill set, passions and resources. In addition, you’ll need to determine why the current owner is selling their business. This could be anything from they are ready to retire, the business is not profitable or there are serious issues with the company’s reputation or product line.
It’s also crucial to understand why you’re buying an existing business and what your financial goals are. Be sure to consult with independent financial advisers, accountants and small business advisors before proceeding. This will ensure you have the proper tools to make a successful purchase. It will also help you create a detailed budget to evaluate potential costs like increased advertising expenses after taking over the business, labor savings from hiring your own team and inventory purchases.
Find a Business Broker
A business broker helps facilitate the buying and selling of businesses by serving as an intermediary. A good broker will have experience and knowledge of the business for sale process and will be licensed and insured to ensure they adhere to all industry standards and regulations.
When selecting a business broker, consider their reputation and track record. Ask for examples of similar industry sales and request their marketing plan to see how they will work with you to connect buyers and sellers.
While brokers do earn a commission on the sales, their specialized experience and knowledge of the market help you avoid leaving money on the table as a seller or paying more than a fair price as a buyer. In addition, they can help you find a business that aligns with your goals and passions and guide you through the purchase process. You can also get referrals from other small-business owners and check online listings for business brokers in your area.
Do Your Due Diligence
You should always exercise due diligence before making any big business decision. This means carefully researching the business and verifying important facts, such as financial statements, legal research and understanding the market position and growth potential of the company.
This process is especially important in high-stakes transactions, such as the purchase of a small business. Without due diligence, you could end up with a business that has skeletons in the closet and leaves you with serious issues.
This is why it’s important to prepare a due diligence checklist before you begin the buying process. This list of questions will help you cover all of the necessary areas and leave no stone unturned, so you have a complete picture of the business’s finances, operations and more. You should also do reputational due diligence by checking for negative publicity, drops in customer satisfaction and other issues that could impact the business’s future. In addition, you should ask the seller to provide you with all insurance documentation and look for a history of any claims or lapses. Head on over to bizop to learn more.
Negotiate the Deal
When you have completed your due diligence and are ready to purchase a business, you and the seller should work together to establish terms for the transaction. The terms are usually documented in a written agreement. Your attorney can draft these agreements and advise you on legal issues that may arise in the course of negotiations.
Purchasing an existing business is a great way to bypass the start-up costs and growing pains associated with starting your own business from scratch. The process can be complicated, however, and it is important to do your homework before you get started. Follow these seven steps to navigate the process of buying a small business: Find the Right Business for You | Know Your Numbers | Do Your Research | Find a Business Broker | Do Your Due Diligence | Negotiate the Deal. Once you’ve mastered these tasks, the rewards of owning your own business can be tremendous. Good luck!