How to Buy a Business
How to Buy a Business
If you would like to own and run a business, but don't want to go through the start-up process, buying an existing business may be easier and can offer many advantages.
There are lots of reasons to buy a company. Purchasing a business for sale allows you to jump into an already existing business that has established its clientele and identified and targeted its market.
There is often less risk involved in buying an existing small business for sale because it already (hopefully) has started to turn a profit, hired the staff necessary, and put the mechanisms in place to do the work needed.
When you purchase companies for sale, it also is usually easier to obtain financing for the business than it would be for a start-up.
While there are a lot of business opportunities available if you are looking to buy a company for sale, there are also reasons to be cautious when considering a business to buy. Buying a small business outright can be more costly than starting one from the ground up, so you will need cash in hand or financing to make the purchase.
There are many reasons to be cautious. You don't want to buy a business with outdated inventory, manufacturing, or distribution processes. You should avoid businesses with uncooperative employees. Most importantly, evaluate if this is a business that can grow and thrive in the future. You will also want to be sure this is a business that can continue to run successfully with a new owner.
Find Your Sweet Spot
While it may be relatively easy for you to find an online business for sale, it is important to choose carefully, both online and off.
- Look only in industries in which you have some knowledge or experience, and be sure the business is something you can be passionate about and devote your time and energy to.
- You also should consider where the business is located: Is it convenient for you? What about the tax rates and cost of doing business in that area?
- Also look at the size of the business. Is it manageable for you and yet large enough to turn a profit?
How to Find a Business
Now that you've decided you want to buy a business and have some idea of what you are looking for, how do you find a business for sale by owner?
- Talk with people in the industry or region you are targeting. Often an owner may not officially be selling a business, but, when presented with the right opportunity, the owner may become interested.
- Check newspaper ads, as well as ads in trade association newsletters and industry publications.
- Business brokers are an excellent way to locate a business to buy. Expect to pay a commission for the service, which is well worth it since a broker can help you pinpoint a good deal, evaluate your options, help negotiate a price, and assist with the purchase paperwork.
Sifting Through the Options
Once you have some businesses to consider, you need to carefully evaluate them.
- What kind of market share do they have? Are they profitable?
- Is the company one that can grow and is this an industry that can support growth?
- What kind of changes are necessary?
- What kind of reputation does the company have?
- What kind of credit does it have available?
- What are the assets and debts of the company?
- What kind of business structure is in place?
Be sure also to consider the current marketing plan, accounts payable and receivable, profit and loss statements, lease agreements, insurance, organizational chart, and asking price. And don't forget to determine why the owner is selling.
When you consider how to buy a business, keep in mind that you need a team of people to help you through the process.
In addition to a broker, you need an accountant, a lawyer, and a banker who can evaluate the financials, handle the legal documents, and assist you with the financing as part of the due diligence necessary. These professionals can evaluate all of the documentation you'll be working with and help you make an informed decision. You may also want to work with an appraiser who can establish a fair value for the purchase price.
Purchasing a business can be a great way to make a profit and follow your passion—if you engage the help you need, and choose wisely and carefully.
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