Buying an Existing Business – A Complete Guide
For most people, the idea of buying an existing business is more appealing than having to start from scratch and there are many reasons why this is so. One of the reasons is that somebody else has already covered a lot of ground for you, like establishing a good customer base, negotiating a lease and hiring employees. Still, it is important that you do extensive research to ensure that what you are being promised is what you get. Below is a step-by-step guide on how to buy an existing business.
WHAT TYPE OF BUSINESS FOR SALE SHOULD YOU BUY?
When looking for a business to buy, try choosing one that has some kind of connection to classes you have taken, skills you have, or perhaps the type of work that you have been involved with in the past or you are doing currently. Buying a business for sale you don’t know much about is a big mistake that can cost you a lot. Even if you manage to purchase the business, there are good chances that you will struggle with it later as you won’t have any experience with its core business function.
But the most important thing is that you select a business that excites you and which you have a lot of passion in. Your chances of making it in an industry are better when you enjoy being within the industry.
FINDING THE RIGHT BUSINESS TO BUY
The best place to begin searching for the right business to purchase is closer to home than you think. For example, if you currently work for a small business that interests you, ask the present owner if they are considering selling. Alternatively, you can ask friends or workmates if they know similar businesses that might be on sale. A good number of the best business opportunities come about from word of mouth and are most likely to be snapped up long before the owner puts them up for sale.
You might also want to check out online and newspaper ads, real estate brokers, trade associations and business suppliers for leads. Lastly, you can also work with business brokers. These are people who help business owners find buyers of their businesses and are paid a commission. While it is okay to use a business broker to find a good business opportunity, you should not rely on them because for them, any sale is worth a lot of cash in commissions. They will do everything to convince you to buy. You cannot count on them for advice regarding the fairness of selling price or quality of the business.
RESEARCH ON ITS FINANCES AND HISTORY
Prior to seriously considering buying a certain business, it is important to know as much about it as you can. Review copies of certified financial records of the company, like cash flow statements, accounts received and payable, balance sheets, employee files as well as any contracts and leases. Also take time to look into any previous lawsuits that the company might have been involved in.
This is what lawyers term as due diligence and it will help you if the company ticks and also warn you of any potential bottlenecks. For instance, if a lease bars you from taking the company over without the permission of the landlord, you will not want to close the deal without first getting that permission.
CLOSING THE DEAL
In case you have investigated a company thoroughly and wish to proceed with the deal, there are some more steps that you will have to take. Firstly, you will have to come into an agreement with the seller about a fair purchase price. The best way to come to the right price of the business is by hiring an expert appraiser. After that, you need to agree with the seller on the assets that you will purchase (for instance equipment and building) as well as the terms of payment. In most cases, businesses are bought on instalment plans after paying a sizeable deposit.
After outlining the terms agreeable to both you and the seller, the next thing is creating a written sales agreement which, if possible, should be reviewed by your lawyer before you go ahead and sign.
It is a big mistake to buy a business simply because it has been listed up for sale. There are a lot of other things that you have to do despite the fact that a lot of legwork has already been done for you by the previous owner. You need to research on the finances and its history before you can close the deal.
Looking to buy a business online? Make sure you go through the correct processes to ensure you are getting a good deal.