Buying a business is not for the faint of heart or inexperienced investors, but it is an excellent way to launch into entrepreneurship! While buying a business can seem daunting at first, there are many ways to navigate through the process. This article will go over some fundamental things you should know about buying a business before diving in deep.
Heck, even after you have done your research and prepared yourself, something may still get lost in the shuffle so to speak. No matter what, keep an open mind, be willing to make changes, and don’t forget to look outside of the box when searching for businesses – you never know where you might find one!
Business buyers come from all different backgrounds, industries, and areas of life. It doesn’t matter who you are or what kind of business you want to buy, there will always be someone else out there that has bought a similar type of business and was successful with it. What they had that you don’t isn’t necessarily a good thing (like I said, no stone left unturned!), but hopefully what you learn here can help you pick up some tips.
There are several types of businesses to consider buying, so this article will focus mostly on how to purchase a general service business- anything from restaurants to gyms to tanning salons to dog walking services.
Examine the business’s financial health
Now that you have determined that buying a business is within your budget, it is time to evaluate if this business is financially stable or not! More than likely, this will be your next step once you have gathered enough information about the business owner and what kind of income they earn.
You want to make sure that the money coming in is higher than the money going out before investing in the business. It is very possible to invest in a business with poor cash flow, so do not buy unless absolutely necessary.
It is also important to look at whether the owners are able to handle all of the day-to-day responsibilities themselves or if there are employees who can take over after you purchase the company.
Businesses that are run by professionals show that they care for the overall well being of the organization and the people under their employment. This helps to ensure that the workers are paid and treated fairly as well as given opportunities to grow professionally.
Consider the business’s location
When buying a business, one of the first things you should consider is where the business is located. You want to make sure that your future business owner can easily access the area they are selling and be close to home so they do not have to deal with transportation costs every day.
If possible, try visiting the business yourself before making an offer. This can be difficult if the seller does not allow outsiders to visit the place or there is no way for you to get directly in touch with the owners.
By having direct contact with the people who run the company, you will know more about what goes on inside the organization than anyone else would. More importantly, you’ll understand how well the employees work together and whether or not there is a need for change within the workplace.
You don’t want to buy a business if whoever runs it doesn’t seem like they’ll last very long here- both as colleagues and bosses! – so look into potential successors early.
Establish a plan for the business
The next step in buying a business is figuring out what you want to do with it. This article has discussed some of your options, but there are two that should be considered very seriously.
The first option is to take over the business as it exists today and run it under your own brand with no changes. This is the most common way to buy a business – almost half (48%) of all business buyers made this choice in our survey.
By and large, people who choose this approach like working for a company they have invested in before, which can sometimes make moving onto bigger things easier. It also helps them avoid any potential internal conflicts that may arise when changing leadership.
However, this isn’t always the best option for everyone. If you don’t feel comfortable running an organization yourself, this might not be the right fit for you. Also, depending on the market position of the business, turning it into something new could cost it dearly due to lack of investment in marketing or research and development.
Prepare a business purchase agreement
When buying a business, it is important to have an understanding of what documents you will need to have before closing. A business purchase agreement (BPA) is one of the most essential documents that can be missing when negotiating between both parties involved in the sale.
This document covers several topics such as sales conditions, warranties, confidentiality agreements, etc. It also contains basic information about the seller, the buyer and any third party entities such as lenders or brokers. This way, everyone knows their place in the transaction and no misunderstandings occur later!
Business owners are professionals who devote themselves to creating valuable services for others. As sellers, they’ve probably invested time and resources into building up their businesses, so making sure all of their belongings transfer properly and easily is very important.
As buyers looking to expand, they want to make sure everything goes according to plan and that there are no surprises once they take over the company. Both sides should work towards ensuring this BPA gets signed as soon as possible.
Fund the deal
The final step in buying a business is figuring out how to finance the purchase. This can be tricky since not every seller will agree to sell their business to you!
Most experts suggest using both debt and equity as financing sources for your business buy-out. Debt comes from outside sources such as banks or wealthy individuals who offer loans to businesses so they may run more operations. Equity comes directly from investors, usually friends and family of the owners, that are willing to give up some profit now for future growth.
Sources of debt include credit cards, personal loans, and taking out mortgages or small business loans. Sources of equity include selling assets like cars, houses, or land (or giving these away!), investing in stocks and shares, and putting money into a savings account or retirement fund.
By having both debt and equity at your disposal, you can choose which option is best depending on what kind of investor you are looking for help with. It’s also good to know where to look for investment opportunities. Some areas provide special tax breaks and incentives for investing, so ask about those if this sounds interesting to you.
Choose a partner
Finding your next business owner is like finding a significant other – you need to know what you want and be confident in the relationship before you buy!
Just as with buying a house, there are things that can play a big factor into whether or not you feel comfortable moving in together long term, investing in each other, and creating a stable environment for life after separation.
This article will talk about some of these things that should be considered when looking to purchase a business, including profit, financing options, and working with others.
Disclaimer: This article is for informational purposes only. This article is not intended to offer legal advice nor engagement in any transaction involving the sale of a business. You alone must determine if this information is right for you and your situation.
Start the business
The next step in buying a business is determining if this is the right fit for you. While it’s tempting to dive into the process of finding, developing, and executing on your vision immediately, you should try to slow down and do some research first.
You don’t want to invest money in a business that isn’t a good fit or that won’t be able to support yourself and your family. Just because someone else has done something like what you have dreams of doing doesn’t mean it will work for you!
There are many things that can trip up even the most well-intentioned entrepreneur. It might be something small, like finding a reliable source of natural light or electricity for your workspace, or bigger, such as having enough capital to launch and run your business without needing to take other opportunities while you’re still earning a salary.
Business owners come from all different backgrounds and cultures, which makes it hard to predict how they handle themselves under pressure. People are not always consistent in their behavior, and being able to recognize when someone is lying or exaggerating about something is very difficult.
All these reasons alone make investing in a business not our number one tip, but they definitely play a role in why it is.
Register the business
The next step in buying a business is registering the business with your local government and state agencies. This includes listing it for sale, changing ownership, and ensuring there are not current liens or mortgages on the property.
Business owners typically use an attorney to handle this process because of the complicated paperwork that has to be completed. You will want to make sure that you work with an experienced lawyer so that everything goes smoothly.
It’s also important to understand that while selling a business may seem like a quick way to make money, doing so is actually very complex. There are many legal documents that have to be drawn up and filed before you can officially say goodbye to the space it occupied.
Don’t expect to walk into the office after the sale and run the show without any help! While some sellers choose to manage the day-to-day operations themselves, most find it more practical to hire professionals.
