When saying the phrase ‘getting into business’, do you think about a startup? If so, you’re not the only one. Most people think about starting a business from scratch, but you should know that there is also the alternative of buying existing business. Today we are going to look at a checklist with factors you should consider when you decide to do it to maximize your profits. But first, let’s see why are people selling their business.
Why Do People Sell a Business?
The common misconception is that if someone decides to sell their business, something’s wrong with it. Many people choose not to take this step for fear that the founders are hiding something from them and they’ll end up with a bad business on their hands. Truth is that there are plenty of reasons for which founders sometimes decide to sell the company. Most of the time, the reasons are personal: they moved to a different life stage, their lifestyle is not compatible with the business needs anymore, they might be bored of their business or got excited about a new project, for instance. Now that we got this out of the way, we can move on to our checklist.
Buying Existing Business to Maximize Profits
1. Choose Wisely
We cannot stress how important it is to choose the right business. This decision is going to make a huge impact on various aspects of your life. For this reason, there are several things you should keep in mind when considering one company or another:
- Lifestyle – Are you ready to fully commit to the needs of a growing business? Would you rather work the typical 9-to-5? Think whether you can handle the business you want and if you’re willing to compromise on it.
- Industry – Do you have experience in the field you want to enter? Why are you passionate about something? What hobbies do you have? These questions may help you see if a business is suitable for you or not.
- Size – Do you plan to buy a small family business? Or, on the contrary, you are ready to take over a large enterprise? The latter comes with bigger profits as well, but the prices will go higher and there will be more stress involved.
- Location – Is the business close to home or are you willing to move? Keep in mind that the location of a company affects the taxes, the costs, as well as other financials.
2. Research Other Available Businesses
When buying an existing business, it’s essential to be well-informed. Start with baby steps: ask your friends if they know somebody or if they have a company for sale. Or you may be already working for a company whose owners want to sell. Then, slowly extend your search. Check with your business contacts and see if they can help you, and only then look it up on Google. However, pay attention to any potential bad deals and don’t stay any minute longer if you notice there are red flags.
3. Ask a Business Broker for Help
If you’ve completed step #2 and still haven’t found what you’re looking for, you might want to ask a business broker for help. In case you’re not familiar with the concept, you should know that the business brokers are like real estate agents. They charge you a commission, usually 5 – 10% of the purchase price. Here’s what they can do for you:
- Prescreen business;
- Help you decide on an interest or skill;
- Assist with paperwork.
4. Do Your Homework
So, you’ve found a great business. It may look amazing at a first glance, but that doesn’t mean you shouldn’t do your homework anymore. This process is called due diligence and it presupposes you putting together a team and analyzing the depths of the company. Even if you don’t work with a broker, you’ll still need an acquisitions attorney. Moreover, you need a special firm to apply various business valuation methods and see what’s the company’s worth.
5. Get the Required Funding
Even though buying existing business can bring you plenty of benefits, it is an expensive step. People who have a financial backer or are already wealthy may do it without funding, but the rest needs to find some financing sources. After you decided on a company and a price, you can consider these financing sources:
- Seller financing – In this case, the seller lets you pay the entire amount over time. Usually, they will charge you the interest for the amount, but it’s still the best choice if you have the possibility to do it.
- Angel investors/ venture capital – With this option, you will work with somebody else to purchase the business. Thus, they will be the financial investor, and you’re the on-the-ground operator. In case the business succeeds, your profits will grow too. However, if it fails, you won’t need to pay debts to a company that’s not making any money.
- Business loan – A term loan can also be the solution if you decide to buy an existing business. You can apply for one at a traditional bank or simply look for an alternative online lender. The downside here is that your personal financials influence your chances of getting the loan or not.
6. Write the Sales Agreement
The final step when buying existing business with the hopes of maximizing your profits is to write the sales agreement. Again, it’s essential to have a reputable acquisitions attorney. Before you sign, take all the time you need to understand the written terms. Remember there’s no turning back after you sign, so ask all the questions you need beforehand.
Finally, the entire process isn’t so complicated. Pay attention to the important steps: think if the business suits your needs and wishes, analyze it thoroughly to see if there are no problems with it, settle for a good price and find some good financing sources if you need them. In the end, be careful with the terms of the agreement since you can’t change them once you’ve signed. Put together a team of specialists to help you with the technicalities and good luck with maximizing the profits!
Image source: depositphotos.com