As many people think of starting a business, they probably picture you starting a company from scratch using your ideas, funding, time, and so much more. However, starting out from the bottom can have some disadvantages, including building up a customer base and hiring employees, marketing a brand-new business, and creating cash flow without any reputation to start on.
If you’re considering how to buy a business, use these tips to help you take over an existing business without taking up too much of you or your new business' time and money.
Decide What Type of Business
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Buying an existing business may have more upfront costs, but it also offers less risk than beginning a business from nothing. With an existing business, you can financially see profit and loss records overestimates and point to a clear sales history. You may also receive patent or copyrights, and you could even take over a business with an exciting new direction in your area of expertise.
Make sure the business you buy is one you can run. This decision will impact your life for many years, so you want also to be sure you’ve investigated all options before you purchase. Consider the future and what your business goals are, including:
Do Your Research
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Now that you know what type of business you want to buy and what you need to look for, you should research how to obtain a company and all the options up for grabs. Don’t plan on buying anything just yet, merely begin weighing your options. Before you get too excited, check that you have completed your homework. You don’t want to be surprised later.
Put out some feelers in your area to see if any friends or nearby businesses are looking for a new project. See if you know anyone who may already be interested in selling, or survey the owners of your favorite shop, the ones that you wish you owned. There’s no harm in asking owners how their plans for the future of their company appears.
Then contact your business acquaintances and research the internet for reputable marketplaces to buy businesses online. Even if you don’t want to purchase this way, you can get an idea of what is available and at what price. With online deals, you want to be especially careful to make sure the deal is legitimate.
Consider the Cost
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Find out what exactly is included in the asking price and what’s actually for sale. What assets will you receive if you purchase the business? How much money is the business currently bringing in and what debts do they owe? Ask for details if anything is left unclear or unsaid and find out if the assets they list as free are free. Look at all the details.
Scour through the business’s past financial statements and figure out who prepared the data you’re taking in. An accountant may include a review detailing their findings, or you can have your own audit performed if you think the business records could be misleading.
Compare your findings with those of other businesses until you arrive at a price and business you feel confident taking on. You want to make sure you’ll get a good return on your investment, so if you struggle here, you can always hire a professional business valuator.
Hire an Attorney
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A qualified attorney can help you review the legal aspects of buying a business. They will go over organizational and legal documents of the business you plan to purchase to make sure everything is in order, which can drastically help with the purchasing process. But they also can write partnership agreements, buyout clauses, and anything else you may need in creating a financial partnership (if that’s how you plan to pay for the business).
Acquire the Funding
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The benefits of purchasing a business amount to the fact that the hard work is already done, which is also why the price tag is often higher than if you started your own business. Unless you’re wealthy or have a wealthy backer, you will need to acquire the funding you need to buy the business.
Once a price has been set, and you know the exact number that you need to come up with, you have a couple of options to consider:
- Business loan – Available from a traditional bank or an alternative online lender, a term loan can help you purchase a business. If the business already has revenue history, you are more likely to receive the loan. However, your financials definitely will help determine whether or not the bank allows you to qualify for their loans.
- Seller financing – Some sellers may let you take over the business while making payments for the purchase price plus interest. If you have a seller open to a payment model, it’s often the best financial decision for everyone.
- Angel investors or venture capital – With this option, you become the business operator while your partner with a financial investor. They have the money; you have the know-how. Later, you may pay more with this plan. But if the business fails, you won’t need to worry about how you can pay off the debt you owe on a company that’s no longer earning any money.
Transition the Workflow
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Before new ownership entirely takes place, begin a smooth transition by starting the process before the deal is made. Talk to essential employees, customers, suppliers, and the current owner to understand how things currently run. Before you take over, let them know your plans for the future and allow key players to become involved in planning. Transitions can last a few weeks or over six months, depending on the company.
Don’t waste all your hard-earned money on a business that isn’t worth the time or effort. Taking on a company that someone else has started and nurtured can allow you to save time on the hard work of starting a business from scratch, saving you money as well.
As always, careful consideration is needed in significant ventures like this where you could easily be tempted to buy the first shiny company you see. Think about the company you want to revitalize and come up with some fresh ideas to tackle the industry.
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