Buying a business is a big and life-changing decision that also involves your family. You have so much at stake – your savings, energy and time – that the buying process could be overwhelming. Buying an existing business is less risky than starting a new one. Its advantages include an existing market, trained employees, ongoing revenue and a proven working system in place. With these conditions in place, the question now lies on your capability to run the business.
Are you ready to be an entrepreneur? How can you avoid making the wrong decisions when buying a business?
How to Buy a Business for Sale
1. Choose a business in an industry you are not only interested in, but one that matches your skills and experience. Not knowing anything about the business will entail spending valuable time and possibly costly mistakes to acquire the necessary knowledge.
What types of businesses matches your skills? Will you go into retail, service, manufacturing, online, etc.? The business should thrive from your strengths. Choose a business that you enjoy and find fulfillment.
2. How much cash can you invest in the business? Be realistic – buy a business you can afford. Your financial capability determines the size of the business you can buy. Be ready with your personal financial documents – assets and liabilities, credit standing and proof of funds. Outline how you plan to pay for the business.
Your equity usually comprises a third of the purchase price. You can look for a business loan or an investor or partner for the rest of the balance. You can also get assistance from the Small Business Administration (SBA).
3. Discuss your plans with your spouse and family members. Since the purchase uses funds for the family, you owe it to them to listen to their inputs and suggestions. Get their support. Will this business suit your lifestyle or family needs? How many hours each day will you spend in the business?
4. Devote time to the buying process. It can take months or longer, depending on how much time you put in. Be patient as you carefully research available business opportunities. Focus on what is suitable for you.
5. Seek professional advice. A business appraiser and accountant can help in the valuation of the business; a lawyer can prepare, review and verify legal documents. You can also benefit from the services of a business broker who can help you search for the business to buy until the closing of the sale.
6. Study how the buying process works. Collect information; ask questions; read. Being well informed and prepared will shorten the buying process. You will save time, effort and money. Your accountant, lawyer and broker are there to provide answers.
7. Decide if you need a business partner. You may need a partner to address an entrepreneurial skill you lack or you require more capital.
8. Search the business for sale market once you narrowed down your choice as to the industry, the price range, the size, and location of the right business for you. The Internet has numerous business-for-sale websites. You can also look in classified ad sections of local newspapers. Business owners, associations and your contacts may also know of business prospects.
9. Examine the risks of buying the business. What is the future outlook of the business or the industry? Will the needed raw materials continue to be available? Is the industry growing? Do you have the capability to continue to run the business profitably? How can you beat your competitors? Do your research. Consult industry leaders.
10. Is the business priced right? Which assets of the business are included in the sale? Is the asking price near your valuation? Find out as much as you can about the business before committing to buy it.