Want to Buy a Business? Here’s How.
The thought of running your own business can be exciting, and a little scary. One way to transition to entrepreneurship without all the upfront labor is to purchase an existing company. There are lots of costs, of course, but you don’t have to come up with an idea and grow it on your own. You can invest in something that’s already succeeding, then turn it into something even better. Here’s what you need to know if you’re considering buying a business.
Know Why Founders Sell Businesses
Many buyers worry that owners who sell their businesses are hiding something, that the sale means there’s something wrong from the business. In most cases, this isn’t true. Founders must eventually leave, via retirement or death, and there are lots of valid reasons to sell even before then. The key is to find out whether the sale is an act of desperation—an attempt to escape a failing or suffering company—or if it’s happening because the owner is ready to move on.
Know What You Want
Entrepreneurs who have been in business a long time are skilled salespeople. They know how to get you interested in a company that you might otherwise never consider buying. So before you dip your toe in to the marketplace waters, you must define what you want. Otherwise, sellers will find it for you. Some factors to look at include:
- business location
- business size
- sector of the market
- lifestyle associated with this specific business
- whether or not the industry is growing
Get to Know Available Companies
Armed with knowledge about what you want, it’s time to start researching companies for sale. Start close to home. Ask friends who own businesses whether they’re considering leaving, or know someone who is. If you already work for a small business, weigh whether the owner might be planning an exit. If you already have a relationship with a business owner, there’s never any harm in asking.
Work With a Business Broker
If you can’t find a business on your own, consider working with a business broker. They draw on their network to connect the rig buyers with the right companies. They’ll usually charge a commission, but you only pay it when you find a business that is the perfect match. So carefully assess each option, and avoid getting pushed into a business before you’re certain it’s the right one for you.
Undertake Due Diligence
Sellers are eager to offload their companies as quickly as possible. Don’t let their excitement dictate the speed at which the transaction takes place. You must undertake an exhaustive due diligence process to ensure that the business is what it appears to be. This includes reviewing contracts and financial records, litigation histories, financial forecasts, and more. You absolutely need a professional accountant to help you manage the process.
Get Funding
There are many options to afford purchasing a business, and most involve getting a loan. Once you settle on the purchase price—and not before—explore your financing options:
- Seller financing: This may include a mix of seller financing and other financing.
- Angel investors or venture capital: You would partner with someone else to run the business, with you in charge of daily operations.
- Traditional business loan: In this model, you get a loan from a bank based on your credit and the strength of your business plan.
Draft the Sales Agreement
The sale isn’t final until the agreement is in place. Specific terms in the agreement can directly affect the daily operations of your business, so you need to have a lawyer and an accountant comb through the agreement—then renegotiate any key terms, if necessary.
