If you think you have the traits to run a business, but would rather not start one, then you are a great candidate to buy into an existing business model. Purchasing a running business does involve more up-front costs, but it also offers less risks as you are looking at actual profits and losses rather than estimates. If you want to be the one that takes an existing business into a new direction, follow these steps.
Step 1: Know What You’re Looking For
Buying a business is a monumental decision that is likely to affect your livelihood and life for many years. As such, before you even go into looking at the options available, you should know exactly what kind of business would be best for you. Some of the factors to consider include location, size, industry and your lifestyle.
Step 2: Research Options
Once you have an idea of what you want, start researching businesses that are up for sale. However, before you Google “businesses for sale in __________,” reach out to your immediate circle by finding out from friends if they have a business they are willing to sell. If there is a business you wished you could own, go ahead and ask; and only then can you expand your research to the Internet.
Step 3: Hire a Business Broker
If research does not give you good business options, consider hiring a business broker who can prescreen viable business, find a business according to your interests, and negotiate terms. Like real estate agents, business brokers will charge you a commission of about 5 to 10 percent of the business purchase price. However, be careful; do not let a broker push you into making a hasty decision.
Step 4: Carry Out Due Diligence
When you find an enterprise that sounds like a good match, dig further by creating an acquisitions team – especially if you are doing all the work without a broker. The team will be responsible for ensuring that the business is healthy and worth the price you are paying. For example, if the business has foreign employees, include in your team an immigration attorney to ensure that they are working in the country legally.
A professional accountant will have a thorough lookover of the business financials to make sure that everything is in good condition. As you purchase an existing business, you are also taking in liability for things that might have happened, so do not leave anything to chance.
Step 5: Get Funding
While there are many benefits associated with buying an existing business, it is an option that can be expensive. Unless you are wealthy, you will likely require funding to enable the sale. Once you have settled on the purchase price with the seller, you will have a clear picture of what amount of funding you need.
Some funding options include seller financing, angel investors or a business loan. Each financing option has its own pros and cons, so carry out research and talk to independent financial advisors to ensure that the funding source will not have a negative impact on your bottom line.
Step 6: Draft the Agreement
Once you chose a business, negotiated terms, and secured the necessary funding for the purchase, all you need to do is draft the sales agreement and sign it. Work with a reputable acquisitions attorney to ensure you fully understand what is in the agreement. Any ambiguities should be dealt with immediately before they cause trouble.
Buying an existing business is an important feat that is likely to impact your life, the community around and lives of your employees for several years. The right connections and lots of hard work during the transition can make you the best person to turn a business’ fortunes around, for everyone involved.