Tips For Purchasing an Existing Business
Most people become entrepreneurs by starting their own business, but if you do not have a new idea or would rather not start with a new one, then purchasing an existing business can be an excellent option.
Purchasing an existing business tends to be more of an upfront cost, and even though it involves less risk than starting a new one, it comes with a huge responsibility. You’re taking the reins from its former owner as the firm’s new leader. There are many perks that come with buying an existing business, like having a built-in client base and transferring over existing IP, but plenty of work still has to be done.
In this article, we are going to give you some expert tips when it comes to buying an existing business.
Decide What You are Looking For
Buying a company is a big decision that will affect your lifestyle for years to come. As such, before committing to a purchase, ensure you know what kind of business you are looking for. A few factors to consider include:
Do you need something close to your place of residence or are you close to moving? Keep in mind that the location will directly impact labour costs, taxes and other costs which can affect the company’s bottom line.
What niches do you already have experience in? What are you passionate about?
Do you want to run a small family business or a huge enterprise?
Do Your Due Diligence
Once you determine and find the type of business you want to purchase, you will instantly be tempted to buy it right there and then. However, it’s advisable to do your homework first. A company that appears to be great at first might have serious problems hiding underneath.
As such, you will want to assemble your acquisitions team in order to determine the health and value of the company. Get a professional accountant and/or business broker and have them assess the company’s financials to ensure that everything is up to par. Keep in mind that when you purchase a business, you will take on a lot of liability for things that occurred before you became the owner and so, don’t skimp in this step.
Get The Necessary Funding
Buying a business can be a lucrative option, but it tends to be an expensive one. Unless you have a financial backer or are extremely wealthy, you are most likely going to require funding. Fortunately, there are several options to choose from including:
#1. Seller Financing
Here, the seller allows you to make payments over time, often with the buying price plus interest. This is usually the best option if the seller is open to it.
#2. Business Loan
You can ideally take out a loan to buy the business. The good news is that lenders are usually more open to giving loans for buying companies with a known revenue history.
#3. Venture Capital
In this form of financing, you partner with another individual to buy the business. They play the role of financial investors, while you become the on-the-ground operator.
Prepare The Sales Agreement
Once you have done everything mentioned above, you should have your lawyer prepare a sales agreement and have them review the terms before signing the document. Once everything is in place, you will now be the new owner of an existing business.