Buying an existing business can be an exciting experience for entrepreneurs. Before you decide whether to pursue this endeavor, it’s important to understand the process of buying a business. Knowing this process can help you make an informed decision and buy a business that aligns with your skills, career goals, and lifestyle.
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In this article, we examine why you may want to buy an existing business and explain the eight steps of buying a business.
Why buy an existing business?
Buying an existing business might be a good idea for you if you’re interested in taking over a specific type of business or if you aren’t interested in starting a new company. Although there may be more initial costs related to buying an existing business, it can also be less risky than starting a new business, since an existing organization typically generates profits more quickly.
Before buying a business, you can investigate an existing business’ history and financial records to ensure purchasing the business is right for you. If you choose to buy a business, you also have the power to make high-level changes and decisions that guide it in a new direction.
8 steps in buying a business
If you are ready to buy an existing business, here are eight steps that you can follow to start the process:
1. Pinpoint what’s important to you
Before you start searching for a business to buy, take some time to think about what kind of business would suit you best. Consider your goals and factors like location, travel, hobbies, and other elements of your lifestyle that are important to you. Additionally, think about the skills and experiences you have that might help you succeed in a particular industry and what size and structure of the business you’d like to run.
For example, if you love drinking coffee and you have experience working as a barista, you might be interested in buying a coffee shop. Alternatively, if you’re interested in fashion and enjoy working in the retail industry, you might want to take over a local boutique.
2. Start researching businesses
After narrowing down the business factors that are most important to you, begin researching relevant businesses that you might be interested in owning. You can conduct an internet search for businesses for sale, or you could search for businesses locally and get tips from your contacts. You can even inquire about businesses that aren’t officially for sale. For example, if you love a local restaurant and you’re interested in buying and running it, you could contact the owners and see if they’re willing to sell it to you.
3. Form a team of advisers
A key step in the business buying process is forming a team of financial advisers to help you review important financial information and adhere to legal guidelines. Having expert financial advisers to assist you throughout this process can help you make the best possible financial decisions, increasing your likelihood of succeeding as an entrepreneur and business owner.
Some advisers to consider including on your team are an attorney, a certified public accountant (CPA), and an insurance adviser. Additionally, if you need additional funding to buy a business, you may also want to contact a lender to discuss your loan options.
4. Perform due diligence
Once you know which business you’re interested in buying and you’ve assembled a strong team of advisers, perform your due diligence and thoroughly investigate the business. Due diligence can include reviewing the business’ financial records with your advisers, which can help you analyze the financial state of the business and the risk level involved in buying it.
Additionally, you can visit the physical site of the business in order to talk to the people who currently work there and look for any needed repairs or changes you want to make. Conducting an in-depth investigation of the business can help you decide whether you want to move forward with the purchase.
5. Sign a letter of intent
Another important step in the business buying process is signing a letter of intent, which is a short, non-binding agreement that prevents the seller of the business from negotiating with other people who are interested in buying it. The letter of intent, which can include an estimated closing date and other expectations of both parties, can help both you and the seller feel more comfortable moving forward and negotiating the deal. After signing the letter of intent, you can continue to investigate the risks and benefits associated with the business to help you make a final decision.
6. Secure financing
Get financing for the business so that you can operate it after the purchase. There are many ways that you can finance an existing business you’ve purchased, including:
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Rollover for Business Startups (ROBS)
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Loans from banks
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Partnership
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Seller financing
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Small Business Administration (SBA) Loans
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Equity options
7. Negotiate the agreement
Once you know you want to buy the business, you can ask your attorney to draft a purchase agreement between you and the seller. You can also set up a meeting with the seller to negotiate the purchase price and other components of the deal. Negotiating with the seller can help ensure that your deal is coherent and fair to both parties. For example, if the seller’s ideal purchase price is too high for you to afford, you can attempt to negotiate it down to a number that aligns more closely with your budget.
8. Close the deal
The last step in the business buying process is closing the deal. To close the deal, meet with the seller and your attorneys to sign and exchange all the necessary closing documents. You can also make a closing payment and complete the sale during this meeting. Once the deal is closed, you officially become the new owner of the existing business.
I hope you find this article helpful.
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