Why should I buy a business rather than start one?
An existing business has a track record. The failure rate in small business is largely in the start-up phase.
The existing business has demonstrated that there is a need for that product or service in a particular locale. Financial records are available along with other information on the business.
Most sellers will stay and train a new owner and most will also supply financing.
Finding someone who will teach you the intricacies of running a business and who is also willing to finance the sale can make all the difference.
Finding the best business for you
Owning a business and owning the right kind of business for you are two very different things. Buyers should invest the time and effort to determine the best kind of business for their needs, personality, skills, and goals.
A strong fit starts with honest self-assessment. The most important driving factor of the revenues and profits of any business you consider purchasing should connect to what you do best.
Before buying, you must understand every aspect of the business and make certain it is a good fit for you. If you do not love the business, it will have trouble growing.
Tackling growth delusions when buying a business
Buying a new business can be exciting, but buyers should avoid becoming unrealistic about future growth. If a business is positioned to quickly grow substantially, the seller may be less interested in selling.
The seductive lure of growth should not be the determining factor. Stability is often more important. Buyers should ask whether the business can maintain revenue and profit levels after the sale.
A professional business broker can help determine which opportunities are best aligned with the buyer and can help avoid common mistakes.
Business buyers can leverage SBA lending
The Small Business Administration helps entrepreneurs by facilitating lending through partner lenders. The SBA does not provide loans itself, but the government backing can make lenders more willing to provide financing.
Buyers should be bank ready, with organized and clear financial documentation. They must also confirm eligibility, find a lender, and complete the necessary SBA forms.
For buyers looking to purchase a business, working with a broker and understanding lending options can help turn the dream of owning a business into a reality.
M&A myths buyers and sellers should understand
Several common M&A myths can create problems during a transaction. One major myth is that negotiating is over once the letter of intent is signed. Negotiations are not truly complete until a purchase agreement is in place.
Other myths include assuming every offer is backed by funds, believing sellers do not need a deal team, or assuming a sale must always involve the entire business.
Business brokers help buyers and sellers avoid myths by understanding the transaction process and the issues that commonly appear during due diligence and negotiations.
Questions everyone should ask before signing on the dotted line
Before buying any business, buyers should ask many questions. There are no stupid questions when deciding whether to purchase a company.
Important questions include: What are the biggest challenges right now? What would the owner have done differently? How was the asking price determined? What happens if the owner cannot sell? How will the financials be documented?
Buyers should also ask what skills are needed to run the business effectively, whether there are lawsuits, how procedures are documented, how dependent the business is on key customers or vendors, and what employees will do after the sale.
A step by step overview of the first time buyer process
First-time buyers should gather information on businesses to understand which types of opportunities are appealing. The next step is to begin working with a business broker.
After signing a confidentiality agreement, buyers can learn more about businesses that interest them, review marketing packages, prepare questions, and evaluate the information received from the seller.
Once a buyer decides to make an offer, the offer should be written and include contingencies. If accepted, due diligence begins, including review of financial statements, tax returns, assets, and other important details.
The importance of understanding leases
Leases should never be overlooked when buying or selling a business. Where the business is located and how long it can stay at that location can play a key role in the health of the business.
Common lease situations include a sub-lease, a new lease, and an assignment of lease. Each can affect the buyer differently.
Buyers should work early to understand all aspects of the lease so there are no unwelcome surprises after purchase.
What should you evaluate when buying a business?
Buying a business can be exciting, but buyers should step back and evaluate whether the opportunity is the best financial and life decision for them.
Buyers should evaluate what is being sold, the quality of the business plan, overall performance, financial records, and customer demographics.
Do not rush into buying a business. Carefully evaluate every aspect of the company and how ownership will affect both your life and your long-term financial prospects.
What is the value of your business? It all depends.
The first question behind valuation is why the owner needs to know the value of the business. Estate planning, lending, partners, selling, divorce, disputes, and buy-sell agreements can all create different valuation needs.
In many cases, owners who ask about value really want to know price, meaning how much they may receive if they decide to sell. Until the business sells, there is not truly a price.
Business brokers can be a big help in establishing value or price and in explaining what the market may support.
Do I need an attorney?
It may be advisable to have an attorney review legal documents. The attorney should be familiar with the business buying process and have the time to handle paperwork on a timely basis.
If the attorney does not have experience handling business sales, the buyer may be paying for the attorney's education. Many business brokers know attorneys who are familiar with business transactions.
Business brokers are not qualified to give legal advice, but attorneys are also not always qualified to give business advice. The transaction must be fair for all parties.
Why should I go to a business broker?
A professional business broker can provide access to a selection of different and often unique businesses, including opportunities buyers may not find on their own.
Business brokers are an excellent source of information about small business and the business buying process. They are familiar with the market and can advise on trends, pricing, and local conditions.
A broker can handle transaction details and help guide the buyer in the right direction, including coordinating with other professionals when needed.
What happens when I find a business I want to buy?
When a buyer finds a business, the business broker can answer many questions immediately or research them. Once preliminary questions are answered, the next step is usually preparing an offer based on the buyer's desired price and terms.
The offer is generally subject to approval of the books and records supporting the figures that have been supplied. The main purpose of the offer is to see if the seller is willing to accept the proposed price and terms.
If buyer and seller agree, the buyer proceeds into due diligence. After the buyer checks and approves the areas of concern, closing documents can be prepared and the purchase can close.
What does it take to be successful?
Buyers need adequate capital to buy the business, make improvements, and maintain reserves in case things start slowly.
Successful owners must be willing to work hard and often put in long hours. Owners of small businesses must be doers.
A buyer should be ready to handle many roles in the business and stay engaged in the daily realities of ownership.
What should I look for?
Buyers should consider only businesses they would feel comfortable owning and operating. Pride of ownership is an important ingredient for success.
The business must be affordable with the buyer's available cash and should provide enough income, after payments, to cover the buyer's bills.
Buyers should also look at a business with an eye toward how they can improve it and make it more productive and profitable.
How are businesses priced?
A business broker usually reviews financial information before suggesting a price or range of prices for a business.
Most sellers have some idea of what they feel their business should sell for, but the market, financial records, down payment, and sale terms all influence pricing.
Since many business sales are seller-financed, the down payment and terms of sale can be more important than the full selling price.
What is the real reason people go into business for themselves?
Surveys often show that people go into business for themselves to do their own thing, control their own destiny, avoid working for someone else, better use their skills and abilities, and make money.
Interestingly, money is usually not at the top of the list. Control, independence, and personal ability often matter more.