Starting a business from scratch can involve a lot of unwanted headaches. That?s why buying an existing business can be a better option for many people. When you buy a business, many of the headache-causing issues are already taken care of. You're already generating cash flow and profits. You have an established customer base and employees who are already familiar with the business. And your policies and procedures are already put in place. Buying a business isn't a completely smooth ride, however. It does still require a lot of leg work.
Successfully buying a business starts with choosing the business that is right for you. Look for businesses in an industry that you're familiar with and passionate about. Also look at the size of the business. Do you think you can handle 113 employees and three locations? If not, look for something that is a little more manageable.
There are several ways to start looking for a business for sale. You can search online, look in your local classifieds, or you can talk to business owners in the industry and area to see if either they'd be willing to sell or they know of anyone who's in the market to sell. One of the more common ways to find a business for sale is by contacting a business broker. Business brokers can offer a lot of assistance, so for first-time buyers they are usually worth the cost.
Once you have a business or a number of businesses in mind, you?ll need to do some shallow digging. Examine the company?s reputation and customer base. Look at it's facilities. Call up vendors or suppliers to find out about their relationship with the business. Contact the Better Business Bureau to see if they've had any issues with the business.
If you've done your preliminary reconnaissance work and still feel confident about the business, contact your banker accountant and attorney to help you dig deeper into this business potential and price. Your assessment of the business?s value should take into account several factors. Here are some basics you need to look into.
All of this work, which is an extensive process called ?due diligence,? will transition you into and prepare you for the negotiation phase. The seller will have a preconceived notion of what the business is worth. This is usually higher than the true value. Because of this, it pays to go into negotiations prepared with as much leverage as possible. What you don't want to do is appear eager and tip off the seller on how badly you want to buy the business. This will adversely affect the price you pay. Determining the price itself is a very difficult task. That's why you need to rely heavily on the expertise of your team of professionals to help you through this part of the process.
You'll also need to figure out how the purchase will be structured. You have two options. An asset acquisition happens when you buy only those assets you want. This usually costs you more money but saves you from legal liabilities. A stock acquisition happens when you buy all the assets, typically costing you less but forcing you to assume all liabilities. Consult closely with your team of professionals to figure out which option is best for you.
When you finally start drawing up the contract, make sure that your team structures it in such a way that it reflects exactly your intentions from a financial, tax and legal standpoint. You should also make sure that the contract allows you to back out of the deal should the seller misrepresent, mislead you with or fail to give you any important information or documentation. Also consider including a non-compete clause to prevent the seller from starting a competing business. If you aren't comfortable with the way that negotiations are going, remember that you can always walk away at any point. Once you sign your name on the dotted line, however, you stuck.
Before you officially close the deal, it's a good idea to make plans with the seller regarding the transition period. Establish a timeline for training. Find out how long you'll be under the seller?s supervision and how the training will be handled. You want to make sure that when the keys to the castle are finally handed over to you that you don't start off on the wrong foot.
