So you've decided to buy a business? Congratulations! It is an exciting step on the road to entrepreneurship.
However, it can also be daunting – especially if it's your first time. You need to figure out:
- What business to buy
- How to find the right broker
- Handling negotiations, and
- Finalizing transactions and transferring ownerships
To help you with this process, we've whipped together this guide. Read on for tips on buying a business.
Finding the Right Business
The process of buying a business starts with the search. You need to take time to find a profitable business in an area where you know that your skills and expertise will come in handy. Just because a business is profitable doesn't mean you would do right by it.
Here are a few tips when deciding on what type of business to buy:
- Narrow down to a field you are passionate, skilled in, or at least interested in. Buying a cafe business makes sense if you have cutlery experience or education. The same goes for coffee shops, fashion boutiques, etc.
- The next step is to search for businesses in the field you have identified, that are on sale. The location of these businesses should of course be convenient for you unless you don't mind moving. Here, you've got several options: use marketplaces, visit the businesses and enquire yourself or rummage through classified sections in your local dailies.
- Settle on a few businesses that align with your goals, budgets, and experiences. This combo never goes wrong.
After you have identified a few businesses, then focus on a business broker who can help in the acquisition process.
What Should You Look for in a Business Broker?
Finding the right broker is critical for your acquisition success. A good business broker will save you time and hassle by handling much of the legwork involved in the process. They should also be well-connected, so they can help you find businesses that are not publicly listed.
When interviewing potential brokers, be sure to ask about their experience, track record, and fees.
It's also essential to choose a broker who is a good fit for you. After all, you'll be working closely with them throughout the process. So make sure you feel comfortable with their communication style and that they understand your goals.
Doing due diligence
Once you've found a business you're interested in, take time to do your due diligence to understand the nitty gritty.
It is an important step in the process, as it will help you understand the business and determine if it'd be the right fit for you.
There are a few key things you should look at during due diligence:
- The financials: Review the business's financial statements, including their profit and loss statements and balance sheets. It will give you a good overview of the business's financial health.
- The customers: It's also important to understand the business's customer base. Who exactly are their clients? What requirements do they have? And if the business meets that standard. This data will be useful as you develop your company's plans.
- The employees: Another critical area is the business's employees. Do they have the skills and experience necessary to help you meet your goals? Are they happy in their current roles? It is important information to know, as you may need to change the workforce after purchasing the business.
- The infrastructure: You'll want to look at the business's infrastructure. It includes physical location, as well as systems and processes. Are they set up in a way that will support your growth plans? Or will you need to make changes to accommodate your needs?
Negotiating the Sale
Negotiating the sale can be tricky, so it's important to clearly understand your goals, and the business approaches to earnings, assets, and market.
You're not just negotiating the price of the business, but the terms of the sale as well. So be sure to discuss all aspects of the deal with the seller, including what will happen to the employees, the customers, and the business's physical location.
You will need sound legal advice and binding documents to close a sale.
Finalizing the Purchase
This process can vary depending on the type of business you're buying, but there are a few key things to keep in mind.
First, you'll need to secure financing for the purchase. If you're taking out a loan, compare interest rates and terms from multiple lenders. You'll also need to have a solid business plan, so the lender can see how you intend to use the funds.
Once you've secured financing, you'll need to draft a purchase agreement. This document will outline the terms of the sale, including the payment schedule, and any contingencies. Let your lawyer review the agreement and all the drafted documentation before appending your signature.
The last step of the purchase is ownership transfer, which might include transferring the property deed, operating licenses, permits, and all the business assets, tangible and intangible.
Preparing for Your New Business
Most business purchases go smoothly, but there are always a few bumps in the road. By being prepared for the challenges that may arise, you can be sure that your transition into business ownership doesn't drag on unnecessarily.
Make sure to:
- Develop a business plan: A business plan will help you map out your goals for the business and develop a strategy for achieving them. It's also a helpful tool when seeking financing for a purchase.
- Get expert advice: Before you finalize the purchase, be sure to get advice from a business broker or lawyer. They can help you navigate the process and avoid any potential pitfalls.
- Plan for contingencies: There are always a few unknowns when buying a business. Be sure to have a contingency plan in place if things don't go as expected.
Buying a business is a big decision – but with careful planning and due diligence, it can be a great way to achieve your entrepreneurial dreams. I hope these tips have given you a few insights on how to get started.
