General Guide on How to Buy a Business
When most people first start thinking about owning a business, they immediately begin thinking about starting from scratch and building up their own business from the ground up. But buying a business instead of starting your own carries several notable advantages, including the fact that you don’t have to design anything, you don’t have to hire an entirely new staff, and you will already have access to an established base of customers. When you buy a business a lot of the initial work is already done for you, meaning you can focus all your energy and time on increasing your profits. But, buying a business is different from starting one, so to help out those interested in becoming a business owner, here is a complete guide on how to buy a business.
Questions to ask yourself
Before you go looking for businesses, you should determine what type of business or businesses you want to actually buy. Think about what types of businesses you would enjoy running, think about what types of businesses that would work with your skill set. Once you have a general idea about what type of business you want to run, you can start actually looking for businesses that are for sale.
Where to find businesses for sale
There are numerous places to find businesses for sale.
There are many online sites that make finding business for sale super easy. These sites have huge databases, meaning almost everyone can find the right business for them.
If online sites aren’t working for you, you can always try the old fashioned way. Business owners looking to sell a business may still put advertisements into local newspapers or trade publications.
If you can find a broker that you like, then there are a lot of advantages to buying a business through a broker. Brokers can help screen out businesses that just aren’t right for you, or businesses that just aren’t worth buying. If you aren’t sure about what type of businesses you would be suited to run, a broker can help with that as well; they can look at what you’re interested and what you’re skilled at, and then they can help you find businesses based off that. Finally, brokers make the actual buying process much easier because they can help speed up the negotiation process and help make the sale proceed smoothly.
Getting information about the business you want to buy
Once you have a business or businesses you are interested in buying, your next step is to gather as much information on the business as you can before you actually decide to purchase the business. Start by gathering basic information. Find out why this particular business is being sold, does the owner want to retire, do they want to focus their energies on another business, etc. You want to make sure that the owner isn’t selling simply because they know that the business is going to suddenly stop being profitable (maybe they know a big competitor is moving into the spot). After that, try and expand your questions and start asking about the industry itself. Is there an opportunity for growth? Or is the industry going to plateau in the near future? These are important questions ask, because you don’t want to buy a business only to find that the industry and that your business will soon be haemorrhaging money. Don’t just limit your questions to the business owner either, if you are able to, try and reach out to customers of the business, to see what they think of the business.
After you’ve gotten some preliminary information, the next step is to look at the business’ financial information. Ask why the business owner set the asking price that they did. Also, get the business owner to give you an idea of how they came up with the business’ valuation (there are multiple ways of determining a business’ valuation, and it is helpful to know how which method the business owner used). Get access to as many financial records as you can; things like balance sheets can help you in forming your own picture of the business’ financial situation. You never want to just take a seller’s valuation at face value, you always want to try and form your own picture of the business’ financial situation.
Is the business worth it?
After you get a good idea of the business’ financial situation, you need to consider whether the business is worth it. Will the business give you an adequate return on investment? If not, can you improve the business so that it will start generating an adequate return on investment? Don’t just think in terms of money either, think in terms of how much time you are going to invest into the business. If you have invested a certain amount of hours into a business, is the return on investment going to adequate compensate you for all that time you invested? If you are struggling over whether to buy a business, you can always seek professional help from a business valuator.
Make a contingency plan
If after all your careful prep work, you still end buying a business that starts to suddenly go under, you need a solid contingency plan. So, before committing to buying a business, sit down and think about what you plan to do if for some reason the business you just bought suddenly starts going under and you need to get rid of it quickly.
Make the offer
Once you’ve done all the prep work, you’ve asked all the relevant questions, you’ve compiled all the financial information and have a clear idea of what the business is truly worth, then you can make the offer on the business. This may sound overly complicated to some people who think that doing all this prep work is a waste of time. But, it is much better to take your time and potentially miss out on the chance to buy a business, than it is to rush into something and buy accidentally that isn’t worth the money.