Many people that want to own their own their own business, never think about buying and existing business instead of starting from square one. There are a number of advantages that accompany purchasing a business that is already established. One reason that some people opt not to purchase an established business is because their simply do not understand the process. Fortunately, learning how to buy an existing business is comparatively simple.
How to Buy An Existing Business
The first step in buying an existing business is to determine what type of business you are interested in. It needs to be compatible with your personality, as well as your skill set. If you opt to use a broker, they can often help you decide what type of business is best suited for your needs and skills. If you decide that a broker is not the route that you want to take, other common ways to located potential businesses includes: friends, business contacts, newspapers, for sale ads, etc You can even go to trade associations, your accountant, or even your lawyer to get leads.
Instead of buying the first business that looks interesting, it is best to consider several options at once. This will ensure that you analyze and investigate each business equally thoroughly. When comparing different businesses, there are a number of different aspects that you need to take into account. Make sure to break down the financials for the business for at least the previous 5 years. From this information, you should be able to do some financial forecasting to see if the businesses profits will likely continue to increase, stabilize, or decrease. It is also important to consider the monthly or yearly operating expenses in comparison to similar businesses within the industry. Finally, it is important to look into why the owner is selling. This includes looking at: current inventory, suppliers, competition, staff, and potential additional investments such as upgrading current operating assets.
Once you have a good idea about each business, make sure to do a walk-through during the hours of operation. This will give you a much better idea about what running the business will actually be like. If it is a service-based business, act as a customer at least once. This will give you an immediate idea about the businesses culture and potential changes that you improve the business.
Once you have chosen the business that is right for you, it is time to take some action. The first thing that you need to do is decide on a purchasing strategy. The two most common types options are purchasing the balance sheet (this includes all of the assets as well as the liabilities) or simply purchase the assets. Most people recommend that purchasing the assets alone is the best strategy, however this may come at higher cost. Once you know what you want to purchase, it is time to actually place a value on the business. This will be based on the overall market value.
When all of this is done, you simply present your offer, which will often be followed by some negotiations. If all goes well, you will quickly become the proud owner of a new business.
Once you understand everything that is involved with how to buy a new business, it could prove to a better option that starting from scratch.