Buy a Business
Buy A Business | You may want to run a dream business and become your own boss. Perhaps you have worked hard throughout the career as a professional and now want to run your own business. Buying an existing business means you do not have to start from scratch. It doesn’t come cheaply, and it is a tricky process as well.
There is a common notion that business owners sell a business when they are in a financial crunch. It may be the one reason to look out for. Many founders run a successful business and move onto the next stages of their lives. As a preplanning step, keep an eye on the actual reason for the business for sale.
Taking a systematic approach and partnering with a professional business broker will ensure a good deal for you. Here are a few key points to consider before you buy a business.
Evaluate Your Preferences First
You already have decided to buy a running business. A perfect fit for you should be to buy a business in an industry of your expertise. For example, as a dentist, you may be interested in buying a running dental practice business.
Find out the right business location and size of the business first. Setting clear objectives at this stage will remove frictions for later phases. Relocation can come at a cost of new house purchase and other settlements as well.
Once you set the priorities right, you can start searching for an ideal business up for sale. Feel free to begin the process with your personal references.
Partner With a Business Broker
Finding the right fit for a running business is a challenging task. You may get a few options from personal references but not the right one. Partnering with a business broker will help you find the perfect match according to your expertise and interests.
Hire a business broker that understands your expertise and interests. For example, if you are looking to buy a dental practice business, talk to a broker who has expertise in dealing with dental practitioners.
Hiring the right business broker is equally important as is the process itself. A professional broker will help you find out the right business at the right price, but also the right fit for your interests.
Understand the Business Valuation
Find out the business valuation method used by the seller or the broker. A service sector business would certainly include more intangible assets than a retail business. Subsequently, the business valuation methods would come up with different asking prices.
Do not hesitate to explore business assets and financials objectively. Perform business screening thoroughly. An experienced CPA would come in handy at this stage for you. Remember, past performances are an indicator of a business’s current strength only, they do not guarantee future success. However, appraising the financial history can set the foundations for business valuations correctly.
Evaluate Beyond the Financials
Stretch your due diligence process beyond the financial metrics in the business valuation estimates. A seller would add much more than discounting for the future cash flows. Intangible assets such as licensing, patents, Goodwill, and Human Capital are of utmost importance in the evaluation process as well.
You can negotiate the terms of transition for the employees and other valuable assets at this stage as well. This will ensure you negotiate the right prices and the right way. A serious seller would let you perform the due diligence on business operations. The true value of a business is beyond the revenue streams, in how well a business is managed. Do not discard the negotiations if the seller has set a higher price than you expected. Again, take your consultant into confidence and explore what’s special in the business for a high demand price.
Choose the Right Financing Option
Choosing the right financing option is pivotal in closing the right deal when you look to buy a business. If you can’t finance the deal, the whole effort is futile. Funding the business purchase with costly financing will also increase the costs.
Depending on the estimated valuation, you may utilize more than one financing option. Consider the bank loans and seller financing options. Some Sellers may also offer you the financing as they would be selling a running business. A business loan can also secure you the required financing, provided the business has sufficient collateral.
Secure the Deal with a Sales Agreement
If you have followed the process with the help of a business broker, this phase will be easier for you. Once you agree to a price and have the funding, it’s time to secure the deal with a sales agreement. Complete the process thoroughly, it will have legal implications beyond the deal as well. Do not leave any blank spaces that can get you in legal trouble later.