Starting a business from scratch is hard work that doesn’t always pay off. Many companies close just two years after opening. Instead, many people decided to buy an established business with a recognizable brand and found a customer base. However, before doing this, future entrepreneurs should know how to do it correctly. In this article, we’ll highlight five tips to help you when buying a ready-made small business.
Decide on the parameters of your desired business
One popular tip for buying a ready-made company is to choose an industry you know and like. While it doesn’t apply in all cases, most of the time, it works. It would help if you also considered factors such as:
- Location – the location affects your target audience
- Size -Small businesses come in all shapes and sizes. You may have to work on it yourself
- Lifestyle – think about how much time you’re willing to spend to grow your business; this will help you decide what type of business suits you best.
After that, you can start looking for options. Nowadays, you can find advertisements for businesses for sale simply by logging on to the Internet. Many sites are dedicated to this topic, where you can set your parameters, the desired price, industry, and more. The most popular such sites are BizQuest and BizBuySell. Another way is to hire a business broker, but in that case, you must request a written statement that legally certifies that he represents your party in the transaction.
Gather and analyze the details of the purchase
One of the most important processes during a purchase is to conduct due diligence. You should analyze the seller’s confidential documents to determine all prospects and risks, eliminate potential pitfalls, and decide whether such a business is right for you. Be sure to work with a lawyer and accountant during this process to ensure all data is analyzed professionally. In addition, you should consider these documents when purchasing an existing business:
- Letters of Intent -include all the details of the transaction
- Licenses and permits – the existence of licenses indicates the legality of the business
- Company documents – if the founding documents are in order, it means that the company has paid all taxes and has the right to do business
- Organizational structure – find out about the office culture and company hierarchy
- Contracts – find out about current contracts and whether you can continue to follow them
- Status of the facility – check the value of the purchased assets. If some are not right for you, you can sell them after the purchase
Find out why the business is selling
Businesses can sell for various reasons, and sometimes they are not the easiest. So during your research, pay attention to aspects such as:
- Business debts
- Unprofitable location
- Bad brand reputation
- Old equipment and inventory problems
- No market for the product or service
You can also easily discover the truth by talking to neighboring businesses.
Determine how much the business is worth
The seller’s price may be different than what the business is worth. That’s why you should do a business appraisal, either by yourself or with the help of a professional. If you decide to do it yourself, you need to know the specific methods for this type of business.
When you’ve decided on a final price, it’s time to get paid. There are several ways to cover the cost:
- Own funds
- Seller financing
- Business loans
- Venture capital and investing
Explore each type of financing and determine which one is best for you.