Buying a small business is an overwhelming and daunting task
but if you do some research and know what to do before you start
looking; the task is not so overwhelming. Sometimes it is much easier
to buy an existing business rather than try to start one from scratch.
Do not become one of the 80 percent that never fulfills the
transaction. If you buy an established business, you will already have
an established customer base with assets that are already in place
making it possible to make money from the first day.
Things You Should Know Before Buying
- What type or size of business are you looking for and where do you want the location. Make sure the business you are looking to buy is something that interest you and something you have had experience with in the past. Also, make sure the business is close to home.
- Establish whether you want to purchase a business that is doing well or one that is doing poorly and fix it up; there are benefits to both. Know how much you can afford to use as a down payment, and where the money come from.
- When you find a business, you are interested in buying, find out first why the owners are selling. Do not take the owners word for why they are selling, ask other employs, other partners and try in every way to validate what the owner tells you. Also, find out what if any agreements the owner has made with vendors or wholesalers.
- Find out what assets come with the purchase price, an estimate of their value and if there are any outstanding liens. Do not let time kill the deal. Keep communications open and moving forward and keep negotiating.
- When you find a business, you are interested in, gain access to the details of the business by signing a confidentiality agreement. Take time to investigate the the company's record with the BBB and make sure there are no pending lawsuits.
- Hire a CPA for help with financial paperwork and to make sure the business paperwork is in order. Also, hire a lawyer to help you review contracts and get the services of a loan officer in case you need financing to purchase the business.
- Once you find the right business, get the process started by making an offer. This not only gets your foot in the door but it also stops other potential buyers giving you time to look over the business records. You and the owner will have to get together and come to an agreement on what is a fair price. To do this, hire an appraiser.
- Once you sign the purchase agreement, a Due Diligence period with contingencies has to be completed before finishing the deal; If these contingencies are not finished you can usually pull out of the deal. If everything goes accordingly, get the signed purchase agreement into escrow this process will place the deal out of reach of other buyers.
By following the above suggestions, finding and purchasing a small business will be much easier and you will be able to see profits sooner.