How to Buy an Existing Small Business?
Purchasing an already existing business is so common nowadays. This is an opportunity to become a business tycoon without starting from the ground level. Launching a brand new business may consume a lot of time, effort and money as you have to begin from scratch but purchasing an existing business cross-cuts some of the struggles that an initial entrepreneur has to go through; all you need to make is a considerable investment.
There are numerous reasons why an individual purchases an existing business, some of which may be to strengthen up the investment profile or take over a competitor, etc. However, this is a very crucial decision one has to make and therefore it is highly recommended to study all the aspects thoroughly so that you won’t face failure in the end. We have prepared an informative guide that will cover all the essential aspects you must consider before you purchase an existing business.
Which Business You Actually Need To Buy?
The most complicated decision to make in the whole process is to choose the type of business you want to purchase. It is always a wise act to purchase a business with a niche you are passionate about. Obviously, then only you will be able to take it to the heights of success. Along with passion and hard work, there are some other factors to consider too before you finally make a deal to purchase a business. Go for the below-mentioned aspects before you finally make a decision.
- Determine The Type Of Business You Want To Purchase
You’ll be happier if you buy a small business that is related to something you already enjoy and are familiar with. Although you may wish to buy a firm solely on the basis of its financials — its predicted return on investment — it’s also crucial to align yourself with the company’s non-financial objectives. After all, the more you understand the company’s prototype, products or services, clients, industry, and trends, the more original and thriving your new visions will be.
- Look For Companies That Are Up For Sale
There are numerous options for discovering the ideal business for a deal that meets your standards. However, business representatives are legally bound to represent the vendor, so you should be careful about revealing sensitive attributes to them. On the other hand, a broker can help you decide what type of industry you want to build, prescreening businesses to eradicate all failed ones, keeping negotiations likable and wise, and assisting you with all vital legal documentation. Also, there are several other ways through which you can check out the businesses for sale.
Numerous online marketplaces such as flippa.com and bizbuysell.com are some of the popular sites for the sale and purchase of businesses. Various newspapers with advertisements under the “business for sale” section, hiring business brokers or agents for the same purpose or attending industrial meetings and conferences for building public relations will also help you to look for the companies and entrepreneurs that are available to sell their businesses.
- Focus On A Company That Fits Your Budget, Objectives, And Assets
You may have been contemplating various firms until now, but now is the moment to choose the ideal one. The greatest selection is a company that fits your budget and ambitions. Estimating the appropriate size, location, sales, employees, and other aspects of your prospective business is a critical step in your business-buying strategy since it will provide you with a scale to keep in mind while you shop around. Next, determine how much you’d like to change your business and how much that will cost you. You’ll be investing more than just money. Finally, examine how much time and effort you intend to devote to making the firm your own.
- Accomplishing Legal Formalities & Paperwork
First and foremost, ensure that the company you’re considering has all the necessary business licenses and permits. If you’re purchasing a business, check if the current owner has broken any local company license regulations. Certain businesses, particularly those heavily regulated, such as food services and daycare, require legal permission. Before you finalize to purchase a business, make sure you have completed all the documentation and legal formalities to be safe on your side.
Ensure to get your business entity registered in order to operate legally. Check out all the zonal regulations in the location where you have been running your business to stay compliant with the government rules. Finally, don’t skip the environmental norms and regulations. Many businesses have been violating the environmental safety measures intentionally or unintentionally, which can create a big issue after some time.
Letter of intent, business agreement or lease, business financial documents such as balance sheets, cash flow statements, sales records or account receivables or payables, etc., are some of the essential documents which must be obtained before you purchase a business.
Pros & Cons Of Purchasing An Existing Business
PROS
- Proven Product & Services
When you purchase an existing firm, you’ll already know how the market responds to the proposed products or services. For example, if you acquire a renowned cafe that is already well-known, you’ll know that the food is well-liked by locals. As a result, you can rest assured that these customers will continue to patronize the restaurant. So when you discover a business for sale that you like, check out its business strategy and go for it if you find it solid.
- Reduces The Launch Time Of A Business
When you purchase an existing business, it is obvious that you can launch and start selling its product and services immediately as they have already been in the market. However, suppose you start a brand new restaurant. You have to make a solid investment to purchase inventory, tie-up with suppliers, need funds for equipment financing, hire efficient staff, and, most importantly, choose a suitable location for your restaurant. In contrast, if you purchase an already existing restaurant, You would have access to all these investments. You will have trained and experienced employees, work procedures and the operating system would already be set in, suppliers would be there to supply the inventory, etc.
- Convenient To Secure Business Loans
When purchasing an existing business, obtaining additional working capital, particularly customary financing, is often more effortless. However, getting accepted for a business loan may be easier if you need a loan to buy a business.
Furthermore, because the lender may examine the current business’s finances, the business acquisition loan application process may be less demanding. An operating capital lender, for example, will be able to assess your company’s feasibility based on earnings, gains, and other monetary statements. This lowers the lender’s risk, and if the existing enterprise is doing well, it increases the chances of you getting a small business loan.
CONS
- You May Get Deceived
Unethical sellers may cheat you by falsifying financial data, overlooking necessary repairs, or failing to provide a clear picture of the overall operations. Have your lawyer evaluate all legal paperwork and perform extensive research before purchasing an established business to avoid being misled.
- You, Will, Receive What You Have Paid For
Few business owners will sell a profitable company for a low purchasing price. But, on the other hand, if a business is doing well, the former owners will almost certainly demand a high price in order to get a good return on their investment.
As a result, you should evaluate beginning costs to the cost of purchasing an established company. In the long run, starting your own business and brand may save you dollars and cents, but the quality of the existing firm will ultimately determine this.
On the other hand, if you buy a cheap firm, you risk degrading the brand or having the product or service abandoned by the market. Moreover, it might be difficult to resurrect a failing brand or a struggling firm. Therefore, you should consider whether the firm is worth acquiring, even at a low cost in such circumstances.
What To Consider Before You Set A Price?
There are a few different valuation methodologies that would assist you to set an affordable price for an existing business. Setting a value based on the company’s earnings is one method. Inquire about the company’s financial statements from the last several years, which will show you the company’s revenues and earnings. You might set a price based on multiple profits if the company is profitable. This evaluation is frequently based on three to five years’ yields.
Another alternative is to add together all of the company’s assets and calculate a value from the sum. You may assess the value of any tangible asset, such as equipment, real estate, stock, and infrastructure, by determining what they would be valued on the market currently. You should also evaluate the company’s intangible assets, such as its goodwill, client list, and employees. Then deduct any current debts and obligations from the assets to arrive at the final price.
Another technique to figure out how much to charge is to look into comparable business sales in your neighborhood. Averaging sales prices can help you determine whether your estimate is accurate.
The Bottom Line:
This guide would have provided step-by-step understanding of the aspects you must consider before you finally purchase a business. However, Bellzone Funding LLC provides you with different funding alternatives through which you can secure finance to purchase an existing business. With professional advice, affordable interest rates, and different loan packages, we are here to finance all your business needs. So get in touch with us and secure your loan to make a worthwhile business empire!
