Things to Remember when Buying a Business

Considering Buying an Existing Business? Here’s What You Need to Know

If you have the drive to be an entrepreneur but don’t want to start from scratch, buying an existing business could be the perfect solution. While purchasing an existing company often requires a larger upfront investment than founding a start-up, it typically carries a lower risk. This is because you can review historical profit and loss accounts rather than relying solely on forecasts, and you can see actual sales performance. Additionally, you may be able to use your skills to push a slow company in an exciting new direction.

Why Do Company Owners Choose to Sell Their Firms?

It’s a common misapprehension that if a founder decides to sell their business, it must be failing. People often think the finances are in shambles or the founders have insider knowledge of impending doom. However, there are many legitimate reasons why entrepreneurs choose to sell their businesses. They may be at a different stage of their lives where the company’s demands no longer align with their personal needs. Perhaps they’re tired of the current business strategy or eager to pursue a fresh idea. Often, when a founder is ready to move on, it can be tough to let go of something they built from the ground up. Finding the right buyer—someone with the passion to grow the company and the strategic thinking to keep it running well into the future—helps a founder move forward with confidence, knowing that their company is in good hands.

Steps to Successfully Buying an Existing Business

1. Make a List of Desired Characteristics

Purchasing a business is a significant decision that will have long-term consequences for your life and work. Before you start looking at options, have a clear idea of the kind of business you want. Consider the industry, size, location, and any specific attributes that are important to you. This will help narrow down your search and ensure you find a business that aligns with your goals and interests.

2. Look Into the Many Firms That Are Offered

Start searching for businesses that are for sale and meet your desired characteristics. However, don’t restrict your search to only those businesses that are explicitly “for sale.” Approach other firms you may know and inquire whether they would consider selling. This proactive approach can uncover hidden opportunities that might not be publicly listed.

3. Hire a Business Broker If You Haven't Already

If you’ve done your homework and still can’t find the ideal company, consider employing a business broker. Brokers can assist you in pre-screening companies, narrowing down your areas of interest, and negotiating the terms of your final business purchase. They have extensive networks and industry knowledge that can save you time and help you find a business that fits your criteria.

4. Do Your Homework

When you find a business that seems like a good match, don’t rush into buying it. Take your time to do thorough research. Perform due diligence to uncover any potential issues that could make the business an inappropriate choice. This includes reviewing financial statements, legal documents, and understanding any liabilities or obligations the business might have.

5. Arrange the Funding You Need

Once you’ve identified the business you think is right for you and carried out your initial due diligence, it’s time to arrange the necessary funding. Don’t be in a hurry to take the first offer of funds. Consider the balance between equity and debt, and ensure you have enough funds to cover unexpected expenses or downturns. Look at various financing options and choose the one that best fits your financial situation and business goals.

6. Finalise the Purchase

You’ve chosen a business, negotiated the terms, and secured the finances necessary to complete the transaction. The next step is to prepare and sign the contract. Make sure you’re working with an experienced lawyer and that you fully understand all the conditions before signing anything. Proper legal advice can help protect your interests and ensure a smooth transition of ownership.

Conclusion

Buying an existing business can be a rewarding path to entrepreneurship, offering the advantages of an established operation with existing customers and revenue streams. However, it requires careful planning, thorough research, and professional guidance. By following the steps outlined above and seeking advice from experienced professionals, you can navigate the complexities of buying a business and set yourself up for long-term success.

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