An Overview of How to Buy a Business

One of the best ways to start your path down entrepreneurship is to buy an existing business. There are many benefits that you will instantly receive from the purchase of a company. Primarily, in all likeliness, the business you intend to purchase is currently generating a profit and maintaining a positive cash flow. As such, the concerns regarding your ability to support yourself from the income derived from your business are substantially reduced. Additionally, you can use the existing business as a platform that you can aggressively expand. Unlike starting a new business, an existing business already has an operating history, a customer base, and an established market presence.

According to many experts, you should purchase a business that suits your industry experience and expertise. For instance, if you have had years of experience working in a retail store then it may not be in your best interest to purchase an established restaurant. The best business ownership transitions usually occur among individuals that already know how to operate the business they intend to purchase.

Once you have decided to purchase a business then you must begin the process of finding a suitable acquisition target. In any market, there are always a number of business brokers that can assist you in locating businesses that are for sale. There are also a number of websites that specialize in listing businesses for sale. These websites are similar to those that list properties that are on the market.

You are also going to need to determine how much capital you intend to contribute to the business acquisition as well as how much money you can potentially borrow to finalize the acquisition. It is important to note that among small business sales, the original owner will usually provide the buyer with a promissory note for 20% to 50% of the value of the business. If the business seller is able to do this then you will find it is much easier to receive additional third party capital if it is required.

Next, after you have found the business you want to purchase, it is time to go through the due diligence period. Here, you will need to examine every aspect of the business that you intend to purchase. Foremost, you should examine the last three years of tax returns from the company. Your certified public accountant should also thoroughly review all of the financial documents that will be provided to you from the current owner. You are also going to want to have a formal valuation completed by an expert. In many instances, the current owner of the business has already had a third party valuation completed that you can review with your CPA.

Additionally, you are going to want to speak with the employees of the business as well as frequent customers. This will provide you with a much greater understanding of how the business has been run and whether or not customers are satisfied with the services offered by the business. You should also work with the owner to determine how they will assist you during the three month to six month transition process that will occur after the business is sold. Frequently, the former business owner agrees to assist with the transition for a one year period.

If you have determined that you want to purchase this specific business then it is time to begin negotiating. During this phase of the business acquisition process, you should have your attorney work closely with you. Attorneys are excellent negotiators and they will help you substantially. Usually, the negotiation process takes approximately one month for a small business sale or transfer.

After the price and terms of the sale have been agreed upon, it is time to purchase the business. In this final step, your attorney and the seller’s attorney will review the closing contracts and begin to establish the escrow account. After this step is complete and all documents are signed, you are now the proud owner of an existing, profitable, and working business.