BUY A BUSINESS

Ultimate Business Buying Guide

If you are thinking about buying a business, it’s important to think about both the benefits, and the drawbacks, that come with buying a pre-existing business. One of the top searches for buying a business are people searching for businesses for sale near me.

What Is the Best State to Buy A Business In?

With today’s remote working capabilities, and online presence for most businesses, many businesses can be bought anywhere, and either relocated, or managed from a distance. We recommend expanding your search, and instead of finding the best location, first find the best business that is exactly what you want. Have several options, and do some research as you may be surprised to learn that most of the sales come from the website. Even if a business does require a physical location, you can always hire a manager or a director, and plan to travel to the location as often as you want to. The key is buying a business that you love, is profitable, and doesn’t require a lot of in person work from the owner to take up your time.

Benefits of Buying An Existing Business

The benefits of buying a business that already exists, that is successful, are many. You get to become a successful business owning entrepeneur immediately, without the risk of starting up your own business. The failure rate of new start up business is about 90%. That is a lot of risk, and a lot to think about, before starting a business from scratch. Buying a business that is already in operation, and making a profit, let’s you skip past the big hurdle of putting out a bunch of money to start a business with the hope that it will be successful. The current business owner has already gone through the pain points of building the right products or services, advertising to bring in the customers, maybe manufacturing, shipping, all those details worked out and operational. It’s not easy to find the right business to buy, and it will take a while, but it is well worth the effort. The good news is that you don’t need to start that journey alone. You have come to the right place for help in what to look for, and what to do, to find that perfect business that you would like to buy. Use our buying an existing business checklist to help you to be successful.

Checklist for Buying an Existing Business

Now that you have decided that buying a business that is already operational and making a profit, the next step is to find the right business for you. It’s important to find a business that you enjoy and are passionate about, so you will add energy to the business to continue in it’s success. Then when you find the right businesses that could be potential candidates for you to buy, it’s important to know the right questions to ask to learn the right information to assist you in your decision making process.

Business Buying Checklist

1. Decide What Type of Business To Buy 2. Search for Businesses Listed For Sale 3. Working with A Business Broker 4. Understand Why the Owner is Selling Their Business 5. Narrow Down Your List of Potential Businesses to Buy 6. Letter of Intent to Buy A Business 7. Purchase Sales Agreement PSA for Buying a Business 8. Business Buying Due Diligence 9. Evaluate the Price of the Business 10. Secure capital to make the purchase 11. Finalize the Business Purchase 12. Reasons to Buy a Business 13. Pros of Buying an Existing Business 14. Cons of Buying an Existing Business

1. Decide What Type of Business To Buy

Think about the types of things you like. What are your interests, hobbies, skills, and experience that will help you to be successful in the business. Once you narrow down what you would like to do, then you can start to look for business in that particular niche or industry. Narrow down your passions, interests, skills and experience. You’ll be happier if you buy a small business that dovetails with what you already like and have some experience in. Yes, it is important to find a business that will give you the expected return on your investment, but it’s also important that you like the business and can enjoy running it.

2. Search for Businesses Listed For Sale

There are a lot of resources available to find businesses that are advertised for sale. Whether it’s on community ad sites like craigslist, or facebook groups, or in your classified ads in your newspaper (online or in print). You can find businesses for sale on a site like bizbuysell, but the best path forward is to work with a business broker that will help you in the process. You can also find businesses for sale by word of mouth, signs on business fronts, asking other small business owners in your network if they have any good leads, attending entrepeneur group meetings, conferences, and again working with a business broker like the one below.

3. Working with A Business Broker

Business brokers are a great resource to find the perfect business. They regulary research the business market, so they know what’s available, what questions to ask, and how to ask those questions so that you learn what you need to from their response. You will want to use a professional who understands the market and may be able to save you both time and money. If you would like to discuss any of this further or the types of services that are offered, please contact Michelle Mendenhall as she is a member of the IBBA (International Business Brokers Association), a Certified Business Broker, and a Commercial Real Estate Specialist. Michelle Mendenhall Professional Business Broker, IBBA Commercial RE Sales & Leasing Associate Phone: 916.459.7526 DRE # 02116152 Website: LocalGirlGoesCommercial.com Email: michelle.mendenhall@localgirlgoescommercial.com Email: michelle.mendenhall@expcommercial.com

4. Understand Why the Owner is Selling Their Business

A business owner may decide to sell their business for many reasons. It could be that they are going to retire, or they may be moving out of the area, or may have come into some hard times emotionally that is making it hard to continue to run the business such as a loved one or partner passing away or getting sick. What you don’t want to see is that they are selling because the business is struggling financially, unless of coarse you are looking for this type of business to turn it around into a successful business. It’s important to ask the current business owner what kinds of challenges they have encountered, and how they have solved those problems. It will help you in your future, in case you encounter similar problems if you own the business. Things to look out for that could be a conern is if they are selling because their competitors are taking over the market and hurting their business. If the business owner has a bad business plan, or poorly thrown together. If there is not a market for the product or service the business has to offer. If there are problems with where the business is located, or if it’s seasonal, or a fad that has gone out of style. A major issue would be a problem with the brand or reputation. Those are hard to overcome, but it can be done with a new owner and a new vision. If the company has broken or outdated equipement, or problems with inventory or the supply chain. Now is your time to ask all the right questions to learn as much as you can about the existing business. Many businesses will ask you to sign a Non-Disclosure Agreement, or an NDA, so that you will sign saying that you will not disclose this information you are learning about the business to anyone else. It protects the business, and it makes sense to sign it. You could also talk to some existing vendors, customers, neighboring businesses, or clients to see what they think from their side of things about the business. In many instances, most people are willing to provide their opinion and feedback.

5. Narrow Down Your List of Potential Businesses to Buy

Up to this point you probably have a lot of businesses in mind, but now it’s time to thin out the list so that you can focus on those businesses that make the most sense to buy. The criteria for this could be things based on revenue, profit, location, how difficult the transition will be, how complicated the business is, how much of your time it would consume, what kind of shape the business is in, risk, overhead, employees, and your level of interest and excitement towards running that particular type of business. Another key factor will be how much of your resources, time, and money you would have to invest, and what the level of risk is in buying and running each particular business.

6. Letter of Intent to Buy A Business

Now that you have decided that a particular business is the one that you want to buy, the buyer issues a letter of intent, or an LOI, to the seller once both sides have agreed on a price point and agreed on which business assets and liabilities will be included in the transaction for the sale of the business. The offer price, along with the terms and conditions of the business sale, should all be included in the buyer’s LOI to the seller. The LOI shows the seller that the buyer is serious about buying the business.

7. Purchase Sales Agreement PSA for Buying a Business

The next step is the purchase sales agreement. This agreement will document the final purchase price, and everything that you will be purchasing. It may include the tangible assets, inventory, equipment, furniture, buildings. It may include intangible assets such as goodwill, and brand value. It could include intellectual property that would include any patents or copyrights and things like that. It could also include customer lists. This is a very important document that you may want your lawyer to review before signing and submitting.

8. Business Buying Due Diligence

This is the time to take your time and do your due diligence. This means for you to gather as much information that you can about the business before finalizing the purchase of the business. You may want to include professional experts in this process such as your lawyer or your accountant. It is a good idea to have an accountant to review the financials of the business to key in on any issues, or to validate that it all looks good. They may also have advice on additional information or questions you should ask to make sure you are fully informed. This is the time where the business seller may ask for you to sign a confidentiality agreement or nondisclosure agreement. By signing this, you are agreeing that you will not disclose any confidential information about the business that’s uncovered during the due diligence process. This is a standard practice when buying a business because it protects the seller in case you decide tht buying the business is not for you after you review all of the information and complete your analysis. When you are thinking about buying a business, there are many types of documents you may want to ask for during the due diligence period that can help you make an informed decision on whether to buy the business or not. Business licenses and permits that are needed is a good area for you to understand so that you know the costs involved, and what it will take to keep them current each cycle. This could also help you find any problem areas if they haven’t been able to maintain their permits and licensing due to problems with the business. Organizational paperwork and certificate of good standing for any business you are going to buy is another area that is important to ask about. If you are looking at a sole proprietorship or partnership there may not be much as far as founding type paperwork, but if it’s a registered business entity like an LLC or Corporation there should be some articles of incorporation that you should be able to obtain. The Secretary of State might be able to produce a certificate of good standing for the business that you are looking at buying, which certifies that the business is approved to be able to operate in the state. Zoning laws are another thing to consider looking into. You can check with your local zoning laws to make sure that the business that you are considering to purchase is not violating any restrictions. This is really important if it’s a commercial type business that is operating in a residential type area. Just because a business is operating there today, doesn’t necessarily mean that it is ok, so you want to make sure that it is ok so that if you take it over you won’t run into any road blocks that could cost you time and money to resolve. Environmental regulations for the type of business could be important. You want to make sure if there is chemicals or waste that they are handled appropriately, and will continue to be handled appropriately after you buy the business. Ensure that the business abides by all of the area’s small business environmental regulations, if there are any that would specifically pertain to the business. Contracts and leases for the business would be an important thing to look at and understand. For property, equipement, or anything else. It would be good to make sure that the landlord is ok with transferring over these documents into your name if you buy the business, or you may have to negotiate a new lease, which may cost you more money. Vendor and customer agreements are important to understand as well. If this research identifies an issue where a single client provides most of the business activity, you may be concerned that if that client were to decide not to continue working with your new company, it could cost you most of your revenue. Business financials such as tax returns, balance sheets, cash flow statements, bank statements, sales records, accounts receivable, accounts payable, debt disclosures, and advertising cost statements are more important documents you may want to ask for and analyze. The tax returns and financial statements should really have been signed off on by a certified public accountant as you really can’t just take a seller’s word for it. Evaluate the equipment, and any inventory on hand. Has the equipement been maintained, and is the inventory in good quality to be sold. What about the furniture for the business, is it in good shape, or will you need to replace it. Will any buildings require upgrades or modifications.

9. Evaluate the Price of the Business

Many deals fall apart during this phase. Buyers and sellers will use some kind of pricing model to get a number for the price of the business and to setup negotiations. Whether you decide to put a value on the business yourself or if you decide to hire someone, it’s helpful to have some knowledge of different business valuation methods. There are three main approaches to putting a value on a business that you are considering for buying yourself. There is the earnings approach which is for an established business that can give you the previous earnings, and the forecasted earnings for the next year. This approach values a business based on its historical, current, and projected profits. Typically you will see this in the capitalized earnings method and discounted cash flow method. Even if a business has not made any profit yet, the earnings model can be used to predict how much the business might earn in the future. A disadvantage of the earnings approach is that it relies on a prediction for the earnings that may not be accurate. The assets approach is used for buying businesses that have a lot of capital like manufacturing and transportation businesses, and businesses that are not yet making any profit. This approach measures the value of the business's tangible and intangible assets, and minuses any debts and liabilities. This approach uses the current fair market value of the assets but also the future return on investment that the owner may get from those assets. The Market approach is used for accounting for local factors or confirming a price that you arrived at based on one of the other two approaches. This approach measures the value of a business based on how much comparable businesses have sold for. For any of the approaches, the goal is to assess the current financial health of the business, as well as its potential growth.

10. Secure Capital to Make the Purchase

Now that you are ready to buy the business, you need to come up with the captial to make the purchase. Use personal or family money if you have the money available, or have family or friends that are willing to invest in your business buying adventure for you. If you go this route, it’s important to understand the tax implications for gifts and family loans. Make sure that you and your family member put the exchange of money in writing and follow IRS rules for family loans, to make sure you are doing everything that you need to do in all legal ways. Seller financing is sometimes an option as some sellers will carry a not, or accept payments. Some sellers don’t mind going this route as it provides an income for the coming months or years. Though this carries some risk for the seller. Partner up with someone you feel comfortable with and trust. They can come up with part of the finances needed for the purchase of the business, which also shares some of the risk and costs so it’s not all on your shoulders alone. It may not be money you need in this partnership, it may be more specific experience or a different skill set needed to run the business. Make sure you protect yourself and draw up a partnership agreement, so co- ownership doesn’t cause any problems down the line. Sell stock to employees can also be a way to pay for part of the business. This also improves morale and drive for success for your employees as they know their hard work has a direct impact on the value of their stocks over time. Leasing the business instead of buying it outright, and include the option to make the big purchase down the road once you’re able to afford it. This can buy you some time to pull the remaining finances needed. Most sellers won’t go this route as they would rather get their money and walk away completely, but it is sometimes an option for the right deal. Debt financing is the most common approach to buying a business. You will need a good document trail from the business so that a bank can lend you the money on the business. It will be important to bring details to the bank that will show the financial history, tax returns, employee records, cash flow analysis, inventory and equipment valuations, etc. When looking for small business loans, some of the financing options that may be available are a term loan, SBA loan, or asset based financing.

11. Finalize the Business Purchase

Now it’s time to close the deal. Now that you have found the right business, done your due diligence, agreed on a fair price and gathered the capital you need, make sure you have all the documents, notes and agreements in place, it’s time to officially bbuy a business with an official bill of sale, which will prove the actual sale of the business, and officially transfer the ownership of the business's assets from the seller to you. It’s time to celebrate, and start the new chapter of business ownership and being an entrepeneur. The bill of sale will include the final adjusted purchase price, which includes all of your prorated expenses like rent, utilities, and inventory. If you are taking over the current leases you must make sure that your future landlord is in the know, or that you are negotiating a new lease for your new business. You will want to make sure you have the vehicle documentation, any finalized paperwork for any trademarks, patents, or copyrights. If there are any franchise documents to file you would need to do it now. One of the final steps is to have the seller of the business sign a non-compete agreement so they won’t try to take any business from you, they won’t compete with your business as you are now the new business owner. You will also want to complete any Franchise paperwork if you need to file any franchise documents.

12. Reasons to Buy a Business

Buying a business is kind of like being in the market for a home. Although some people like the history and character that comes with an older home, others don’t want the baggage that can saddle an older home and prefer something turnkey. Similarly, there are plenty of advantages when you buy a business that’s already been around for a while, but there are drawbacks, as well. The main reasons to buy a business is so that you can be your own boss, and to build wealth. It’s hard to get ahead in life, and plan for the type of retirement that you want, when you work for someone else. When you own your own business you can make as little or as much money as you want. It’s all relevant to how much work you put into it. Once you buy or build a successful business, you can sit back and get good management in place, and pretty much let it run itself.

13. Pros of Buying an Existing Business

Some of the real pros of buying an existing business are that there will be brand recognition if the brand is already part of a successful business. Having the right level of office space that is already needed for the business. Acquiring the existing inventory and customer base. Gain the existing Vendor and supplier base, and manufacturing resources. Acquiring the existing employees that are already doing the job today with the right level of expertise. Includes the management processes and policies so you don’t have to start from scratch. An existing level of understanding of your competition and the existing market for your product or services. Though maybe some of these are not exactly like what you want them to be, there is always room for improvement and ways to mature the programs, this gives you a jump start from what they are doing today, and ready for your improvement models to start being applied to increase the profits.

14. Cons of Buying an Existing Business

When buying an existing business you will be assuming their up front costs and marketing, and their entire business model. Not everyone is gifted in building the perfect business model, there is always room for improvement and maturity of the existing business. Buying someone else’s plan and vision gives you a headstart in running a business, though there may be a lot of areas for improvement, which adds to the excitement of buying a business. Unfamiliarity with the details is an important risk to consider when buying an existing business. It is hard to step in some unfamiliar terrority and buy someone eles’s vision for a business. This leads way for some unfamiliarity in the business itself, but can also add to the excitement of buying the business. Start from the level they have built the business to, and make it better. Fine tune the business into the highest level of profit that can come from the business. Work to continuously improve the cost and increase the profits possible. There is always the possibility of a hidden problem you weren’t aware of, but as long as you work to continuously improve the profit margins on a regular basis, these should be easy to overcome. At ViralStudioX, we highlight products and services that you might find interesting. We frequently receive free products from manufacturers to test. This does not drive our decision as to whether or not a product is featured or recommended. If you click a link on this page, then go on to make a purchase, we might receive a commission – at no extra cost to you, and does not impact the purchase price of any products that you may purchase.