Some professionals like the idea of building up a business from scratch, while others prefer the option of purchasing an existing business. Considering how difficult it can be to build an enterprise from scratch, buying an existing company can be a fast track to entrepreneurship and profit. When you start on this journey, these are the five basic steps that you should undertake.
1. Define your needs
The first step of buying an existing business is clearly defining your needs. Determine which industry you are looking to buy into, and why you’ve chosen this industry in particular. For instance, it’s useful if you have prior knowledge of the sector and a passion for the kind of work involved. Define your needs in terms of location and size, and remember that your company’s location will have financial implications in terms of taxes or labor costs. Larger businesses are attractive, as they usually generate larger profits. However, smaller businesses are a smoother transition for the first time buyer.
2. Put in the research
Putting in the research is crucial when you are looking for a business to buy. You’ll want to have an idea of the market value before you begin your search. Setting a budget beforehand will make the search process a lot easier. Remember, there will be lots of undesirable deals out there amongst the good ones. This part of the process shouldn’t be rushed. When you are researching online, use reputable marketplaces with plenty of experience behind them. It’s beneficial to use a service that specializes in the kind of business you are looking to buy. For instance, BSF specializes in the buying and selling of funeral homes.
3. Evaluate the business
The evaluation stage is crucial to ensure success. Generally, assets will account for most of the valuation. These assets will include things like equipment and machinery, plus real estate and property. You should also consider ongoing contracts, turnover, and profitability. To help you complete this stage, it’s advisable to hire a specialist accountant. The process is termed ‘Due Diligence,’ meaning the investigation or audit of the business to ensure that you are making an informed investment.
4. Consider a business broker
If you are struggling to find the business you are looking for, it can be advisable to hire a business broker. A broker can help you by pre-screening potential businesses, determining your needs and interest, and even negotiating the terms during the final stages. A broker can be particularly useful if you are concerned about the pre-screening stages, and finding a suitable business by yourself. The process usually involves a large exchange of data, and so many companies use a virtual data room to streamline the procedure.
5. Sale & Purchase Agreement
Once you’re satisfied with the results of the due diligence process, the final stage involves the sale and purchase agreement. By this time, you should be certain that you are ready to commit. You should be happy with the financial responsibilities you will acquire in assets, contracts, and staff. The agreement sets out the legal terms for both parties.