How to Buy an Existing Business
Starting a business from scratch is always a risky venture because you have no way of knowing whether your innovative, engaging ideas will actually pan out in practice. When you build a business from the ground up, you risk failing in the very first year, which happens to at least 40% of all businesses started. However, if you buy an existing business that has been in operation for several years, you drop some of the risk at the doorstep.
The major drawback to buying an existing business (versus starting one of your own) is that it is far more expensive than initiating a start-up. You’re not only paying for the business itself, but also for its income, it’s already-trained employees, it’s proven product line and everything else that comes part-and-parcel with an existing business. The good news is that financial institutions are more likely to approve large loans for an existing business than they are for the business plan of a start-up. If the business is making a consistent profit and if the forecasts for income are good, banks and credit unions are far more likely to be on-board.
Once you’ve decided to buy an existing business, however, the decision-making challenges aren’t over. You still have to find a business you like and that promises future income. Choosing a business to purchase isn’t usually accomplished in just a few days or even a few weeks; you’ll need to spend quite a long time going over paperwork, investigating the business and appraising the value of the existing business.
Examine potential industries. The first step is to decide on an industry that fits your skills and experience. You might want to go with the industry of your last business venture or place of employment, or you might want to branch out into unexplored territory. Keep in mind, however, that choosing an existing business with which you have experience will make the process go much more smoothly.
Decide on the size of the business. Buying an existing business should also include consideration for size. The number of employees already there, the size of the operation and the amount of cash flow should all play a part in your decision. If you aren’t ready to tackle a business with 100+ employees, look for something smaller and more immediately manageable.
Decide where you want to own a business. Location should also play a major role when buying an existing business. Unless you’re willing to relocate, choose a business within twenty or thirty minutes of your home. Examine traffic in your area and make sure you won’t mind the commute every day. You should also examine geographical location as it pertains to potential customers. If the business has a bad location, you might not be able to build on its current customer base.
It is also important to buy some of the technologies or software that they are using such as an ideal cloud CRM for small businesses. Surely, the data that such technology has already will be a big help for you. You no longer have to gather your own information because it is already in the system.
Once you’ve considered the above factors, it will be time to examine existing businesses which meet your criteria. This may mean casting a wide net and looking in all of the most unlikely places, including businesses which haven’t been listed for sale. Most individuals who are looking to buy an existing business will hire a broker to assist with the process. He or she can put you in touch with contacts that you wouldn’t have found otherwise. Not only that, but brokers won’t usually work with businesses that are overpriced or that refuse to disclose all financial paperwork. You automatically weed out some of the bad seeds by working with a broker.
After you’ve chosen a few existing businesses you’d like to consider, start talking to people. Contact customers who have used the business in the past and talk with vendors about their relationship. Examine policy and procedure documents and make sure you can fit in with the existing business culture. Buying an existing business might take a while, but you’ll thank yourself for being thorough.