Note that, with a broker, theres a commission involved, but its typically paid by the seller. As the buyer, youll want to have a good accountant on your side to review the businesss financials. It may also be beneficial to have a good business lawyer to represent you in negotiations and to help you understand how the transaction will be structured. If youre buying an existing business for the first time, a business broker might very well be worth the cost. But if youre confident you can handle the process on your own, then you might want to hold off on hiring a broker until the very end—because even the savviest entrepreneurs can have trouble filing forms and following proper legal procedure. TL;DR: Finding the right business for you is ultimately about balancing passion and experience. Youll want to buy a business where you can bring fresh ideas and solutions. Before you get too far into a deal, make sure you understand why a business is for sale.
The pros and cons of buying an existing business
If youre buying an existing business, youll want to know exactly why this business isnt working anymore for its current owner. You should ask the current owner what challenges that they have come up against, what theyve done to try solving those problems, and how those attempts fared. During every conversation with the current owner, you should ask yourself, do i have the time, energy, money, experience, and skill to meet these challenges with different or better solutions? Be on the look out for: A poorly conceptualized business plan (theres just not a market for the product or service) Competitors are far ahead Existing business debts Location problems (maybe theres not enough foot traffic to sustain sales?) A brand issue (a tweet went. In addition to speaking with the owner about these concerns, also talk to existing customers, existing employees, locals in the area, neighboring businesses, and. Theyll give you an honest view of how the business is doing, without the bias of the seller trying to convince you to buy. Step 4: Find the business that aligns with your budget and goals. There are plenty of ways to find the right business that fits all the criteria youve decided. These include: Online business-for-sale sites such as m, the largest site with more than 45,000 active listings Craigslist ads Classified newspaper ads under the businesses for Sale category Asking around in your network of small business owners going to meetups or industry conferences to ask. However, a broker can help network you understand what kind of business you want, prescreen businesses to cut out all the failing companies, keep negotiations civil and smart, and help you with all the necessary paperwork.
Money isnt the only thing youll be spending. Look at the time and energy commitments youre planning to invest to make the business your own. Some managers prefer to be on at all times, in the weeds with their employees, while others prefer to delegate and, one day, own multiple businesses. The amount of resources youll have to invest depends in large part on the people and processes already in place and on the experience you have in the industry. For example, if youre buying a tech company but dates lack technical expertise, youll need to invest time learning the ropes from existing staff. Step 3: Understand why the business is for sale. There are plenty of reasons a business owner might put their business up for sale, including something as simple as an innocuous lifestyle choice like retirement, or something more worrisome—like when theres a fundamental problem with the business.
In that case, who better to first buy the business than someone who knows it as intimately as you? Although you might just want to buy an existing business for the financials alone—by its expected return on investment—its also important to align yourself with the businesss immaterial goals. After all, the more knowledgeable, curious, and familiar you are with the businesss model, products or services, customers, industry, and trends, the more innovative and successful your new ideas will. Step 2: Figure out if itll be successful. This is where youll need to decide on the more hard-and-fast aspects of your new business acquisition. For example, figure out how much youd ideally want to change to the business, and assess whether that lines up with your budget. Calculating the ideal size, location, sales, staff, and so on of your business is an important step, since it will give you a scale to keep in mind when youre shopping around.
Cons: Upfront purchasing costs are high, theres also a lot more to learn, and a lot of unknown risk to weigh. Buying an Existing Business: How to pick the right One If youre set on buying a business, then of course, its crucial to make sure you pick the right business for you. The easiest way to set yourself up for success is to buy a business that youre passionate about improving and taking to the next level. But passion alone isnt enough—experience and asking the right questions are also important when making your choice. Heres how to pick the right business to buy: Step 1: Figure out what youre interested. Narrow down your passions, interests, skills, and experience. If youre buying an existing business, youll probably be happier if you buy a business that dovetails with what you already like and have some experience. For example, if youve been a line cook at a restaurant for several years, maybe youve decided youd like to own your own restaurant. Or maybe youve been an employee for a long time at a company thats now on the market.
Buying an, existing, business, law legal Definition
All of these items will be the subject of negotiations between the buyer and seller and factor into the final purchase price. Unfamiliarity If youre buying an existing business, youll necessarily be a bit less familiar with its inner workings and the details of its products, processes, employees, and financials. This could be a bit of an obstacle, especially when youre just starting out. This is especially true if you are entering an industry that you lack experience. Youll need to spend a lot of time learning the ropes, and prepare for the learning curve to be steep. Risk of a hidden Problem ever watch a show where the second a buyer closes on a house, they find out the inspector missed a massive crack in the foundation? Too late to go back on that purchase now!
Well, as a prospective business buyer, youll also go through a fairly intensive due diligence process, where youll gather writer information about the business and the current owner. But no matter how much information you uncover, you always run the risk of taking on an issue that youre not aware of or thats worse than it appeared. For example, equipment could be damaged, or the brand might have a bad reputation. A bit later, well your tell you how to catch most of these problems before its too late. Too long; Didnt read (TL;dr pros of buying a business include that youll already have the business model, people, and processes in place. This makes the day to day of running the business less expensive and can make it easier to get financing.
Intellectual Property on the table. If your business-to-be has patented their products or has a copyrighted slogan or trademarked logo that wins over customers, then that intellectual property value will probably transfer over to you. This isnt on the table with every business acquisition, but it could be critical if youre dealing with something that you think could be expanded even more. What if you turned this small business into a national franchise? All of a sudden, that patent and copyright becomes a lot more valuable.
Patents, copyrights, and trademarks are often included in sales of software companies, tech businesses, and creative businesses (e.g. Music, design, and art). Buying an Existing Business: The cons What goes up must come down, right? Now for the drawbacks of buying an established business:. Higher Upfront Purchasing Costs by buying an existing business, youll be able to save money on operating costs, such as inventory and equipment. However, youll probably face some pretty sizable purchasing costs. In fact, those purchasing costs might very well be greater than what it would take you to start the business. Thats because, in addition to the obvious assets, youre also buying ownership over the following: Customer base built-out brand Design work, from logo to store interior Business concept and plan Time, effort, and money spent testing out products Refined processes, procedures, and policies Income stream.
Buying an, existing, business
With an existing business, your initial operating costs are lower because—unless your acquisition is pretty atypical—many parts of the business are already in place and ready to reviews go once youre at the helm. You dont need to spend as much of your budget on hiring employees, developing marketing strategies, or building a customer base because those come with the transaction. Instead, you can pour more cash into expanding the business and adapting it to your vision. Easier to Obtain Financing, while buying a business isnt always a safe bet, lenders and investors see it as lower risk than launching a new company. This is because theres a history of financial performance that a lender or investor can use to gauge how the business has performed to date and to predict future performance. Plus, like we mentioned, theres also existing data around the companys market position, competitors, brand recognition, and customer base. All this makes investors more likely to invest in the business and can make lenders more comfortable in giving you a business loan. The current owners can even participate in financing the transfer of ownership by giving you a loan (more to come on this in a bit).
An established brand and brand identity (whether or not you want to change it, people know it). Customer base, vendor and supplier base, plus manufacturing resources. Existing employees who can share their knowledge and expertise. Management processes and policies, an understanding of your competition and market. Granted, each of these things may not be in great condition, and the business might not be turning a profit yet. (That part is really important!) However, an existing business has some structure that will save you time up front, letting you quickly see what you need business to zero. Particularly if youre testing a new market or entering an industry that you dont have much experience in, zipping past the difficult startup phase can be a huge advantage. Lower Operating Costs, one of the major draws of buying an existing business is that the operating costs are lower. For example, startup costs for a brand-new restaurant can run upward of 450,000 for initial supplies, food and beverage, signage, and a customized build out of the kitchen.
the keys. Reasons to buy an Existing Business. Purchasing an existing business is kind of like being on the market for a home. While some people like the history and character that come with an older home, others dont want the baggage that can saddle an older home and prefer something turnkey. Similarly, there are plenty of advantages to buying a business thats already been around for a while, but there are drawbacks as well. Buying an Existing Business: The Pros. Proven Business Concept, when launching a brand-new business, a bulk of your time will be spent on the planning phase. Youll have to write a business plan and figure out how to turn that plan into a reality. But with an existing business, youll typically already have all of this in place: A building or office space, inventory and equipment.
Get the capital needed to make the purchase. Close the deal with the appropriate documents (bill of sale, adjusted purchase price, leases, etc.). Yes, its a huge decision—but when you pull the trigger on buying an existing business, you get the opportunity to become an entrepreneur without starting completely from scratch. And lots of people consider purchasing an existing business each year, so you certainly shouldnt feel like youre thinking about something totally out of left field! Every year, more than 500,000 businesses change hands, and that number is expected to skyrocket in the next several years as millions of baby boomers begin retiring and selling their businesses. Purchasing an existing business is so popular because it lets you skip past some of the pain points and costs of launching a brand-new with company. But the journey from finding a business for sale to closing the deal can be long and complicated.
Worried About Starting from the Ground Up?
How to plan buy a business in 8 Steps. Figure out what youre interested. Figure out if the business will be successful. Understand why the business is for sale to determine any risks. Find the business that aligns with your budget and goals. Do your due diligence before making an offer. Evaluate the price of the business: earnings vs asset vs market approach.