Starting a business from scratch isn’t the only way to become an entrepreneur. Buying an existing business can be a faster, easier path. Here are three steps to buying a business. (Note: This information is for buying an independent business only, not purchasing a franchise.)
Step 1. Find Your Business
- Search online. BizBuySell.com, BusinessesForSale and BizQuest are three popular sites with plenty of inventory. If you’re just beginning to explore the idea of buying a business, they can show you what’s available and how much it will cost you.
- Contact businesses you’re interested in. Is there a local business you’ve had your eye on? Contact the owner and ask if they’d consider selling. Some business owners don’t actively advertise a business for sale; others are open to selling if someone makes an offer. If the owner doesn’t want to sell, perhaps they know someone in the same industry who does.
- Go through a business broker. Once you get serious about buying a business, you’ll want to work with a business broker. Ask your local Chamber of Commerce, other business owners and your lawyer, accountant, or banker for recommendations. Most websites that list businesses for sale also list brokers.
Step 2. Check It Out
Before you fall in love with a business for sale, do some due diligence in these four key areas:
1. Is there a market for this business? Do some market research to assess whether the market for this business is growing, shrinking or stable. You don't want to buy into a faddish business that will burn out in a year.
2. Why is the business for sale? If the owner is retiring or moving out of state, that’s one thing. However, if the owner hasn’t been able to make a go of the business, they may just be trying to unload it on someone else. Unless you truly feel you can turn such a business around, it’s best to steer clear.
3. How strong are the financials? Look at financial statements, tax returns, bank statements, and all contracts, including equipment or property leases. As when purchasing a used car, carefully maintained records are generally a sign of a well-run business—but don’t take them for granted. Assess sales projections, cash flow projections and financial projections. If financial statements haven’t been audited, have your accountant do so.
4. What about the people? Avoid buying a business that depends heavily on the skills or personality of its owner, or the knowledge of key employees. Those employees may not stick around when you take over, and without the original owner in place, current customers may leave.
Step 3: Plan for Financing
Where will you get the capital to purchase your business? As soon as you have a rough idea of the cost, start exploring your options.
If you’re trying to get a business loan, keep in mind the bank will assess the four factors above. If you can’t finance the purchase yourself or get a loan, see if you can finance the purchase through the seller. For example, maybe you can pay a portion of the cost upfront, then pay off the rest by giving the seller a percentage of your monthly profits.
Get Pro Help
Never go it alone when buying a business. In addition to getting advice from your business broker and accountant, have your attorney review employment contracts, customer contracts, intellectual property and any other legal documents affecting the business. The less familiar you are with the industry in which you are buying a business, the more important it is to get outside opinions and assistance.
No matter how excited you are, don’t rush into this decision. If you put time and thought into your purchase, your new business will have a better chance of success—and you’ll have a better chance of enjoying it.
Rieva Lesonsky is CEO and Co-founder of GrowBiz Media, a custom content and media company focusing on small business and entrepreneurship, and the blog SmallBizDaily.com. A nationally known speaker and authority on entrepreneurship, Rieva has been covering America’s entrepreneurs for more than 30 years. Before co-founding GrowBiz Media, Lesonsky was the long-time Editorial Director of Entrepreneur Magazine. Lesonsky has appeared on hundreds of radio shows and numerous local and national television programs, including the Today Show, Good Morning America, CNN, The Martha Stewart Show and Oprah.
Lesonsky regularly writes about small business for numerous websites and for corporations targeting entrepreneurs. Many organizations have recognized Lesonsky for her tireless devotion to helping entrepreneurs. She served on the Small Business Administration’s National Advisory Council for six years, was honored by the SBA as a Small Business Media Advocate and a Woman in Business Advocate, and received the prestigious Lou Campanelli award from SCORE. She is a long-time member of the Business Journalists Hall of Fame.
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