Buying a business can be one of the best decisions you ever make, but it’s easy to idealize business ownership even if you’re not ready to jump in just yet. Additionally, deciding whether you’re ready to purchase is just the first step; it can be difficult to find the perfect business for sale and decide what you’d like to pay to purchase it. However, as business brokers, we have some tips for you when it comes to deciding whether you’re ready to purchase a business and following through on that decision.
How do you buy a small business?
Buying businesses may seem counterintuitive to many people. After all, don’t we all dream of coming up with a great idea or noticing an unfilled niche in the market, subsequently “striking oil”, and watching the cash flow in? While this idea of the American Dream is real for many, there are many other facets to the reality of starting your own business, many of them negative. When you buy an established business (exercising due caution), you’re buying a proven asset with a solid financial foundation. Generally, this is a lot less precarious than building a business from the ground up. You’re purchasing an established reputation with your customer base, steady cash flow and profits, trained and experienced employees, and a proven method for conducting business. A good starting point is to browse for-sale listings for businesses to get an idea of what’s available to you in the first place.
Is buying a business a good idea?
If you decide that purchasing an established business is right for you, there are a number of factors that will influence your choice, including geographical location, price, size and number of employees, income, and which industries you’re familiar with. This is where a business broker comes in: this part of the decision-making process is absolutely crucial in ensuring that you find a business you’ll be able to run successfully for years. We can help you pinpoint your strengths and skills and find an industry that’s well suited to them. For example, liquor stores and gas stations are popular types of enterprise for buyers to target, but few people have the skills and experience to succeed within these particular industries without additional knowledge. Conversely, if you have experience within the real estate sector, there are a huge variety of enterprises that rely on that kind of knowledge. We’ll locate and pre-screen businesses to make sure they meet your qualifications. Once you find the perfect business, a business broker will negotiate on your behalf until both parties are in agreement on the purchase price, often saving you tens of thousands of dollars in the process. After that, we’ll complete the final steps of dealing with all the fees and paperwork to be sure that nothing minor slips through the cracks. We’ll make this part of the process as simple and streamlined as possible for you while we deal with the complexities.
How much is a business worth?
One negative aspect of buying existing businesses is that the initial investment is usually higher than it is to start a business from scratch. However, if you’ll be relying on financing to start or buy your business, you’ll find that banks and other lenders generally place more faith in the purchase of an existing business than in a brand new startup. This is due to the aforementioned proven record of the business being purchased and the presence of existing cash flow. Deciding what you’ll pay for a business sale is complex; there are a huge number of factors that will influence the final number. This is another part of the process that involves a huge amount of due diligence from either you or your business broker. Consider researching:
- Ratings by the Better Business Bureau and other industry organizations
- The business’s reputation with existing customers, suppliers, and even competitors
- The general trajectory of the industry and potential reasons the current owner might be selling
Your bid to purchase the company should reflect the current financial health of the company, its current earnings and future potential, inventories and assets, liens and contracts, leases, etc… This is a good time to sit down with accountants on both sides and look at the company’s financial statements for the past five years, including tax returns and projected future earnings. In short, after doing your due diligence, collaborating with a broker, and involving your accountant and attorney, you should have an excellent idea of what the business might be worth. Your business broker can then help you decide on an appropriate first offer to start negotiations.
Clearly, the process of buying businesses for sale is complex and potentially arduous. However, the potential returns on your time and effort can make the time spent incredibly worthwhile. With the help of a qualified broker, this process becomes much more simple and straightforward, and you’re very likely to end up purchasing a better-suited business for you while spending less money. A business broker’s pay is often more than covered by your savings during negotiations, and paid back again later in peace of mind and sound decisions. If you decide to forge ahead and consider purchasing a business independently, we hope these tips have to outline the process and pitfalls. Feel free to contact Integrity International Brokers with questions or for help locating the right business for you.