Things To Consider Before Purchasing An Existing Business
Let's say your head has finally been swayed by the thought of the freedom that comes with entrepreneurship, but you don't have any particular business in mind, or you are just scared of starting from the scratch. Buying an existing business may just be your best bet because even if it costs more than starting from the bottom, it offers less risk.
 |
| Photo credit : adwewk.com |
A common misconception however is that people think a business must be going under if the founder intends to sell it. They think there's impending doom somewhere that the original owner is trying to avoid and make the most of what's left. As much as this could be true in some cases, there's a plethora of other reasons why a founder may want to sell his business. These reasons could range from: The founnder's fascination with a new idea that the old one won't let him focus on, to the founder being bored with the business.
If you are looking to purchase an existing business, here are a couple of tips you should actually consider.
What Are You In The Market For?
Maybe you have had experience with a certain kind of business and you are still passionate about it. However, it goes beyond being in the know of a particular field. You should be able to tell yourself what you want. Do you want to purchase a business that will require you to travel from place to place, whether it is convenient or not? Would you be interested a business that will make you work long hours? Do you want a small business or a large enterprise? Do you have the funds for the purchase? Considering the importance of location to a business, does the idea of moving, if the need arises, appeal to you? .
Your decision making should be based on the answers to the above questions.
Research Available Businesses
After you have decided what you want, the only logical next step would be to look for available businesses up for sale. I would advice you start from somewhere as close to home as possible. But if that doesn't work out, there's always the internet. Be sure to do thorough research on what you're purchasing especially if it's from the internet before you splash the cash because there are a lot of fraudsters behind computers nowadays. If it's too good to be true, it's too good to be true.
Consider Hiring A Business 'Real Estate Agent'
They are known as brokers, and they do exactly the same job as real estate agents ( with business though) . If you feel the knowledge you have is not sufficient and you'll be needing expert advice or you can't find a suitable business, it is their job to evaluate the options and decide what's best for you (and it's not free) . Their pay is usually a certain percent of how much the business was purchased. , so they only get paid when you make the purchase.
Do Your Homework Thoroughly
At no point should you let yourself be propelled by the dancing feet of victory. Perhaps you found a suitable business and you want to go all in, you'll get full marks for enthusiasm, but that's about all you'll get. Before you start making any final decisions, take a step back and make sure you get a clear picture. Don't let happiness blur your image. It may look great on paper, it may sound great in speech, but it may be dangerously flawed in reality.
Have a business valuation performed to determine the exact worth of the company, have an accountant go through the figures, have an acquisition attorney determine the health of the business. In a nutshell, leave nothing to chance, absolutely nothing.
The liability of the business becomes your liability after purchase, think about that.
Fumding
The only reason funding would not be an issue for you is if you're super rich. In that case, move along, nothing to see here. If not, there are numerous ways of getting fund for the business but they all come with their advantages and disadvantages.
You could consider seller financing, where the seller allows you to pay off the debt over time. The payment usually involves interest though but is probably the best option.
Another funding option is getting a bank loan ( not my favourite this one)
And finally, getting investors with capital to spare. This type of funding could significantly reduced the money going into your account, but be of good cheer, if the business goes down, they'll bear the burnt of it
Put It All In Writing
Terms and conditions, details of transactions, etc. And let it be signed by all parties involved. Understand the terms, get an attorney to explain the ones you don't understand,
What Are You In The Market For?
Maybe you have had experience with a certain kind of business and you are still passionate about it. However, it goes beyond being in the know of a particular field. You should be able to tell yourself what you want. Do you want to purchase a business that will require you to travel from place to place, whether it is convenient or not? Would you be interested a business that will make you work long hours? Do you want a small business or a large enterprise? Do you have the funds for the purchase? Considering the importance of location to a business, does the idea of moving, if the need arises, appeal to you? .
Your decision making should be based on the answers to the above questions.
Research Available Businesses
After you have decided what you want, the only logical next step would be to look for available businesses up for sale. I would advice you start from somewhere as close to home as possible. But if that doesn't work out, there's always the internet. Be sure to do thorough research on what you're purchasing especially if it's from the internet before you splash the cash because there are a lot of fraudsters behind computers nowadays. If it's too good to be true, it's too good to be true.
Consider Hiring A Business 'Real Estate Agent'
They are known as brokers, and they do exactly the same job as real estate agents ( with business though) . If you feel the knowledge you have is not sufficient and you'll be needing expert advice or you can't find a suitable business, it is their job to evaluate the options and decide what's best for you (and it's not free) . Their pay is usually a certain percent of how much the business was purchased. , so they only get paid when you make the purchase.
Do Your Homework Thoroughly
At no point should you let yourself be propelled by the dancing feet of victory. Perhaps you found a suitable business and you want to go all in, you'll get full marks for enthusiasm, but that's about all you'll get. Before you start making any final decisions, take a step back and make sure you get a clear picture. Don't let happiness blur your image. It may look great on paper, it may sound great in speech, but it may be dangerously flawed in reality.
Have a business valuation performed to determine the exact worth of the company, have an accountant go through the figures, have an acquisition attorney determine the health of the business. In a nutshell, leave nothing to chance, absolutely nothing.
The liability of the business becomes your liability after purchase, think about that.
Fumding
The only reason funding would not be an issue for you is if you're super rich. In that case, move along, nothing to see here. If not, there are numerous ways of getting fund for the business but they all come with their advantages and disadvantages.
You could consider seller financing, where the seller allows you to pay off the debt over time. The payment usually involves interest though but is probably the best option.
Another funding option is getting a bank loan ( not my favourite this one)
And finally, getting investors with capital to spare. This type of funding could significantly reduced the money going into your account, but be of good cheer, if the business goes down, they'll bear the burnt of it
Put It All In Writing
Terms and conditions, details of transactions, etc. And let it be signed by all parties involved. Understand the terms, get an attorney to explain the ones you don't understand,
Comments
Post a Comment