—
Do you want to be an entrepreneur but struggling to get started? Well, there are other options, and one of them is buying an existing business. Isn’t that exciting! You will not have to encounter all the work and worries involved in starting a new business. Moreover, rather than looking at the rough financial estimates, an existing business has an actual cash flow, which at least gives you a clear picture if the business is the right fit or not. There are also existing customers, so you do not need to worry a lot about acquiring your first client.
Taking over an existing business also allows you to acquire patents and copyright of the existing business. Also, it will provide you with a chance to use your expertise to drive business with hidden potential into a direction that will enhance its success. That said, do not get ahead of yourself! There are downsides to taking over an existing business that you ought to know. Yes, before you buy an existing business, there are some factors that you should consider. Let us delve in deeper.
What kind of business are you looking for?
Taking over an existing business is a huge decision, and before then, you need to be sure what kind of business you are passionate about. Moreover, consider the location of your business as it affects factors like the cost of labor and taxes. Your lifestyle will be affected by your kind of business, and thus you need to get a business that suits it. Consider if the business you are buying requires you to be hand-on all the time, or will you be required to work more hours in a day. Choose what works best for you and your loved ones.
Research the available business options
Once you establish your type of business, it is now time to research the businesses available for sale. You can look for referrals from friends, or maybe you could think about someone selling a business. You can also look into website directories offering established businesses for sale to find the best deals. According to Stefano Endrizzi, the CEO and Founder of MergersCorp M&A International, “You ought to be very careful as there are dozens of fake business deals on the Internet. Frankly, very few are legitimate these days. That is why it is best to have a trusted business broker working with you when buying established businesses and assets.”
Why is the owner selling the business?
There is a common cultural misconception that if the owner is selling their business, there must be something wrong. But this is not always the case. Some founders would sell a business in a very stable financial position, for example, because their current business does not match their vision or lifestyle. Regardless, it is imperative to get the real story of why the founder is selling the business. Do your research; you can talk to suppliers and customers, but more importantly, trust your guts!
Understand the business finances
Financials are core to any business purchase decisions. You should take a look at financial records like balance sheets, tax returns, accounts payable and receivable, and cash flow statements. Moreover, look at the employee’s files, the payroll, and the major contracts in the business. Some of them include contracts with suppliers, customers, and equipment and property lease. Moreover, look into whether the company has ever received any form of a lawsuit and the outcome. You can hire an attorney and a certified public accountant to perform this critical due diligence on your behalf.
Assess the existing customer base and potential customers
Customers are the greatest asset in a business, and without them, your business is doomed to fail. Before taking over any business, you need to understand who the most prominent customers are and how valuable they are to the business. The business transition from one person to another can affect the loyalty of the biggest customers. Therefore, you should be sure if the current owner is willing to help you through the transition period. Assess if the business can cushion itself were the big players to leave. Please inquire about the sales and marketing techniques that the business has been using and its effectiveness. Get to know what has been attracting customers to the business. Is it the quality, loyalty price, location, convenience, or a combination of these factors? This will help you get a clear picture of the best strategies to maintain customers and attract others.
Do you have the required finances?
There are several benefits to purchasing an existing business. However, this option tends to be expensive compared to starting over from scratch. For that reason, you must ensure that you are prepared financially. In addition to the cost of buying the business, you require funds to take care of the business’s operating cost too. If you do not have adequate finances to support your personal and professional needs, you can apply for a loan from lenders. You can also seek support from investors and other institutions. You can also ask the business owner to allow you to make the purchase payment over time.
What is your exit strategy?
The time might come when you want to sell the business as well. So, before taking over an existing business, it is equally important to have an exit strategy. It is imperative to clearly understand the financial and logistics implication selling your business will have to you.
Draft proper agreements
After making the major decision to take over an existing business, choose your kind of business, negotiate the terms, and get a funding source. You and the seller will be required to sign a sales and purchase agreement to close the business deal. Before signing the written agreement, ensure that you understand the terms. This is critical, and it is why we would advise that you seek professional guidance from an attorney. Don’t make legal mistakes that will haunt you later!
Wrap up
That’s it! We hope you now know a thing or two about taking over an existing business. It is now time for you to make the right decisions. Find the right business, assess the potential, and strike a proper deal.
—
This content is brought to you by Haroon Shahzed.
Photo: Shutterstock