If you want to try your entrepreneurial knack but don’t want to start from scratch, you may want to consider buying an existing business.
This is because you have actual financial records to evaluate and not just estimates or a feasibility study.emphasizes that although business acquisitions normally require a bigger investment, it is less risky than setting up a new business. Why is that so?
You can get a clear picture of the business, particularly its performance, profitability, and potential risks. When you buy a business, you may also acquire valuable copyrights or patents. Under your leadership, you can steer a dormant business into a new and exciting phase.
There’s always a cultural stigma against selling a business. When we hear a business being put on sale, many people hastily conclude that something’s wrong with it. Maybe the business is at a loss, or it is mismanaged, or the owners are bankrupt – these are the first things that come to mind.
But in truth, there are many reasons why founders and business owners decide to sell their business. They may be looking at a change in lifestyle or exploring a new, bigger venture, or a change in business structure. Retirement is also a common reason for selling a business, especially here in the US, where belong to the baby boomers generation and retire soon.
More often than not, the decision to let go of something you’ve built isn’t an easy one. A founder or business owner would certainly want someone who can run the business well and take it to greater heights.
Do you think you’re the buyer who’ll infuse new life and make an existing business perform better? Here are the steps to take to acquire an existing business.
Managing a business requires your lifelong commitment. As such, you want to purchase a business that you really want or have a passion for. You have to consider many factors, such as the business location, size, sector, and lifestyle.
Are you willing to relocate? Is the business tied to a specific location? Do you have experience in the area or industry? Do you have a passion for this type of business? Does it suit your lifestyle? These are just a few of the questions you need to answer to know which business is right for you.
Once you’ve finally decided on a business that you want, begin researching for available business. You can begin by asking around your circle or your area. Perhaps you have friends or colleagues who have successfully launched a business and might be ready to move on to new ventures. Or maybe the owner of a local shop is moving elsewhere and is ready to sell out his business.
If there’s a business that you really want, it’s alright to inquire, even if the business is not for sale yet. Who knows, they might be planning to sell it but don’t know how to start.
If you can’t find a business from within your contacts, you can move outward or start researching on the internet. Be extra careful online. You will need a tremendous amount of verification with deals found on the internet.
If you’re having a hard time looking for a business, you might want to consider hiring a business broker. A business broker can help you evaluate potential businesses, identify a suitable business for you, and negotiate the terms of the potential business acquisition.
Like real estate agents, business brokers get a commission but only if there is a successful deal. That means – you still need to be cautious. Although you need a broker’s help, you don’t want to be cornered into making a hasty decision. You still have to do your homework and study the recommendations of your broker.
Once you’ve found a business that fits all your criteria, you might get tempted to grab it and move forward instantly. But before you dive head-first, slow down and study the deal carefully. If a deal sounds too good to be true, it probably is. Thoroughly evaluate a business, its financial records, sales history, and performance.
It is best to assemble an acquisition team. Usually, this team comprises an accountant, legal professional, and business consultant specializing in business acquisition and valuations. They can help you evaluate the performance and health of a business. This should help you come up with an informed decision, thereby ensuring you get the best business.
As mentioned above, one of the challenges of buying an existing business is that it needs huge capitalization. If you have a source of funds, then this isn’t a problem. But if you don’t have sufficient funds, you will need to look for possible capital sources.
Some possible sources of financing are angel investors or venture capitalists, business loans, and seller-financing. Each of these financing sources has its own advantages and disadvantages. Be sure to study them well and read the fine prints. You might also need to seek a financial advisor’s guidance to help you find the most beneficial funding source.