Things To Consider When You Buy A Business For Sale
Buying an existing business for sale is a better option than starting a new business from scratch because an existing successful business with trained employees, an established customer base and an existing cash flow can provide you with a good living. Although the process of buying a business is often long and complex, it can be done easily if you cover all your bases.
Factors To Consider When Buying A Business For Sale
Type Of Business
Identify a business that has some connection to the type of work you have done in the past or something related to your hobby. Pay specific attention to legal concerns and changes in regulations, also, look at local competition within the industry. No matter how good it looks, do not buy a business that you know little about, because your lack of knowledge about that particular industry might cause you to overpay or you might have to struggle up a steep learning curve. Try to buy a business that you are interested in, because when you enjoy the work you are doing, it is easier to succeed.
Finding A Business For Sale
When you begin your hunt for buying an existing business, consider asking friends and associates for leads on businesses for sale on the market. Many good opportunities surface by word of mouth and are sold even before the owners list them for sale.
Other avenues to find a business is through: trade associations, real estate brokers, newspaper and online ads, business brokers, and business suppliers.
Old Is Gold
A best opportunity to get hold of an existing business is when you can buy it from an owner who wants to retire from a business that is still viable. However, stay away from a business that is ready to retire along with its owner.
Before you consider buying a particular business, try to find as much as you can about it. Thoroughly review copies of the financial records, employee files, major contracts and leases, and any past lawsuits or any other relevant information.
Do not feel shy to ask for information about the business, and if the seller refuses to clear your queries or if you find any misinformation, then do not purchase the business.
All businesses for sale come with their own baggage. If you are not able to find any, then you have not looked hard enough. Sometimes you want the deal so much that you rationalise what you have found and deem it not so bad, but this is can be detrimental. When you find something bad, let the seller explain why it is bad. If you think that you can rectify it, proceed to negotiate; otherwise it is better to walk away.
Closing The Deal
If you have thoroughly done your investigation about a business for sale, then you and the current owners can work together to build a deal that will satisfy all parties. For this, you and the seller:
- Should agree on a fair purchase price. You can do this by hiring an appraiser.
- Have to agree on which assets you will buy and the terms of payment.
- Should create a written sales agreement and have a lawyer review it before signing.
Although the process of buying a business for sale may seem slow at times, everything will fall into place and even the hardest negotiations can find a positive solution.
Advantages Of Buying A Business For Sale
If everything goes right, there are many advantages in buying an existing business.
- The ground work to get the business up and running has been done already.
- It may be easier to obtain finance as the business will have a proven track record.
- A market for the product or service will have been already demonstrated.
- There may be established customers, name recognition, good will, a reliable income, a reputation to capitalize and build on, and a useful network of contacts.
- You can get the advantage of favourable credit terms from suppliers who have a long-standing relationship with the business. The suppliers may also have a good understanding of the specifications for goods supplied and the other needs of the business.
- A business plan and marketing method will already be in place.
- Existing employees will have experience you can draw on, and this eliminates the need for you to interview and hire a new set of employees.
- Many of the problems in running a business will have been discovered and solved already.
Disadvantages Of Buying A Business For Sale
- If, for any reason, the existing business has a poor reputation, then you will likely inherit this along with the business.
- If the supplier relationships are not so good, they may offer worse credit terms than they would offer to a start-up. Sometimes they may want to re-negotiate on the change of ownership.
- You often will have to invest a large amount up front, and will also have to spend on fees for solicitors, accountants and surveyors, etc.
- You will also need several months’ worth of working capital to assist with cash flow. If the business has been neglected for long, you may have to invest more on top of the purchase price to give it a chance to succeed.
- You may inherit problems with employees, such as unreasonable expectations as to pay and working conditions, or disputes with particular individuals or trade union issues. It may be possible for the current staff to be unhappy in having a new boss, or sometimes the staff morale may be low.
If you have decided to buy any business for sale, you will have to be sure that you are making the right choice in your new venture. It is in your hands to determine the right choice for your needs.