How to Buy an Existing Business

Many people think that starting a business requires them to build one from scratch. That means that you’ll be developing your own business idea until it becomes a successful enterprise. However, starting a business from scratch presents a business owner with various challenges and uncertainties. Some of these difficulties include marketing the new venture or establishing a loyal clientele.

Rather than going through all these hassles, you can choose from a variety of businesses that are for sale. That’s what all the smart entrepreneurs are doing.

Buying an existing firm presents fewer risks as compared to starting your own firm. Remember, by buying an enterprise, you’ll be acquiring a business that’s already generating a positive cash flow. It has an established clientele base and its employees are familiar with all of the aspects of its operation. In order to ensure you get the best deal when purchasing an existing business, follow these steps.

  1. Purchase the Right Business for You

Just because the business is on sale doesn’t mean you should acquire it.  You need to ascertain whether you are familiar with the industry in which it operates. Think about all the types of businesses you want to purchase. Narrow it down to the ones you have experience on and which you can manage effectively.

Assess the size of the business you intend to buy in terms of sales volume and number of its employees. Next, select the best location in where you would want your business to be. Evaluate the availability of labor and the cost of doing business in this area. This should include the area’s minimum wages as well as the local and state levels. One area where you may want to consider is Michigan, as there is no local or county income  tax. Businesses for sale in Michigan thus avoid paying hefty taxes, which will help you save money when first acquiring the business.

Regardless of where you select, all of these factors need to be acceptable to you before you commit your resources to acquire this enterprise.

  1. Hire a Broker

Most businesses that are on sale are not listed as being on sale. Talk to various entrepreneurs about your intention to acquire their businesses. They may not be selling but they make considerations once you place an offer.

At this point, you may need to hire a broker to help you identify the businesses to buy. Agree with them on the amount to pay after the purchase, which should be between 10 and 15 percent of the purchasing price.

The amount of help that these experts offer is worth the cost, especially if it’s your first time making this type of purchase. However, if you want to save some money, consider hiring brokers at the tail end of the process.

A broker will perform the following roles:

  • Prescreen the businesses for you.
  • Negotiating for a better price.
  • Assisting with filing paperwork.
  1. Due Diligence

Whether you choose to hire a broker or not, you need to do your due diligence. The first step would include setting up an acquisition team that comprises of an accountant, a banker, and an attorney.

These experts will help to double check and verify the details of the business you intend to purchase. It’ll help reveal why the firm is up for sale, and give you information about the current owners and its current financial outlay.

If you do your due diligence well, you can determine whether the business stays profitable now and in the future.