How to Buy a Business

how to buy a business

Estimated reading time: 5 minutes

Starting a new business is an ambitious undertaking, regardless of how brilliant your product or service is. You have an excellent opportunity to succeed with the right business plan, marketing plan, employees, and location. However, there is a lot of uncertainty in getting a startup business off the ground. It takes time to build a new brand, establish a reputation in the marketplace, and attract customers. That is why many entrepreneurs choose to buy an existing business instead of starting one from scratch.

When you purchase a business, you can bypass the tasks required to launch a startup and gain confidence in owning a company with an established name and reputation. That said, there are many things you will need to do to make the transition in ownership easy and seamless for your employees, customers, and vendors. This Balboa Capital blog article has tips on how to buy a business and make it a success.

Factors to consider when buying a business.

Millions of people want to own businesses, but many do not fully understand what an entrepreneur entails or how many responsibilities they will need to handle. Therefore, before you start looking for a small business to buy, it is essential to look at the big picture and make sure that becoming a small business owner is the right decision.

First, look at your financial situation and ensure you are ready to buy a business and cover all of the ongoing costs. You will most likely need capital to complete your purchase, so make sure you look at all available options.

Next, do your due diligence. Talk to the existing business owner and ask to see everything associated with the purchase, such as leases, cash flow, inventory, contracts, licenses, permits, and zoning requirements. It is a good idea to hire a business attorney to assist you, as there are several things that you need to look into, and you do not want any surprises in the future.

Lastly, ask yourself: “Is buying a business the right thing to do?” Be realistic about your management and leadership skills, business acumen, and overall goals. In addition, you need to understand that owning a business will transform your life in ways you never imagined. It requires long hours, hard work, and additional job duties that you might not be familiar with.

Where to find a business to buy.

Finding a small business for sale in the right industry and in the right location takes a bit of luck. However, you can skip this blog post section if you were fortunate enough to stumble across an established company that meets your essential requirements.

The most popular ways to find small businesses for sale are to use a business broker, look at marketplace websites, and join local business organizations. You can also contact a local business and ask the owner if they would consider selling. This might sound like a longshot opportunity, but many business owners do not advertise that their companies are for sale. The reason is customers and clients might see this as a negative.

Moving forward with the deal.

Now that you have found the ideal small business to buy, it is time to move forward with assistance from a lawyer and an accountant. These individuals are experts who will help you get all the information needed to facilitate the transaction. A few documents are required, including financial statements, vendor contracts/agreements, leases, a letter of intent, and a confidentiality agreement.

Before you pen to paper, you need to figure out how much you are willing to pay for the business. No matter how much a company is listed for, there is always the opportunity to negotiate. Before you make your initial offer, you need to know what you are paying for, mainly related to the company’s overall financial health. Ask your accountant to review the company’s balance sheets, tax returns, income statements, and outstanding debt. You will have more leverage during the price negotiation process if there are any warning signs, such as excessive debt or inadequate cash flow.

After the sale: Informing employees.

Once you have purchased the existing business, you must announce the ownership transition to your employees. Keeping them happy and productive is your ultimate goal, so have a strategy. Your employees will most likely have a long list of questions for you. A change in business ownership is significant and can cause employees to worry about their jobs, salaries, and medical benefits, to name a few.

To alleviate their nerves and prevent negative workplace chatter, hold a formal company meeting to announce the ownership transition and provide your employees with a handout of information. You can also post this on your company’s Intranet. Thank your employees for their outstanding work, and let them know they will be in good hands. Please explain why you purchased the business and describe your goals for its immediate and long-term future.

If needed, provide a timeline for any significant events, such as a revised employee handbook with updated policies and procedures. Finally, remember that not everyone likes change, so be transparent with your employees and keep the lines of communication open at all times.

After the sale: Informing customers.

Next up is to tell your customers that the business is changing ownership. You might consider announcing the transition to your customers in an email campaign, press release, or on the business’s social media accounts. You can also place an advertisement on a local newspaper’s website.

When crafting your announcement to the company’s customers, include relevant information about your background, such as your business experience, community involvement, and your goals for the company. For example, if the former owner endorsed you, you should mention that, too. Next, your customers are the lifeblood of your business, so make sure to emphasize that you will continue providing the same products or services at the same price. Finally, if you are making any changes, explain what they are to inform your customers fully.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.