How to Buy a Business

how to buy a business

Starting a new business is an ambitious undertaking, regardless of how brilliant your product or service is. With the right business plan, marketing plan, employees, and location, you have a good opportunity to succeed. However, there is a lot of uncertainty with 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 that are required to launch a startup and get the confidence that comes with owning a business that has 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.

Millions of people want to own businesses, but many of them do not fully understand what being 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 important to look at the big picture and make sure that becoming a small business owner is the right decision for you.

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

Next, do your due diligence. Talk to the existing business owner and ask to see everything that is 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 this question: “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. If you were fortunate enough to stumble across an established business that meets your key requirements, you can skip this section of the blog post.

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 of the information needed to facilitate the transaction. Quite a few documents are required, including financial statements, vendor contracts/agreements, leases, a letter of intent, and a confidentiality agreement.

Before you put pen to paper, you need to figure out much you are willing to pay for the business. No matter how much a business 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, particularly as it relates to the company’s overall financial health. Ask your accountant to review the company’s balance sheets, tax returns, income statements, and outstanding debt. If there are any warning signs, such as excessive debt or inadequate cash flow, you will have more leverage during the price negotiation process.

After the sale: Informing employees.

Once you have completed the purchase of the existing business, you need to announce the ownership transition to your employees. Keeping them happy and productive is your ultimate goal, so have a strategy in place. 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, their salaries, and their medical benefits, to name just a few.

To alleviate their nerves and prevent negative workplace chatter, hold a formal company meeting to announce the ownership transition, and be sure to 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. Explain why you purchased the business and describe what your goals are for its immediate and long-term future.

If needed, provide a timeline for any major events that will occur, such as a revised employee handbook with updated policies and procedures. Finally, keep in mind 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. 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. If you are making any changes, explain what they are so that your customers are fully informed.

The information in this blog post has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, investment, or accounting advice. You should consult with your accountant, lawyer, or tax advisor before making any business decisions.