Many Americans want to become entrepreneurs and take their businesses to greater heights. However, some people fear the first stages of starting a business and opt to buy an existing business. Is purchasing and running an existing business better than growing one from scratch?
This idea is great for entrepreneurs who want to avoid start-up challenges such as securing capital, recruiting employees, marketing to win clients, and establishing cash flow. Therefore, business people looking to find a way into entrepreneurship without too much struggle should consider buying an existing business. Here is a practical guide to help aspiring entrepreneurs acquire and grow their dream businesses without struggles.
Page Contents
1. Understand the Motivating Factors
Source: forbes.com
People start companies for different reasons. Some do it because they have lost their job, while others have a greater vision to make a name in the business world. Therefore, one must understand the motivating factors driving them into entrepreneurship before they visit businessbrokersaustin.com to choose a business. Is it to pursue their passion, create employment, solve a community problem, build financial independence, or the motivation to be one’s own boss? To choose the most appropriate business type, one must understand why they want to venture into business.
2. Choose the Right Business
Many factors can determine the right business for every individual. Some entrepreneurs only want to run businesses in a particular industry because they have relevant background knowledge. Others are passionate about a specific type of business, while some want to solve a particular problem. Therefore, one must be realistic when choosing a business to narrow their options to the most appropriate one. Just because a person loves a particular business does not mean they have the skills, attributes, and strengths to run it. Therefore, it is important to take time to find a profitable business one can manage, make decisions, attract customers, and grow the business.
3. Conduct Research
After identifying a potential business, it is crucial to research further the industry and gaps one can exploit to succeed in the new company. The research should help potential buyers understand the market, client needs, completion, and appropriate marketing strategies. Also, it is crucial to study the business in question before sealing the deal. For example, one should understand any new government policies that might affect the company in the future. They should also review the cash flow records, bank statements, financial reports, and tax returns, among other documents that can tell more about the performance.
4. Business Valuation
Source: wrlaw.com
How much should one pay to acquire a particular business? For someone new in the business world, it can be hard to determine the value of a business without involving brokers, lawyers, accountants, and valuation experts. Fortunately, these experts can help assess cash flow, liabilities, assets, and potential future earnings, among other factors determining the value. This is a crucial step since one may lose much money if they do not involve a business appraiser or other professionals to guide their decisions.
5. Negotiate the Deal
Generally, a business buyer should give an offer of the amount they are willing to pay for the business after the valuation. The buyer should also hire a business acquisition attorney and a broker to guide them through the negotiation process. The negotiation usually involves agreeing on the price, terms of payment, conditions of sale, what is included in the sale, and how to handle matters arising from the deal. The business buyer should also understand what is included in the business sale. For example, the sale agreement should highlight all the assets, customer details, inventory, property, communication infrastructure, and other things essential for business operations.
6. Finance the Purchase
Is it a good idea to buy a business with savings? Financing is another important aspect of acquiring a new business. In most cases, buying a business with personal savings is not advisable because the buyer needs some money to respond to challenges that may arise shortly after the business acquisition. Therefore, consider financing options such as loans, introducing partners, finding investors, or selling shares. The business buyer should explore all the available options, compare their pros and cons, and choose an option that best matches their financial situation.
Suppose the buyer chooses to take out a loan from a bank. In that case, they might need a detailed business plan highlighting the gaps in the market, marketing strategy, growth potential, financial projections, and solutions to existing challenges. Besides, a well-written business plan can help business buyers get loans, grants, or investors. However, the business buyer should avoid huge loans that might affect their business and increase financial obligations beyond reasonable thresholds.
7. Due Diligence
Source: intelifi.com
It is important to conduct due diligence before sealing the deal. If the business buyer uses a loan to acquire the business, the bank can help with due diligence. However, the business buyer or their lawyer can help verify that the information provided is accurate, verify business ownership, check legal background, and verify permits and other documents to avoid making mistakes. This is the most important step since it helps ensure the deal is accurate and legal and protects the rights of the new business buyer.
8. Close the Deal
This is usually the final step of acquiring a business. It involves transferring ownership of the business from the seller to the new buyer, signing the sale agreements, and transferring the money from the buyer to the seller. It is also crucial to involve a lawyer to safeguard the buyers’ rights and interests by handling the legal aspects appropriately. If necessary, the seller can also contact the key stakeholders to inform them about the deal.
9. Transition the Business
Once the deal is sealed, the business buyer is the new legal owner. However, they need to start running the business, learn the ropes, understand operations, build relationships with customers and employees and make critical decisions. If the buyer conducted the previous steps appropriately, they would easily adapt to the new business.
Buying a business is an easy way to become an entrepreneur. However, the process involves careful planning, research, and due diligence to avoid making mistakes. This guide can help aspiring entrepreneurs acquire their dream businesses and become successful business owners.
