Successfully Buying a Business in Utah
Peak Business Valuation frequently works with individuals buying a business, particularly those who are buying a business in Utah. Buying a business can be a difficult but exciting process. There are many questions to consider as well as information to obtain. Knowing where to start, what questions to ask, and doing proper due diligence is important.
Steps to Successfully Buying a Business
Below we discuss important steps to successfully buying a business in Utah or buying a business in any other state. For questions, please schedule a free consultation! Peak Business Valuation, business appraiser, is an experienced resource for finding and successfully buying a business.
1. Find and Research Potential Business Acquisitions
The first step in buying a business in Utah is researching potential businesses to buy. First, you should identify an industry you have an interest in and are familiar with. It is important to identify an industry and a business model that you can add value to as well as grow from its current situation.
Next, find available businesses that are for sale. There are many resources for finding a business to buy. One of the best places to start is by asking the owner of businesses you have an interest in buying. The next best place to look is by using online websites. This can include online websites such as BizBuySell.com, BusinessBroker.net, BizQuest.com, BusinessesForSale.com, and BusinessMart.com. If you have an interest in buying a franchise, a few common websites include FranchiseGator.com, FranchiseDirect.com, and FranchiseOpportunities.com. Business brokers can also be a great resource for finding the right business to buy. For additional information see the following articles: Finding a Business for Sale and Resources for Finding the Right Business.
Find a few businesses you have an interest in buying. Then, take the time to study available businesses to buy. Study the business, the market it serves, and its industry. Visit the business and meet with the business owner. If the seller is working with a business broker, you might be limited to only talking with the business broker. However, once you enter the due diligence period and have an exclusivity agreement in place, the broker may feel more comfortable with you meeting with the seller.
2. Review Potential Businesses
Taking the time to perform in-depth research and review the business can help you feel confident in the business transaction. First and foremost, review the financial statements. Reviewing the historical financials of the company can help you understand revenue trends and the profitability of the company.
While it is important for you to do this, an experienced business appraiser may be more helpful. A business appraiser at Peak Business Valuation will analyze the company’s financials and operations. Each week we analyze over 20 small businesses. As such we have the experience and knowledge to know what to look for in potential business acquisitions. See the next section for more information on reasons for obtaining a business appraisal.
As a business buyer, you will also need to inspect the facility, inventory, and equipment. Knowing and understanding all the potential assets involved in the purchase is important. Be sure to also review the current licenses needed to operate the business.
Last, review all customer and vendor relationships. As a business buyer, it is important to understand who the key operators of the company are. When a business appraiser is valuing the business, they will often consider customer and supplier concentration. This can help you understand key risks associated with the business and buying a business. If a business has a high customer or supplier concentration it is riskier and often less valuable.
3. Obtain a Business Appraisal
Once you yourself have reviewed the business, bringing in a third-party business appraiser can help you further dig into the business and its operations. Peak Business Valuation is a leading business appraiser in the United States. Obtaining a business appraisal will help you understand the true nature of the cash flow of the company.
As a business buyer, you want to buy a business with adequate cash flow. A key question to consider is “Will the business you buy, given your skills and other resources generate enough cash flow?” Cash flow is key to the most successful and valuable businesses. The following are a couple of questions to ask in regards to cash flow:
- Is there enough cash flow to pay the new owner (buyer) a reasonable salary?
- Is there enough cash flow to cover debt principal and interest payments?
- Will there be enough cash flow to provide a reserve for future working capital needs?
For more information read The Basics of Cash Flow. As well as, Managing Cash Flow.
Most business sellers will try to add back every expense that is justifiable and thereby inflate the listing price. Or they may think their business is worth X amount of money without truly understanding why. As such, both a buyer and seller should obtain a business valuation prior to transacting a business.
In addition, a business valuation is pivotal in understanding a fair price at which to transact. Peak Business Valuation, will analyze common add-backs to a business valuation. These add-backs require a seller to provide documentation or proof that the expense should not be incurred by the new owner. For example, common add-backs include personal expenses, fair owner’s compensation, one-off or non-recurring expenses, and non-related business expenses. A business appraisal will help you understand these add-backs as well as the true cash flow of the company.
Obtaining a business appraisal or business valuation is an important part of the process of buying a business in Utah. Peak Business Valuation, business appraiser, is here to help you feel confident in buying a business in Utah.
4. Make an Offer and Negotiate the Purchase Price
The next step to buying a business in Utah is making an offer and then negotiating the purchase price. A business valuation report is also a useful tool for making an offer and drafting a letter of intent. Once the potential buyer makes an offer, the buyer and seller enter the negotiation and due diligence stage. Proper due diligence is important for the buyer to ensure the business is what it says it is. For more information, see Due Diligence Checklist.
The next stage is negotiating the terms and conditions of the transaction. Often there is much back and forth between the buyer and the seller. Therefore, it is important to support your purchase price. A business valuation can help you understand the fair market value. In addition, it identifies the strengths and weaknesses of the business, as well as what impacts the value of the business. Thus, a business appraisal is an invaluable tool to negotiate the best purchase price.
5. Finance the Business Acquisition
Once you make an offer and negotiate the terms, the next step in buying a business in Utah is determining how you are going to purchase the business. There are many options for financing a business acquisition. One of the best options is to use an SBA loan to purchase a business. Peak Business Valuation is happy to assist. We work with around 70 SBA lenders across the country. We are happy to point you to a lender that can help you finance the business acquisition. Be sure to also read Structuring a Business Purchase.
6. Draft the Contract and Close the Deal
Once you have decided how to finance the business purchase, the next step is drafting the contract and closing the deal. A lawyer can help you prepare a written offer with the terms of the transaction. Peak Business Valuation is happy to connect you with a lawyer who has experience working with small business transactions.
Once a formal offer is written it is sent to the seller and the seller’s lawyer or business broker. The seller and their advisor will respond with any changes. These changes are part of the negotiation process.
As part of a business valuation engagement, Peak Business Valuation is happy to discuss potential negotiation strategies with you. This is just one benefit of obtaining a business valuation prior to buying a business in Utah. After negotiating the terms of the transaction, the offer is signed by all parties involved. A qualified lawyer will oversee the formal closing of the purchase of the business. Be sure to also read Buying a Business: Closing the Deal.
7. Transition Ownership
Transitioning owners can be difficult post-transaction. Often the seller is asked to remain on for a period. This can help to ensure there is a smooth transition between the buyer of the business and the former owner. The transition time frame is negotiated during the contract negotiation step. For additional tips, see Tips for Transitioning to a New Owner. As well as, Transferring Business Ownership.
8. Build the Business Post-transaction
After you purchase the business, it is pivotal to identify the right people to work with. Having a management team and advisory team in place can help you maximize the growth of the company post-transaction. The following services and advisors can help grow your business and maximize its value. Peak Business Valuation is happy to introduce you to individuals and companies in any of the following fields.
- Marketing Firms: Marketing is key to maximizing business exposure and targeting the right audience. Particularly SEO is important for small businesses
- Bookkeepers: Most small businesses neglect finances. So having a bookkeeper from the start can help keep things organized. Financial management is vital to increasing the value of a business.
- Business Intelligence: These types of individuals help you visualize key information in your business and make better decisions.
- Operational Consultants: Find someone who knows more than you do, having an experienced consultant is key as you grow your business.
- Lawyers/Legal Advisors: Setting up your business legally, structuring legal documents, and drafting partnership agreements, among other needs are just a few of the things a legal advisor can help you with.
- Other Advisors: There are many different types of service providers that can help you build your new business. If you are looking for a specific type of service, please reach out. Peak Business Valuation is here to help skyrocket the growth of your business. For additional information, check out Maximizing Your Business Value.
Summary
Addressing the above topics can help you eliminate businesses you are considering that are not a good fit or a good purchase. Buying a business in Utah or any other state can be complex. As such, taking the time to do each of the above steps can help you confidently buy a business.
Understand that buying a business in Utah can take as long as a month or up to 9 months or more. The larger the company, the more time it takes to assess and perform proper due diligence. Remember, do not rush! Take your time and be thorough. Protect your capital – this is your money and time, so be careful. Working with trusted partners such as a lawyer, lender, and business valuation expert such as Peak Business Valuation will greatly benefit you. It will also make the process of acquiring a business much easier.
Peak Business Valuation, business appraiser works with about 15 business buyers each week. The steps listed above represent common steps taken by each buyer. Ultimately, the most difficult aspect of buying a business in Utah is finding the business. If you have questions about buying a business in Utah or another state, schedule your free consultation. We would love to be a trusted advisor in your process of buying a business.
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