The Basics of Buying a Business
Many individuals want to buy a business, but don’t know where to start. Nearly 500,000 businesses transact each year. This number is growing as more baby boomers retire and sell their businesses. If you are one of those individuals, now is a great time to start looking. The time it takes to find the right business to closing can be anywhere between several months to a year or more. Buying a business can be a big decision. If done right, it is one of the most rewarding and fulfilling decisions you make. Below we discuss a few of the basics of buying a business.
Peak Business Valuation gets the opportunity to work with several buyers of businesses every week. As such, we love helping individuals understand the basics of buying a business. Questions are always welcome! Get started today by scheduling your free consultation. Getting the right team, doing adequate research, and planning can help you successfully acquire a business.
Determine What Business may be Right for you
First, buying the perfect business begins with finding the right type of business for you. Finding the right business is essential for success. The best place to start is by narrowing down businesses that match your passion, skills, interests, and experience. The more you already know about the business the easier it is to run and operate it. Additionally, a few other things to consider include size, location, team, industry, and lifestyle.
Find a Business for Sale
The next step to buying a business is finding one that is for sale. There are many ways including:
- Online websites such as com, BusinessBroker.net, and BizQuest.com
- Classified newspaper ads and industry publications
- Networking with individuals and small business owners in your area
- Working with a business broker
Screen the Business – Do your due diligence
There is a lot of information you will want to know prior to making an offer to buy the business. Having an acquisition team can help you screen the business and perform proper due diligence. Some of the items you will want to know and include:
- Reviewing the financials
- Obtaining a business valuation
- Understanding the seller’s motivations to exit
- Making an initial offer
Knowing as much about the business as possible will help you understand its current success, challenges, and future opportunities. There are a few important people to have on your team. In particular, an attorney to help you draft the deal. Secondly, you want to have an independent business valuation firm to determine the value and health of the business.
Obtaining a business valuation is often the most important part of the due diligence process. A business valuation will determine how much the business is worth. It will also identify the strengths and weaknesses of the business and opportunities for growth. This knowledge will aid you as you negotiate the purchase price.
Close the Deal
Lastly, the final step in buying a business is closing the deal. This piece often involves acquiring the necessary funding and signing a buy/sell agreement. There are many options for financing a business purchase. These can include:
Each source of financing has pros and cons. Often a combination of seller-financing and traditional financing is used. Doing your research and talking with a financial advisor can help make sure which financing source is your best choice. If you seek an SBA loan, the lender will request an independent third party to perform a business valuation. Peak Business Valuation provides SBA business appraisals for dozens of lenders across the country. We are happy to work with your lender to provide the SBA business valuation. Schedule your free consultation. For more information see Financing a Business Purchase.
The next part of closing the deal is the buy/sell agreement. A buy/sell agreement details the important aspects of the transaction. These can include the purchase price, negotiated terms, and financing, among others. A business valuation can help strengthen your offer to buy the business during the negotiation stage. It can also help you determine a fair purchase price to offer for the business. The deal is finalized once both parties agree to and sign the buy/sell agreement.
Buying a business is a large feat with far-reaching results. Knowing the above steps can help you confidently buy a business that is a good fit for you. With the right team behind you, the business transaction will be able to go smoothly.
Peak Business Valuation loves being a part of the buying a business process. A business valuation helps potential buyers feel confident in their decision. It is also a useful tool for identifying the strengths and weaknesses of the business. A business appraisal can also identify opportunities for future growth. Reach out by scheduling your free consultation below!
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