What to Know When Buying a Business
Buying a business can be a big undertaking. There are many things you should know before jumping into the buyer’s world. Taking these steps before purchasing the business will ensure a smooth and successful process.
Determine a Budget
The very first thing you should always do when buying a business is set a budget. Your business will not be successful in the long haul if you start off by going into major debt. More often than not, businesses are bought on an installment basis, meaning monthly payments (with interest) until it is paid off. Most financing options also require a down payment. The down payment can help to lower monthly payments. You should not clean out your savings to pay for a down payment.
Many business owners borrow money for the down payment, seeing as it can be a lot of money. If you do borrow capital, consider if the business’s cash flow can support the monthly payment. A monthly payment can be significant, so it is best to be fully confident you can afford it. If you are unsure what a safe budget would be, consider talking to a hired professional. They can help you determine a budget that meets your specifications.
One of the best financing options out there to buy a business is through an SBA loan. Most SBA loans have low-interest rates, competitive terms, and low down-payment requirements. An SBA loan can also increase your budget as it increases your buying power.
Peak Business Valuation works with SBA lenders across the country providing SBA business valuations. We are happy to connect you with lenders who can meet your business buying needs. Schedule a free consultation today!
Choosing a Business to Buy
The hardest part of buying a business is the hunt for the right business to buy. Determining the industry you want your future business to be in, whether that be retail, food, tech, etc., can be difficult. Take the time to really study what would be the best fit for you and weigh the pros and cons. Below are a few ideas to consider when finding a business that is a good fit for you.
Find Your Passion
Make sure you buy a business that you are passionate about. Finding something that fits your skillset will help you be successful in the end. Making passion meet profitability can be tricky. Take the time to consider what will ultimately bring you success. Be patient when searching for the exact business to buy. It may take some time before something pops up that fits your criteria.
Consider the Location
When buying a business, consider location, location, location. Are you willing to move to a different area? If so, it can open many more doors for potential businesses to purchase. If you do not want to move, consider what that will look like. It may narrow your options and take more time to find an exact business to purchase. Owning a business that is not local can also make things very difficult and overall cost more money. Between travel and/or hiring someone near the business to take care of things that you cannot do, it adds up. Weigh out both options before finding a business you want to buy.
Fact-Check Seller Data
When you finally find a business that looks the part, make sure it acts the part. While the current owners may have impressed you with the curb appeal, check into the moving parts of the business. Examine the financial data from the seller, ie. balance sheets, tax returns, customer reviews. If things still look promising, continue forward with the due diligence process. If you have never owned/bought a business before, consider using a financial or business consultant to help you work through the details.
Peak Business Valuation would love to schedule a free consultation to ensure your future purchase is a viable option for you. We also help buyers feel confident in the purchase price and in the financial situation of the business. A business valuation provides an in-depth analysis of the company’s financial statements and the overall value of the business. A business appraisal can also be a great tool moving forward to grow your newly owned business.
Know what the Business is Worth
Next, before signing any paperwork you must settle on a purchase price. If possible, speak with a hired valuation professional to make sure the seller is asking for a fair price and the business is in a good spot financially.
Peak Business Valuation provides several business valuations each week to individuals buying a business. We help business buyers feel confident in their business purchases.
Summary
Ensuring you take these steps before buying a business will help the process go the way it should. Jumping into buying a business can be overwhelming, but taking the time to check all your bases will be worth it in the long haul. Take an appropriate amount of time to be sure your finances are where they should be and that the business is functioning and can provide adequate cash flow to meet your financial goals. Doing so can help you get ready to jump into this new adventure.
Peak Business Valuation, business appraiser, is here for all your business valuation needs when buying a business. Peak will help you feel confident with your purchase and in the purchase price of the business. Get started by scheduling a free consultation below!
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