Here are some things to consider:
Am I ready to buy a business?
If you want to be on your own, make your own decisions and don't want to worry about job security, then owning your own business could be a good fit for you. Yet, this can be a major lifestyle change. It often requires long hours and a total commitment to all the business needs and challenges. You can find yourself watching every detail to ensure success. A business purchase also requires a serious financial investment and always deserves comprehensive research.
Here are a few of the important elements to look for in a business purchase:
How long the business has been in operation.
A business that has been in existence for several years shows that it has some stability and popularity in the area. Additionally, the length of time the current owner has been in the business often bodes well for its success. Even with that, when you want to buy a business you still need to remember to look for a business that you feel you can improve and take to the next level.
Why the current owner is wants to sell the business.
This is perhaps one of the most important questions to get answered. After five or six years of ownership, some people get restless and want to look for new challenges. But you must find out the reason for the sale. The better the reason, the more realistic the business seller will be in considering your offer.
What is the business financial picture.
The financial records of the business indicate how successful the business has been over the years. A professional business broker has solid experience in analysis of financial records and can be an invaluable asset. Additionally, remember that even the most straightforward financial records are only history and the company's performance may not necessarily be repeated.
So, what's the process for buying a business?
Each transaction is unique but there are a few very basic steps in the process of purchasing a business:
Analyze the business for sale
Gather as much information as possible about price, income, cash flow and general location. The business must be able to meet your basic financial needs as an owner as well.
Visit the business for sale
Before talking to the owner, visit the business to see the location and gauge its appearance. If these two factors donât suit your needs, there is no point in going further.
Meet with the seller of the business, ask questions
This is your chance to see and judge the seller and find out the answers to some of your questions, such as the length of any leases, amount of rent, sales history, etc. Your business broker will help decipher the financial reports.
Make an offer
Your business broker will help you compile a Letter of Intent (LOI) or formal purchase agreement that contains the terms of your offer, such as the purchase price, contingencies and any loan stipulations. Your offer is made with an earnest money deposit. The seller then can counter your offer, ignore your offer or accept it. Once accepted, escrow is opened. The purchase usually takes 30 to 120 days to complete. When you and the seller agree on a price, you can begin your due diligence.
How do I finance the business purchase?
The business purchase is most often financed with a Seller Carry Back Loan or through a standard business loan.
A conventional business loan requires that the buyer have collateral in the business or other assets. In general, 20 percent of the purchase price is required for a down payment. Some loans can also be guaranteed by the Small Business Administration.
What is "due diligence?"
This is the period of time in which you conduct a thorough analysis of the business for sale, including an inspection of the accounting records and key contracts. You may choose to bring in outside advisors or do it on your own. Once you have successfully completed your due diligence and any other contingencies, the closing documents can be prepared and the purchase successfully closed.