If you think you have the chops to be an entrepreneur, but would rather not start with a new idea or just don’t have a new idea that can be commercialized, then you may consider buying an existing business.
As the demographics tsunami continues to build there are many good companies being put up for sale and becoming available in the market.
While buying an existing business typically involves more upfront cost, it also presents less risk than starting from scratch.
Financially - you’re looking at actual sales, cash flows, and profitability records and can reasonably assess what the future may hold
Operations – are established, business know how and trained work force
Market acceptance - established customer base
Technology - may include valuable patents, trade secrets, or proprietary equipment
Opportunity – unrealized potential to drive the business with new enthusiasm and into a new direction, its always easier to work with something established than starting from scratch
5 Basic Steps - How to buy an existing business
Now that you have decided to become an entrepreneur here are a few steps to move you forward in the right direction.
1.Decide what you’re looking for
Location– brick and mortar, mobile, or digital
Size - small, family business, multi-location, or a large enterprise
Industry - consider your experience, passions, or hobbies
Lifestyle - consider business operating hours, travel requirements
2. Research available businesses
Speak with family and friends – you will be surprised what they might know about possible businesses for sale
Consider business that you frequent that may you like to own. The current owner’s might be thinking about selling.
Put the word out to your business contacts and network
Do some online searches (be aware of scams)
3. Consider working with a business broker.
Business Brokers are paid on a commission and can be a good resource to do a lot of leg work for you while help you with:
Word of caution brokers are paid on commission and only get paid when you complete the deal so don’t let yourself get pushed into a hasty decision.
4. Complete your due diligence.
Before you get too excited, slow down and do your homework. Make sure you understand the business, how it functions, how it generates cash flow, and drives its expenses. Identify areas that you can improve to increase the return on your investment. Identify the issues or blemishes, every business has them, and make sure they are manageable, factored into your price and business plan. Have a look under the hood, kick the tires, go for a test drive and get a:
Business valuation – know what the business is worth Have an independent business valuation performed to determine how much the business is worth, and consider how the current owner’s connections, operation policies and expertise may affect that value
Analyze the financials - have a CPA review done to ensure there is not creative accounting policies obscuring the real picture
Scrutinize the operations - HR, machinery, inventory, suppliers, and the customer base
Assemble a acquisition team – hire a corporate lawyer, accountant, and possibly a good business/commercial banker.
5. Draft the sales agreement
You’ve chosen a business, negotiated the terms, the next step is to draft a solid agreement and sign on the dotted line.
Sweat the small stuff now!This where your corporate attorney plays a integral part to ensure you are protected, the deal is completed, and there are no misunderstandings that may derail the transition. Sweat the small stuff now!
Malahat Valuation Group