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How To Purchase A Business - 9 Great Tips
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How to Purchase A Business  -  9 Great Tips

For those people wanting to learn how to purchase a business, now is arguably the best time in history to be in the market to buy a business. Small business transactions have seen slight increases in the past couple of years, which isn't good news for those selling businesses, but great news for those looking for businesses for sale! It is a fact that one of the best ways to build wealth in this country is to own business real estate, and that process could begin now!

Small businesses are the backbone of this country, if not the world, and those willing and able to search out the businesses for sale and go into business for themselves should be awarded a medal. Running a small business is one the hardest things you will ever do, but conversely, I can't think of anything more rewarding then running your business well and providing solutions to your customers! I have been in various forms of business for many years; currently owning a convenience store and running some online businesses, and I wouldn't trade it for anything! Well...a day off once in while would be good, but that's another story.

Here are the 9 tips on what you need to do to find and purchase businesses for sale:

How to Purchase a Business Tip #1 - Market Assessment and Analysis: First, you need to decide what business best fits your personality and your abilities. If you are an extrovert or have experience in sales, retail stores are great, because "people" are a retailer's business! Obviously, you would preferably have some experience in the retail business you aspire to, as you can quickly go "out-of-business" if you have no idea what you're doing. If you are more of a introvert, you may want to investigate more of a service-type business where customer contact is more limited. Again, experience should guide you...if you have accounting experience, being a plumber may not work too well. Whatever direction you go, make sure you not entering an over-saturated market for your business area of operation. You want to ensure the business will be economically feasible as well, as the bills won't get paid by your personality! Do some online research on your business' average monthly revenue vs. your anticipated monthly expenses so you have some financial conception of what you need to do in sales and gross profit. Now would be a good to to start formulating your plan to bring more customers to your future business!

How to Purchase a Business Tip #2 - Professional Representation: Once your business direction has been established, it would be my recommendation to find some professional representation. Finding businesses for sale is one thing; navigating the process of buying it is much different. Plus, professional representation can help you find businesses for sale most people will never know about. Find someone in your local area who comes highly recommended (you can talk to local business owners for recommendations if you have to).

How to Purchase a Business Tip #3 - Pricing and Terms: Once a specific business is decided upon, you need to come to an agreement on how much the business will cost and how long you can pay for it. Like buying a car or a house, the longer the term of the loan, the more interest you'll pay, but longer term loans are also more affordable then shorter terms. Typically, a "business with real estate" can financed out to 20 years or more, a "business-only" transaction will be financed for 7-10 years. Some business owners will be willing to provide "owner-financing" with money down, so ask about that option!

How to Purchase a Business Tip #4 - Lender Introductions: Obviously, the business will have to be paid for somehow, so getting a lender involved early in the game is a good idea. If you go through the whole process, which can range from one month to a year or more, only to find out you can't qualify to buy the business, you wasted a hell of a lot of time for nothing! The large, national banks have a lot of pull getting business loans done, but can be hard to deal with. Smaller, local bank chains can be easier to work with, but may be limited in the amount of money they'll loan. Put on your best game face, be prepared to answer some deep questions about your abilities and financial capacity, and dive in!

How to Purchase a Business Tip #5 - Business Planning: One of the worst things you can possibly do is dive into a business, whether a start-up or existing, without a plan of action. You need to perform your "due diligence" and learn about the business. Be your own worst critic, and think through every theoretical contingency the business could go through to see if it can realistically survive financially. Many things can happen to a business owner, from illness, to equipment breakdowns, to the road-in-front-of-your-store closes for repairs for months on end (it happened to me), and on and on. Now would also be a great time investigate business insurance, as I can guarantee you, you won't survive without it! Also, figuring a solid business marketing plan into the mix is essential, as you'll have a hard time attracting customers without it!

How to Purchase a Business Tip #6 - Capitalization: Along financial lines, you don't want to be over-capitalized on your business, as you most likely wouldn't survive. Any business is only as good as the money it can make and the real estate it sits on, so make sure your broker and you go over the capitalization of the business in great detail! Having to pay more in loans then the business can possibly make or be worth is not a good plan for success.

How to Purchase a Business Tip #7 - Negotiations: Your broker will be the go-between for you and the selling owner, which is a good thing, because emotions can run very high when negotiating deals of this magnitude. You may request to meet the owner personally to ask questions, but you should leave the professional negotiations to the professional. This isn't like buying a car or a house...this is business. If you do get a chance to meet the existing owner, don't be intimidated by the fact they own a business...that could be you someday, and business owners put their pants on one leg at a time like anyone else.

How to Purchase a Business Tip #8 - Purchase Agreements: The broker will help draft and have you sign a Purchase Agreement, which will list out all the legal, personal and negotiable details of the deal. This is the document you want to read carefully, because if you miss something you wanted a guarantee on, you are out of luck. Once signed the purchase agreement is the "law" of the deal, so to speak. You want to make sure it's spelled out what equipment comes with the business, what guarantee (if any) is included on the equipment, what signage is included, what vendor contracts are in effect, etc. One smart thing to is ask for a training period from the existing owner...that will be invaluable for a smooth transition.

How to Purchase a Business Tip #9 - Closing the Deal: Assuming everything else pans out, this is the moment you've been waiting for! This is where the money changes hands, ownership is transferred, legal documents are signed, and the deal is done. If you made it to this point, don't pat yourself on the back too hard, because at the closing table is where the work just begins! Now...you're a business owner!

There are a million and one things to think about once you've successfully learned how to purchase a business, and you won't be able to do it alone! Get professional help, learn about how to run a business, and get on with your dreams!


Street Talk

Well done. This helped a lot. thank you

Reply
  about 4 years ago

Steven - Well done. Darryl K. Henderson, J.D.

Reply
  about 7 years ago
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