Purchasing an established business presents less risk for entrepreneurs, but normally involves heavier upfront costs. When taking over a business, you need to consider some important factors.
Determine What You Want
Purchasing a company is a tremendous decision that impacts your livelihood and life for years. To make the best decision, you need to contemplate the proceeding elements:
- Industry: What are you passionate about or enjoy doing? What areas of expertise do you have previous experience in?
- Location: Would you consider moving? If so, you need to examine how your firm’s location will affect taxes, labor costs, and other financials that influence the bottom line.
- Size: Do you prefer to own a large enterprise or a small business? Purchasing a large business will usually be much more costly, but could translate into higher profits.
- Lifestyle: Are you flexible with your working hours? Are you open to being on the road extensively? As an owner, your firm’s success starts and ends with you.
Discover Why the Current Owner is Selling
Founders sell their companies for a plethora of reasons. While there may be something fundamentally wrong with the firm, it is much more likely that they are selling their business for one of the following reasons:
- The passion they had for operating their business has faded.
- They are in a new stage of life and the needs of their company no longer conform to their lifestyle.
- Growing bored with their current business model, they are enthusiastic about pursuing a new venture.
Perform Proper Due Diligence
Once you identify a company that is a good match, you may be tempted to purchase the business immediately. However, it’s smart to slow down and do some research. A firm that seems like a great buy at first glance may have serious issues below the surface.
Hiring an acquisitions attorney and a Chartered Business Valuator can limit your risks by calculating the health and value of the prospective company. Additionally, hiring a professional accountant is a great choice, as accountants can comb through financial statements and question anything that is unclear. When purchasing a company, you take on an extraordinary amount of liability for events that may have occurred before you became owner, so be sure not to leave anything to chance.
Obtain Necessary Funding
Unless you have a financial backer or are personally wealthy, you’ll most likely need outside capital to buy a business. Here are a few financing options to consider:
- Business loan: The advantage of this method is that banks are more likely to loan you money to buy companies with a proven revenue history. However, your personal financials need to be in shape, because they play the largest role in your ability to acquire a loan.
- Seller financing: Through this form of financing, the seller gives you the option to make monthly payments to purchase their business — usually with interest.
- Venture capitalists or angel investors: In this model, you partner with an investor to purchase the business. While this method limits downside risk, it can cost you significantly in profits if your company succeeds.