Learn How to Buy a Business Successfully
Before you buy into a business, research many sources to help you learn how to buy a business successfully. Perhaps you are not ready for the straight entrepreneurial life, but the thought of it appeals to you. Then buying a business might be the right step for you.
The discussion on this page is meant to start you thinking and researching, not to be the ultimate guide. Research, research, research.
If you truly need immediate cash flow from your business to pay your mortgage or other major bills, then you may not want to start your own small business. The other option is to buy one that is already operational and successful. It can take several years to build a business that will provide significant cash flows in the early years of operation, if you start your own.If you can locate a company that has the resources to continue to operate, then it has proved already that it can make money and provide you with a good cash flow.
For those retirees that want to buy a business to receive almost the equivalent of their previous full-time income, this is a much better fit.
You can reduce start-up costs of time, money and energy when you buy into a business.
Since you have inventory and receivables, the money that is due from the customers, your cash flow can start immediately. You should be able to already count on an existing customer base. An ongoing
business should have a proven cash flow, so it should be easier to raise capital when needed.
One downside when you are learning how to buy a business is that you will find you need to have sufficient cash in hand
to provide the seller with the full value they are seeking, which could range from 20% of the asking price to a much higher percentage. Another disadvantage is that you may not find the exact business or location that meets your requirements. Walk slowly and carefully, but you can make it through.
Locate a Business
How do you find a business for sale? Most small businesses do not put a "For Sale" sign out front if they are interested in selling. You must do research in order to locate those that are available. Here are some of the ways to you can investigate.
1. Newspaper Ads -
Although newspapers are less frequently being used as a means to list items and businesses for sale, you should check the local business newspapers or those in the location you are interested in. Since few businesses use thisapproach, don't count on this as your main source to buy into a business.
2. Suppliers for Businesses -
If you want to buy a business, examine the suppliers for that type of business. They could be a good source of information regarding the companies on their supply routes.
3. Your Business Associates and Professionals -
The individuals that may hear about businesses that could be considered potential opportunities are lawyers, accountants, bankers, real estate agents and insurance agents. They could be on the front line in the commercial market. Check with your business associates and friends, as well, since they may lead you to a good source to learn how to buy a business.
4. Business or Trade Associations -
Many times the employees of the associations are aware it their members are interested in selling their business.
5. Owners of the Business -
You can talk to the actual owner of a business to ask if they are interested in selling. Someone may already have retirement in mind or that might prompt them to jump at the chance to get to retirement quicker. You never know, it might work.
6. Business Brokers -
Since the business brokers are the individuals that earn a commission from the business seller, they represent the interests of the seller. After all, the seller is paying the commission to the broker only when the sale is completed. The brokers can help you find businesses quicker in some cases, but you should not depend on them to help you with the due diligence when you examine the books to determine if it is the right buy for you.
Two major suggestions we can provide are to: 1) Hire your own accountant and attorney to examine the deal, and 2) Hire a business appraiser who can independently determine the value of the business for you. The American Society of Appraisers website can offer you assistance.
7. Online Sources -
A search through online search engines will bring back a large listing of sites and companies willing to help you if you want to buy a business, especially if you are located in or near a major city. The comments on business brokers above apply here as well.
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We hope this has given you a start to determine how to buy a business. Keep a positive Attitude and you will succeed.