Buying an existing business can be a fast way to move your entrepreneurial future along. Some of the benefits of existing businesses include having a salary in place for yourself the day you take over; having an existing customer base willing to buy your products and services, and having company history already in place so that obtaining vendor credit and borrowing funds is much easier.
While there are some downsides such as existing company debt and long-term purchase payments to the seller, the upside outweighs the downside 5 to 1. If you want to move forward then here?s what you will need to do:
1. Determine Which Type of Company to BuyConsider your own interests, talents, and experiences. Create your basic criteria listing at least 5 key minimum requirements. Examples: industry type, location, minimum annual sales, net income, length of time in business. Look for opportunities within your criteria that are both profitable and reasonable. Look for businesses with existing inventory, existing assets and customers. Businesses with history and employees will make your job of moving the business forward much easier since a lot of the groundwork has already been done. Be sure to ask yourself why this business is for sale; find any downfalls before it?s too late.
2. Determine The Business? Value Assess the return on investment, cash flow, tangible and intangible assets. Determine the value of the business you are looking to buy, do your research. Look into financial statements, tax returns, sales records, customer lists, employee contracts, property documents, and any other important documents.
3. Generate a Business and Development PlanThink about how you will improve on this business. Evaluate potential growth, profits, and pitfalls. Take the time to project what you think the next 3 to 5 years will look like under your ownership. A short business plan will come in handy when you are looking for financing in near future.
4. Explore Financing OptionsWhether you have the savings to buy a business out right or need an external source, weigh and evaluate your options thoroughly. You can apply for a small business loan, grants, or investors such as venture capitalist. All have their own benefits and disadvantages.
5. Close the Deal
With the assistance of legal counsel, agree to an adjusted purchase price, review important required documents, sign a promissory note if the owner is financing, take over or renegotiate the existing lease, transfer vehicle titles and ownership, transfer patents, trademarks, and copyrights, agree to any employment or consultation arrangements between yourself and the seller, get the seller to sign a covenant to not compete. Finally, create a bill of sale describing the sale in detail, complete an Asset Acquisition Statement with the IRS indicating allocation of the sale, and comply with all bulk sale laws that apply.