Maybe you like the idea of owning a business and being your boss – but find it hard to think of one that you can start on your own. You do not have to start one from scratch for you to become an entrepreneur. In some scenarios, buying an existing business may be more appealing. Even though the cost of buying an existing business is higher on paper, this option carries a lower risk since the business may be maybe already making a profit and you’ll have a quicker road to getting a return on your investment.
An existing business is easier to finance compared to starting a new one. Statistics indicate that most investors, entrepreneurs, and lenders prefer funding the purchase of an established business than starting a new one. One of the reasons is access to an existing customer base. Moreover, buying a business offers access to staff, equipment, office space, and other vital resources that may take your valuable time when trying to acquire them.
Steps to Buying a Business
Even though buying a business has numerous merits, the process has its hidden pitfalls. Learn the right approach to buying a business. Here are guidelines for making the right decision.
Determine the business that suits you
Your goals need to align with those of your business. This is why the potential financial outcomes should not merely influence your choice of business. Knowhow about a business and interest in what it entails are likely to inform better decisions when operating it.
Closely scrutinize existing businesses
Once you are set on the type of business you wish to buy, consider your options. A broker may be necessary. The benefit of using a broker is that they often have better access to quality information regarding a particular business, including the required legal work.
Conduct Personal Research
After narrowing down your choices, you will need to research the relevant businesses on your list. Limit your search to your preferred region. If you are in Houston, you can consider Houston business for sale as a search term. A specific search is bound to save you time in locating potential startups or small businesses that meet your criteria. A crucial benefit of online marketplaces is that they are cost-effective considering that you may not have that much money to spare for the research process.
Perform a Financial Analysis
You need to look into the financials of a business before committing to purchasing it. The financial books will provide an accurate history of the business and the potential return on investment. Some of the specific items to look at include debt history, marketing budgets, and payrolls that span several years. The cash flow should be sustainable. Due diligence when it comes to the financials will enable you to assess the potential return on investment.
Explore financing options
Even though many entrepreneurs wish to buy a business using their own money, most of them lack the required capital to do so. There are various financing options that one can consider. Selling some shares to employees or incorporating other investors can help in financing the purchase. You can also consider paying in installments or lease the business until a time when you are in a position to buy it.
Seal the deal
Once you have determined your source of finance, you can enlist the help of an attorney or business broker to help you with the required paperwork necessary to seal the deal. There are several factors that you will need to consider when finalizing the transaction, including the bill of sale, agreements with previous owners, and business laws of the state where the business operates.
