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by Fundid on Jun 19, 2023 7:45:00 AM
Are you an aspiring business owner looking for the next exciting step to take in your career? Buying a small business may be the perfect opportunity for you. With the right approach, taking over an existing business can put you on a fast track to success and provide stability while building your empire.
While it’s not something done overnight, there are some important things to consider that will help guide your journey toward becoming a small business owner. In this guide, we will explore what is involved in purchasing and maintaining a successful small business!
Checklist: Buying A Small Business
Deciding to purchase a business is an exciting step towards your entrepreneurial journey, but it can feel overwhelming at times, which is why we've broken down the process in this guide into bite-sized pieces. This resource will help set you on the right path to buying an existing business and unlocking personal growth and financial freedom!
#1. Find the Right Business for You
When looking to purchase a business, prioritize finding the find the right fit for you before making any significant investments. The first and perhaps the most critical factor to remember when buying a business is determining if it aligns with your goals and interests. Feeling passionate about the type of business you're purchasing is vital as it will help motivate and engage you as a new business owner. If you struggle to decide what aligns best, reflect on your previous work experience. What did you like and not like about your roles? Was the industry appealing to you? This may help narrow down your focus on areas of your life that you find most motivating.
Another factor to consider is the location and overhead costs of the business. Depending on your current routine and obligations, it might be necessary to only look at businesses within proximity you are comfortable commuting. This should also pertain to your customer base - is the location somewhere that yields high traffic for your target audience or out of their way entirely? If the business is not a retailer but rather a warehouse or factory, do you have the space and solitude you need to operate?
Lastly, the overhead costs to run the business should be carefully analyzed to ensure that you can make enough back on your investment to run a profitable business. Overhead costs can include the real estate mortgage, any property taxes, the cost of staffing the establishment, and the utilities to keep the business running. All of these questions will help launch your investment on a successful path and improve your ROI.
#2. Be Prepared
Purchasing an established and profitable small business can be a smart investment strategy to kick off your entrepreneurial journey. However, before taking the leap, it's essential to do your due diligence by researching the industry, understanding local regulations and zoning laws, and having a solid business plan designed for growth. Make sure to review any permits or licenses that may be required so you have a comprehensive awareness of any added expenses. Make it a top priority to complete a financial analysis and ensure your investment promises a reasonable ROI.
While this information may sound overwhelming initially, there are many great resources, like Business Brokers, available to help. Business brokers can provide expert guidance and support through every step of the process. With their industry knowledge and experience, they can help you evaluate options, advise on pricing, and negotiate mutually beneficial terms for both parties.
#3. Secure Financing
Whether you start your own company or purchase an existing company, it is likely that you will need to secure financing. Fortunately, if you are purchasing an existing business, finding funding may feel less complicated. The benefit of an existing business is that they are often more lendable because there should be proof of profitability and financial history. This provides lenders with the materials and data they need to secure financing for your investment.
Related Reading: Different Types of Business Loans
While this eliminates some barriers new businesses may face, it is still important to conduct extensive research on the business and lending options. This includes knowing how much the business is worth, assessing lendable assets that can be used as collateral, and determining what type of financing would be the most beneficial for your investment. Financing can be available to you through traditional banks, online lenders, or alternative financing sources. Check out our Capital Marketplace to determine which option is best for you! With these steps in mind, you can confidently take the first steps towards acquiring a successful business.
Fundid Recommendation: We've partnered with Lendio to bring you an easy way to obtain business funding. Through one application, you can see your options from over 75+ lenders. From business acquisition loans to SBA loans, Lendio is the nation’s leading small business loan marketplace.
Lendio's minimum requirements:
- 550+ FICO credit score (
) - $10,000+ in monthly sales
- 6+ months time in business
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#4. Do Your Due Diligence
When it comes to purchasing a business, it's essential to do your due diligence and carefully review the business history and all legal documents involved in the transaction.
An important question to ask yourself before finalizing the transaction is 'Why is the current owner selling the business?' Don't be afraid to ask the current owner about any obstacles they have faced or things they would have done differently. These conversations provide valuable knowledge about whether they are selling the business to retire or are unable to keep the doors open. If they are selling due to the latter, we recommend evaluating the competition in the market, the current business debt, the current state of all equipment, and any inventory or brand issues that may have arisen.
Additionally, legal documents, including purchase agreements, tax filings, and paperwork, can have a significant impact on the success of your business. By thoroughly examining and fully understanding these documents, you can make informed decisions that will benefit your company in the long run. It's always recommended to seek legal assistance to ensure you're not overlooking any potential pitfalls or legal issues that could arise. Taking the time to review the business history and legal documentation involved in your potential investment will provide peace of mind and set you up for success.
#5. Negotiate the Sale Price
When investing in a new business, negotiating the sale price is a crucial step in securing a profitable deal. It's important to familiarize yourself with purchase agreements and the buying process to ensure a fair negotiation. If you're unsure about where to start, reaching out to a skilled broker can be extremely helpful in assisting with negotiations.
Don't be afraid to ask for what you want, as this can save you a significant amount of money in the long run. Focus on the fact that any money you save throughout the negotiation process can be spent on growing and scaling your business. It is also essential to review and understand any outstanding debts or liabilities the business may have. If you aren't comfortable doing this, consult an accountant to review the financials so that you can feel confident with your purchase. Remember, negotiating doesn't just benefit the seller; it also benefits the buyer and ultimately leads to a more successful purchase.
#6. Prepare for Closing
You're almost there! While this may have been a lengthy process, preparing your documents to close the deal can help expedite the remaining steps. One of the most critical aspects is ensuring you have all the required documents. This includes financial statements, contracts, and legal agreements related to the business. Although you likely already secured your financing earlier on in this checklist, ensure that any outstanding paperwork or documents have been completed so you are ready to finalize the purchase.
If necessary, consider coordinating with attorneys and tax professionals, and be prepared to handle any last-minute contingencies that may arise. Preparing ahead of time can help alleviate the stress that comes with closing a deal and ensure that everything is in order for a successful purchase. Remember to double-check all documents before signing on the dotted line.
#7. Set up your Operational Systems
When buying a business, it's important to remember that a successful transition goes beyond just acquiring the physical assets. You'll also need to set up your operational systems, which involves establishing a point-of-sale system, managing payroll, and reviewing any third-party vendor contracts.
Getting these systems in place early on will not only help your company run more efficiently, but it can also prevent any complications that could arise. Make sure to communicate with the previous owner about any software you may need to connect to and prevent any technical difficulties. Additionally, be sure to gather all login information and update the passwords. It is always recommended to store these someplace safe, like a password management system. These steps will help ensure you hit the ground running and can operate efficiently and effectively.
Access the Growth Tools You Need to Scale Your Business
You've officially purchased your business, but now what? The growth of your new investment will be key to your success, and finding the right growth tools can be a game-changer. While there are a variety of tools available to scale your business, we recommend focusing on any current gaps you may have and find a way to use software to simplify and close this gap. Whether you're in need of content creation, website optimization, or finance and accounting, Fundid's Growth Partners will help launch your business to new heights!
