A business purchase is a huge event, for both the buyer and seller.
For many owners, selling a business is the most important financial decision they will ever make, and letting go of the business can be emotionally difficult for the seller. The buyer, on the other hand, is putting a large amount of money at risk, with the hope of purchasing a business that can increase sales and profits over time.
There are big risks for both buyers and sellers, and it’s essential that the transaction benefit both parties. If you’re interested in purchasing a business and you’re not sure where to start, read on.
Benefits of Buying an Existing Business
Buying an existing business can reduce the overall risk of a business purchase.
An operating business will have an existing customer base, which can be a source of repeat business for the buyer. You’ll also spend less money on marketing, because a large portion of your sales will be from existing customers.
A company with brand awareness makes it easier to find new sources of business. Brand awareness helps you create a unique market position, and to differentiate your business from competitors.
Successful businesses have a track record of sales, cash inflows, and profits, and you can leverage a company’s history of success to improve financial results. The company you purchase will have a staff, and procedures that are used to efficiently deliver products and services to customers. Instead of reinventing the wheel, you can operate using the existing company systems.
Finally, purchasing an existing business makes it easier to obtain financing. Both lenders and investors are interested in companies that have a history of generating sales and profits.
If you’re interested in buying a great business, look for firms with a strong market presence, a customer base that drives repeat sales, and a track record of generating profits.
Finding the Right Business for You
Buyers can choose from hundreds of available companies, so how to do find the right business for you?
You can narrow down your choices by considering the industry, company size, and geographic location you prefer. If you have a background in manufacturing companies in the southeast, for example, you might consider businesses that fit those preferences.
Purchasers should also think about scale and growth potential, since these factors can increase profits over time. Investing in a industry that is growing rapidly may be attractive to you, or a particular geographic area that is expanding.
How difficult will the transition be after the purchase?
A turnkey operation allows you to start managing the business with a minimum amount of time and effort. If, on the other hand, the seller must help with the transition, you need to determine how much help you need, and how long the seller is willing to stay involved after the sale.
Research companies that may be a fit, so that you can answer these question for yourself. Use your personal network to learn about companies, and try to speak to owners who are considering a potential sale.
However, the most effective way to find the right business for you is to contact a business broker.
Benefits of Working with a Business Broker
A business broker is an experienced professional who can provide expert advice from the time you start looking for a business to the sale closing.
Seller’s have a number of motivations for selling, and business brokers understand how these factors impact a sale.Your broker can help to set a seller’s expectations of business value, and a likely sales price. Experienced brokers can address a number of potential obstacles to a sale.
Not every potential seller is a fit, and your broker can pre-screen companies, based on sellers who are ready to provide documents for due diligence.
The selling price is a critically important factor, a business brokers use metrics to determine the business price. Brokers analyze the sales of similar companies, and industry trends that may impact the transaction.
Your business broker will evaluate offers and negotiate the final purchase price, and a broker can assist with laws, regulations, permits, and licenses to help the transaction go smoothly.
A business broker is a valued advisor who can help you through the entire process of buying a business.
Perform Due Diligence
Due diligence is a review process to confirm all the key factors related to the purchased company, and the process helps the buyer make a more informed decision.
To start the process, you need to form a team, including a banker, attorney, accountant, wealth and estate planners, and a business broker. Your team represents your interests as you move through the due diligence process.
The seller must provide access to company records, and the ability to ask management questions about business operations. You’ll review financial statements, details on the customer base and current suppliers, and the firm’s market research.
Buyers need to review seller’s organizational chart, including key managers and employees, so that the purchaser can manage the business after the sale. Your attorney will review legal documents, including contracts with vendors, employees, and customer agreements.
Put a qualified team together, so that you can reduce the time needed for due diligence, and so that every important issue is addressed in the review.
Negotiating Final Sale
Your business broker, with help from the other experts on your team, will help you negotiate a final sale. You must decide whether you’re purchasing the equity of the business, or specific company assets. The sales agreement also addresses how the sales proceeds are paid, and how the business transition will work.
Find a Trusted Advisor
Purchasing a business is a risky and complex process, and buying a company requires a huge investment in time and money.
Raincatcher is the choice to find and purchase a great business, and their experts can advise you through the entire process. They can help you identify the right business for you, manage the due diligence process, and negotiate the final sale price.
Find a trusted advisor to purchase a firm that can generate profits and increase the value of your investment over time.