There are many who entertain the idea of owning their own business someday, attracted by the control it offers over one’s professional life. However, the prospect of building an enterprise from the ground up can be daunting, which is why a lot of people don’t. Meanwhile, those who do can find themselves in troublesome competition with others, or desperately searching for a way to diversify their portfolio.
One solution to all of these problems is to purchase a company which is already established. It’s even possible to get a loan with no credit check if you’re in need of assistance to fund the move.
This article provides a step-by-step guide to buying an existing business.
Find a suitable one
The first thing you need to do is find a suitable business to acquire. Of the many that will be listed as for sale, a large number won’t be worth it, so don’t make the mistake of going in for the first one that catches your eye. Instead, look for those which have strong financial potential – ideally, they’ll be profitable, or at least showing signs of becoming so in the near future. It’s also wise to check their customer base, because if a single client is responsible for a significant portion of the company’s purchases then it could be problematic.
Aside from this, consider bidding for a firm in an industry you’re familiar with, so that you can properly evaluate the processes and determine where costs can be minimized. And prioritize one which you find interesting, otherwise the chances are you’ll get less involved, which may in turn have a negative effect on your profits.
Get it valued
Once you’ve decided on a business you’d like to buy, you need to get it valued. Bear in mind that a lot of owners will try to make you overpay, so don’t take this step lightly if you wish to avoid doing so. While you can engage in the research and scrutiny of the books yourself, it might be a good idea to hire a professional to handle the job for you. In that case, you would of course have to fork out, but it may literally be a price worth paying in the long run.
Should you wish to proceed after getting the business valued, then it’s time to begin negotiations by making a written or verbal offer. If you’re lucky, the owner will accept your opening bid; however, it’s often the case that transactions such as these see numerous offers and counter-offers made, so don’t let yourself get discouraged by the back and forth. Also open to negotiation are the terms of sale. If, for instance, you discover something about the company that suggests the owners are not dealing in the utmost good faith, you can change your terms.
It can also help to have a third party present during negotiations; someone who can act as an intermediary between yourself and the owner. This person should be able to provide objective advice on how best to proceed with negotiations, so as not to put either party at a disadvantage. If possible, try and find someone with experience in negotiating similar deals so they can use their expertise to your advantage.
Submit a letter of intent
If negotiations reach a satisfactory conclusion, the next stage is for you to submit a letter of intent, which details everything previously discussed between you and the current owners. It isn’t binding by law, but it serves to demonstrate that you’re serious about the purchasing the business. More importantly, it grants you exclusive rights to do so, usually for up to 90 days; essentially, this means that you’ll be the only person who can buy the company assuming you fulfill the terms of the agreement.
Perform due diligence
What a letter of intent also does is give you increased access to information about the business, and carrying out due diligence involves taking a close look at it. Some of the key documents you’ll want to review are the tax returns for the last couple of years, income statements, and existing debts, contracts and leases, and any pending litigation.
While performing due diligence, you also need to start the process of securing funds. It’s normal for companies to be purchased using a combination of equity and debt; in other words: a personal investment and a loan. As mentioned earlier, for quick access to a loan you can opt for one with no credit checks, which will typically give you access to funds in under a day. There’s also seller financing, which involves the seller providing you with a loan. This can be beneficial if you don’t qualify for a loan from a bank.
As an alternative to both of these, you may want to consider equity financing from angel investors or venture capitalists, which is usually done through an Initial Public Offering. Angel investors and venture capitalists are generally interested in high-growth investments in exchange for their money, so before approaching them it’s essential to do your research on exactly what they’re looking for, and to have a solid business plan prepared.
Following these steps will guide you on a clearer path towards the successful purchase of an existing business.