Top 10 Entrepreneurs Tips & Ideas for Buying an Existing Business

How to Take a ‘Sprouting Seed’ and Make It Grow

Ideas for buying an existing business for sale

One thing that differentiates entrepreneurs from other people is the ability to see opportunities and take them. Opportunities exist in different forms and buying a business is one of the uncommon ones. There are people that erroneously assume that for a business owner to desire to sell, something must be wrong with a particular business. However, real entrepreneurs do not reason that way.

There are myriad reasons founders may like to sell their businesses. Some may just be bored of the business and are looking for new challenges. Others are particular about getting ideas off the ground and moving into the next idea in their heads. There are businesses that are in the form of ‘sprouting seeds’ with real potentials to grow into great companies. An entrepreneur may decide to buy such an existing business instead of starting a new one from scratch.

Actually, there are several advantages of buying an existing business. The chances of failing with an existing business are slimmer than the chances of failing with a new startup business. This means it is less risky and can be extremely rewarding when handled the right way. Before buying an existing business; however, it is important that a true entrepreneur performs his/her homework. There are so many things to know about an existing business before buying it.

From the time you decide to buy a particular business till the first few months of running it, you have to get so many things right in order to succeed. It may be a little less risky than starting a business from ground zero, but a single wrong move can lead to failures too. Here, we will discuss some tips that can be helpful in setting you and your ‘sprouting seed’ up for success:

 Understand Why the Business Owner Really Wants To Sell

This may sound a little disconnected from the picture we painted above about why some founders may want to sell their businesses. We will be living in denial if we don’t point out that there are businesses for sale that are actually not in great shape. There are instances where business owners want to sell because their businesses are going down or are facing some legal or licensing issues. Take your time to understand exactly why the business you want to buy has been listed for sale. This will save you from buying a business that is bound to fail.

 Be Sure the Business Is What You Really Want

Before setting out to buy an existing business, it is important that you define what you want in a business. You also need to make sure that a particular business you are interested in meets your requirements before considering it. The most important factors to consider include the location of the business, the size, the industry, and its suitability to your lifestyle and aspirations. It is important that the business you are considering buying meets the majority of these important factors. This will help you to buy a business that you will enjoy running. You should also consider your short-term and long-term goals. 

Consider Working With a Business Broker

No matter how experienced you are in business, it is not advisable to go on the road alone when it comes to buying an existing business. In fact, it is impossible to do that. There are a number of people you will need to complete the transaction. It is not compulsory to have a business broker as part of your team but it is very important. There are so many things a business broker can do for you: a reputable one will help you avoid pitfalls while buying an existing business. A business broker can even help you find a business for sale that meets your requirements. He/she will also stand by you to ensure that the process is completed smoothly.

 Ensure You Have a Strong Acquisition Team

Asides from your business broker, there are several other professionals that you need to complete your due diligence and buy the right business that you can grow to an organization you will be proud of. You need to assemble a strong acquisition team with members you trust. You will need an acquisitions attorney, a professional accountant, as well as an independent business valuation team. You don’t need to leave anything to chance, have the right professionals by your side to make the entire process smooth.  

 Take Business Valuation Seriously

There is a mention of an independent business valuation team in the tip above. The point is only stressed here to give you an idea of how important it is. Even if you are very conversant with financials, there are things that can confuse you when you are looking at the records of an entirely strange business. When you have an independent team that is focused on business valuation looking at a business you intend to buy, you will have a better understanding of the business standings and make a better decision. Hiring an independent valuation team will give everyone the impression that you are serious. Take a step further by stressing to the team you’ve hired what you really need.

 Consider the Reputation of the Business Seriously

Asides from the financials of the business and its true value, you also need to consider the reputation of the business you are buying. How is the image of the business in the eyes of customers and suppliers? Do not assume that once you take ownership, people’s opinions about the business will change. There is no need to gamble with a business that has a shattered image. To know more about the reputation of the business you are trying to buy contact such important stakeholders as customers, suppliers, and banks. Steer clear if the image is severely damaged.

 Consider Current Employees and Organizational Chart

While knowing everything about the financials of a company is very important, the human factors behind the figures are also important. The current employees of a business can be its biggest asset in some instances. There is also the possibility that the employees of a business and the organizational structure is the reason behind its poor performance. Look at the organizational chart, consider the current management practices and the management-employee contracts besides union agreements. Make sure you understand all legal contracts with the employees in time.

 Have a Clear Vision of What You Want For the Business

Identifying a good business with potentials is never enough. If you are truly taking ownership of any particular business organization, you must have a clear vision of how to take it forward. There are instances where entrepreneurs that have prepared their businesses for sale will offer a growth plan in their marketing package; you can consider this a bonus. It is important, however, that you have your own vision of how to transform what you have at hand into what you are hoping to achieve in the future.

 Sort Out Your Funding Options from the Beginning

Unless you are independently wealthy or have a very wealthy financial backer, there will be a need to sort out your funding options when trying to buy an existing business. You won’t get any good business that is in great shape cheap. Any business, irrespective of size, that has real potentials for growth will be considerably expensive and you must figure out how you will meet the price. It will be necessary to do your math and sort out your funding options before agreeing on a fair price for any existing business you truly want to buy.

 Pay Attention to the Sales Agreement

Drafting the sales agreement may be the most emotionally charged aspect of buying an existing business, but you need to set your emotions aside and approach it as an entrepreneur. If you have considered all the factors that matter to you most and have decided to buy a particular business for a certain price, you need to make sure that the agreement is well drafted to avoid any surprises. This is one of the reasons you need an acquisitions attorney as part of your team. If there is any aspect of the agreement you don’t understand fully, speak up until you are sure of what you are signing. Do not leave even a single ambiguity as it could lead to issues at closing or even after the acquisition has been concluded.

 As an entrepreneur, you must realize that buying an existing business can offer several benefits. You also need to understand that there are several things involved in it and you need to take all of them seriously. The tips discussed here can be very helpful in taking that ‘sprouting seed’ and making it grow.

Are you finding it hard to decide if buying an existing business is actually worth it? Log in today at BizNexus. Our trusted experts are always available to speak with you and provide suitable answers to your questions and concerns. A fantastic experience awaits you.

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Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.

6 Critical Questions to Ask Sellers before Buying a Business

6 vital questions to ask sellers when buying a business

Are you buying a business?

Buying a Business? Here are six critical questions to ask sellers

Buying a business or an established business operation that is already generating cash flow is a great way to fast-track your way into business ownership and CEO creds. If you do it right, you’ll also be buying into contracts or relationships with productive, loyal customers and veteran employees who already know the ins and outs of the business.

If you have found a business that you think you might want to buy, the next step is to ask the seller some important vetting questions before you make any final decision. This helps ensure you’re making the right move to acquire the business or run for the hills, -fast.

Here is a list of six questions that you should consider when talking to a potential seller:

 Ask for three years covering the business financial records

Get a feel for profitability, for margins… Ask the seller to provide you with the financial statements going back to three or five years . A reputable firm should audit the financial records for larger deals. If a seller doesn’t have organized financials, that’s probably a red flag for other mismanaged Easter Eggs bound to pop up down the road.

 What are the high-potential prospects?

No entrepreneur wants to invest in a business with a stagnating or declining top-line. Ask the seller to provide you with a realistic, explainable projected sales analysis, and a list of their potential clients or customers that they intend to sell. This will give you an idea if there are workable client accounts or whether you have a real shot at accelerating growth.

 Why are they selling their business?

Selling a business due to retirement or because an owner is investing her time and money into another venture, are common reasons a business owner might want to sell or exit their current business. Careful, -a business owner could be selling their business because it’s not turning a profit or they don’t like wants coming down the road with the macro economy. Make sure that you understand well why the business has been put up for sale. Accessing the financial statements and the sales records will ensure you a better understanding of the business and its potential. 

 What happens to outstanding contracts?

After exchange of business ownership, contracts that have been in place may cease to exist or transferred to the new owner. There are no guarantees that the current clients will want to continue working with the new owner. It is important to make sure that the current contracts or projects of these long-term clients won't become void after you acquire the business.

 What are the challenges?

Every business comes with challenges and most of them are hard to deal with at best. Some business owners will absolutely try to hide any negative information that could depress a selling price, complicate terms or flat-out 86 the deal. It is your responsibility to conduct proper due diligence, so be forewarned.

 Buying a business that is profitable and fits your potential can be life changing. 

Follow these tips and you’ll be on your way (a first step anyway). You can also seek assistance from a business broker or accountant to ensure your getting a profitable business.

An In-depth Step-by-Step Guide to Buying a Franchise

Approximately 1 out of 12 businesses in the USA is a franchise business. Opportunities like franchising and entrepreneurship through acquisition are some of the great ideas for business minded people looking to run a business without the struggle of creating a new business from scratch. However, establishing a successful franchise takes more than merely finding an ideal franchisor and financing your business. It is a complex step that requires careful planning and strategizing. You need to conduct comprehensive research, review the necessary documents, and follow the steps below.

Conduct Rigorous Research

Finding out the necessary information is the first step you should take when you need to buy a franchise. Thorough research will ensure that your venture into a field of your interest, within your budget and your qualifications. You need to ensure that you meet the basic requirements necessary to start a franchise and also assess your resources, skills, and interests. Your research needs to involve:

Talking To Franchisees

Take time to talk to current franchisees. Gaining an insight into their experience with franchising will help you avoid mistakes in yours, and examine what they did right and maybe use it for your business. Through franchisees, you will also identify the pros, cons, challenges, and hidden costs of running a franchise.

The Type of Franchise

Choosing the right franchise is an important step. To arrive at the right decision, you will need to examine your skills, the type of environment you want to work in, your interests, and your goals. Depending on your needs and budget, you can find companies willing to sell a start-up or already established business. You should also determine the amount of money you are ready to invest and the profits you would like to make from the franchise. This information will help you choose the right franchise.

The Qualifications Requirements

Franchisors set minimum requirements for their franchisees to protect their bottom line and ensure that the franchisees are qualified both financially and professionally. Qualifications vary depending on the type of franchise and the franchisors, but the standard requirements include a credit score, management experience, industry experience, net worth, outside income, and cash in hand.

Fill Your Initial Application Forms and FDDs

Once you have done your research and identified the franchise, the next step is to choose 1 to 3 companies to consider. These companies will give you a representative who will provide you with information about their company. You will also fill the first application forms and preliminary questionnaires. If the franchise is satisfied with your answers, you will receive a copy of the franchise disclosure document (FDD).

The FDD is a 50+ page document that indicates the fees you need to pay, your responsibilities as a franchise, information about the franchisor, and your responsibilities as a franchisee. Make sure you study this document to ensure that it is a good fit. The federal trade commission mandates franchisors to provide franchisees with the FDD at least 14 days before making any binding agreements.

Review The Agreement

If the franchisor decides that you are the right candidate to acquire their business, they will draft and offer a formal contract. Reviewing the agreement ensures that you understand everything before you sign it, so take time to read through the document and hire a franchise lawyer to help you better understand the terms of the contract. The contract gives you the legal right to own a franchise under its rules and regulations. The contract should indicate the rules on the transfer of ownership, royalty fees, hiring staff, protection of territory, pricing, suppliers, among others. Any promises made verbally also need to be put in writing, and any discrepancies between verbal and written terms should be clarified.

Investigate The Company

Once you have settled on a franchisor, you will then need to investigate the company. Buying a franchise involves developing a relationship with the company; it is vital to make sure that it is the right relationship, therefore, take time to talk to its executives, ask questions and also gather information about the company on your own.

Attending a discovery day is a good opportunity for the franchisee to get to know the franchise. It is an opportunity to learn about their culture and understand the people who will be working with you. Make sure you ask questions and voice your concerns during discovery day. A typical discovery day involves one-on-one meetings, interviews, a visit to the franchise location, and group presentations.

A discovery day is also beneficial to the franchise company. It allows them to get to know you better and assess whether you are a good fit for their company. They will also evaluate your level of enthusiasm and commitment at which will dictate their decision to sell a business to you.

Acquire Finances

You cannot run a business without finances. Before you buy a business, make sure you acquire finances to cover the costs of running a business. Franchisors may help arrange finances, but you will also need to qualify for financing on your own. A credit score of 700 gives you a better chance of securing funding. You can finance your start-up through SBA loans, traditional bank loans, search funds, rollover for business start-ups (ROBS), or a government grant.

Create A Business Plan

A business plan is not only a guideline for your business, but it also aids in acquiring finances. It keeps you focused, helps you achieve your goals, keeps you on the right track, and thorough market analysis gives you a better understanding of your market. Document every detail of your business to ensure that everything runs smoothly.  

A business plan shows investors that they are investing in a company with a vision and one which will last and grow. It helps them understand your vision and passions and shows where their money is going. Franchise opportunities require careful considerations, and creating a business plan helps assess your franchise's visibility.

Talk To a Franchise Attorney

If you are considering franchising, make sure you talk to a franchise attorney. These attorneys specialize in franchising, and they have a vast knowledge of franchising. A qualified franchise attorney will help you know everything that you need to know about franchising. This is because they know what to focus on in the FDD and the franchise contract; writing and working on similar documents gives them better insight. They know what to look for when reviewing the documents.

A good franchise attorney also helps the franchisee choose the best entity for their business. The right entity determines the legal rights and liabilities of the business and its taxation. You can also rely on your attorney for help when things do not work out as you expected. They also form an invaluable asset for the business as they can help negotiate the terms and conditions of the agreement and offer guidance to the vague aspects of the contract.

Picking a Location

Take into consideration the guidelines and recommendations of the franchisor to help you find an ideal location. In some cases, the franchisor may have strict rules for commercial real estate, including the number of parking lots, territory requirements, and the minimum squire footage.

Leasing a space is cost-effective, and less risky; however, if you intend to be in the place for more than seven years, consider buying your location. Whether it is leasing or purchasing a space, consider the safety of the area, the location of your employees and customers, the square footage, and negotiate the price. 

Acquire The Necessary Skills And Knowledge Of Running A Business

Before you open your business, take the opportunity to acquire the necessary skills and knowledge to run a franchise. Typically, the franchisor will provide training sessions that will tackle everything you need to know about the business, including the policies and guidelines, the products and services the systems you will be using. Working in a store is an ideal way of determining how a franchise works and whether your skills and personality match the company culture.

Open Your Business

This is the final step; it comes after you have finalized everything, and the franchisor representative approves your location. The franchisor will give you a hand during the actual opening. Marketing your grand opening is an excellent way to promote and market the business. It ensures that you build your customer base quickly. Before the grand opening, potential alert customers of the existence of your store, and you can also do a soft opening to identify and deal with the operation problems before the grand opening. The franchisor has pre-determined promotion ideas, signage, and ads for the grand opening in most cases.

It is worth noting that franchising does not eliminate the risks of owning a business. However, it allows the entrepreneur to handle the responsibilities that come with owning a business. It comes with an already Get Matched Now.

BizNexus -Learn More From Our YouTube Playlist:

BUSINESS ACQUISITION

Have you checked out our podcast?

THE BIZNEXUS ROUNDUP

Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.