Is Buying a Business a Good Idea?

Buying a Business?

Here are 3 reasons why it is a good idea!

Buying a Business - 3 Reasons Why it is a Good Idea

1. Data and business predictability

2. Existing structure

3. Convenience

Buying a business is a large undertaking. However, it's in fact often easier than creating a startup and can carry much less risk too, done right.

If you're asking yourself "Should I buy a business?" then you have a good deal to consider.

That's why we've put together a guide to help you determine if a given purchase is a good idea (because it very much could be).

Buying a Business vs Starting Your Own

For many entrepreneurs, there are two options: purchase a business or start your own. While there is no one right answer, there are a few factors to consider when making such a choice.

First, the best business strategy for you will depend on your goals. For most business owners, the primary goals are going to be profitable and to avoid unnecessary risk. Whatever your goals, they will guide the rest of the process.

Most startups fail. While that fact can be a bit misleading in isolation (many "fail" but don't cause the owner any major financial loss) it's worth noting. Starting your own business is difficult and can be a serious risk.

While purchasing an existing business has its own risks, those tend to be far more manageable. The simple fact is there are fewer unknowns than with starting a business from scratch.

Starting a business rather than buying one tends to involve a great deal of estimation. While experience and thorough research can get you far, at a certain point, an entrepreneur can only push through, hoping their estimates are enough.

Hard Data and Predictability

Perhaps the biggest advantage of purchasing a business is the substantial pool of records one can look at to determine how risky the purchase is. 

A company that has been around for multiple years has records of its expenses, profits, and more, all helping to illustrate the company's value (or lack thereof).

While this information alone isn't enough to determine whether the company would make a good purchase, it is still an invaluable tool. While past results don't guarantee future performance, they do hint at it.

This also helps illustrate why "Is buying a business a good idea?" is something of the wrong question. It's too broad. The real question an entrepreneur needs to ask is "Is buying this business a good idea?"

Looking at a companies financials combined with good market research can help one understand the future profits a company might offer. From there, one can start to estimate at what price a company becomes a good deal.

Preexisting Structure

While it's rare a company will be identical after purchase (at the very least, the highest leadership has changed) much of the company's core will remain.

This often allows a purchaser to "hit the ground running" when it comes to their purchase. If they don't intend to change much, they may be able to start pulling in a normal profit even just weeks after buying.

This ability to have a pool of employees who are already trained and ready for their duties, a network of suppliers and manufacturers who are willing to work with you can lead to huge savings over starting a new business.

Even if a purchaser instead wants to restructure the business they've bought, this preexisting structure still offers some distinct advantages. It is unlikely a purchaser will want to radically restructure a business that interested them.

The disadvantage of all this is that, should a purchaser decide they do indeed want to radically restructure, it can sometimes be more expensive than having started from scratch.

Quality due diligence will help ensure a purchaser will be happy, for the most part, with a company's preexisting structure. If they want a company but think it needs heavy reworking, that will need to factor into the price.

Convenience

Most entrepreneurs find purchasing a business convenient compared to starting one. The draw of convenience cannot be dismissed as laziness; time saved is money saved.

Briefly touched on in the previous section, starting a business involves a great deal of planning and then enacting that plan. Everything from hiring to marketing to your production line must be fully formed.

It can take months or even years to take a new business from the planning stages to a point where even mild profit can be drawn. While this doesn't mean it is always a bad idea to start a business, it needs to be considered.

When one purchases a business, someone else has already done this work for you. Even if there is a transitionary period where the business is shut down, it is almost always much faster than if one started a new business.

Moreover, if there are things a buyer doesn't like about a business, they can still be changed. Buying an existing business does not prevent you from shaping it the way you want so long as your approach is careful.

Buying a Preexisting Business is Worth Considering

It would be objectively wrong to say buying a business is always better than starting one's own (or pursuing a different investment approach). Every opportunity is different and some businesses aren't worth their price.

At the same time, buying a business already turning a profit or with strong potential can be an excellent entrepreneurial move. It can be easier to predict than starting one's own business and more convenient, all while making you money.

Find a Business For Sale Now!

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BUSINESS ACQUISITION

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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.

7 Things to Know Before You Buy a Business

Buy a Business

Here are 7 things to know before you buy a business.

Buy a Business? Seven Tips to Follow:

1. Pick the right industry

2. Know what you want

3. Do in-depth research

4. Make sure you buy the assets

5. Prepare to make tough staffing decisions

6. Always get seller indemnity

7. Check all prepaid expenses

Did you know that around half of all businesses will have failed by their fifth year?

With this starting period being the crucial years for a company, it makes sense to buy one that is already running. But do you know how to find a purchase a business successfully?

There are many different facets to consider, from how to check if you are legally covered to managing new staff. Read on as we give our seven essential tips to know when you buy a business. 

1. Pick the Right Industry

It is important that you buy a business in an industry you know, for a number of reasons. Firstly, you need hands-on knowledge of how that business works from the ground up. No one likes a business owner without experience.

Secondly, knowing the industry means knowing the state it is in. Is the market in decline, or is it set for a huge boom period? Without knowing this, you could buy a business that is already doomed to failure. 

Start by making sure you have worked in the industry. Take six months out to go and work on the factory floor or make calls in the office. This will give you a much better understanding of how the whole place operates. 

2. Know What You Want

When you take your first steps into acquisition entrepreneurship, goals are going to be at the center of everything you do. People who take over businesses need to set goals for everything from customer service standards to profit. Without them, it is impossible to measure the success and growth of the business. 

What many people fail to address are their own personal goals. When you buy a company, other than increasing its turnover, what do you actually want from it?

Some people will go into the business with a goal to sell it later down the line for increased profit. Others may be going into it for life and may plan to pass it on to their children. Knowing what you want out of the venture makes it easier when setting the short, medium, and long-term goals of the business. 

3. Do In-Depth Research

Once you have seen a potential business, then you need to do your research. The internet is the first place to begin your business valuation. Delve deep into the company's history, its financial records, and any news articles related to it. 

Once this is done, begin to branch out. Do the same for its main competitors. Look at others in the chosen sector, or a geographical region if it is a brick and mortar business. 

4. Make Sure You Buy the Assets

When a corporation or LLC decides to sell a business, you need to make sure you are not just buying stock. It can work out much better if you offer to buy the assets instead. From here, form a separate company that would act as the buyer. 

The reason for this is twofold. First, if the business owes money, is in debt, or is being sued, then you are no longer liable, as you are not the business owner.

In addition, you will get better tax deductions on the assets. They will be judged by the price you paid for them, not the price the prior owner paid for many years before. 

5. Prepare to Make Tough Staffing Decisions

When you take over a new business, it is natural that you'll want to do some things differently. Even if the previous business model worked, you will have ways of improving and adapting. Inevitably, this means that some people will have to go.

As the business models change, certain people or departments will become redundant. Unless you are willing to spend lots of time and money retraining them for new roles elsewhere, then they are no longer needed. Even if you do this, they may not be as interested in a different role. 

Be honest with people about the reason for the dismissal. Give them fair severance packages and thank them for their service. 

6. Always Get Seller Indemnity

From the business valuation to the period of due diligence, you will have gone through the company with a fine toothcomb.

However, you can always miss something. If that is something that could lead to the company being sued down the line, you'll take the wrap. 

Indemnity can be placed as a clause in the contract. It states that if any lawsuits occur in the future as a result of something that was done before you took over, the previous owner will defend the case, paying all fees and judgments. They may also want an indemnity clause for anything that you may do after the closing takes place.  

7. Check All Prepaid Expenses

Before buying, check how many prepaid expenses are in place.

For example, the company may have annual software leases or in-place advertising that costs thousands of dollars. You don't want to find out about this midway through your first year without having included it in your financial projections. 

In addition, do not forget to check any leases on offices, shops, and warehousing. Make sure this will be carried on when you take over the business. Check if there are any clauses or stipulations, such as whether the rental price is fixed or may soon be facing a raise. 

Want to Buy a Business Near Me? Get Assistance

When you buy a business, it pays to get assistance. There are many sites online that can match you with potential sellers and ensure a smooth handover. 

Your first stop should be BizNexus. Set your targets, get matched with a business then connect with potential sales quickly.

Click here to sign up and let us help find your next opportunity starting today! 

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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.

How to Buy a SaaS Company

Buy a SaaS Company

We’ve put together 6 tips to help you out when buying a SaaS Business for sale.

6 Tips to Successfully Buy a SaaS Business:

1. Options: buy vs. build

2. Where to buy a SaaS business

3. Understand the prices model

4. Check out the source code

5. Check acquisition channels

6. Understand the competition

SaaS continues to show its dominance and is expected to generate an astounding $141 billion in 2022. If you're looking to buy a company, buying a SaaS business would be a remarkable idea.

Living in the cloud means that the SaaS model was not affected by the pandemic, making it one of the most attractive business options.

It has proven to be exemplary lucrative with very enticing options in terms of scalability. It also means that SaaS businesses are valued differently compared to most other businesses.

While buying a company is a good idea, you need to do a lot of things before buying a SaaS business. This guide covers how to buy a SaaS company and several steps you should make to ensure a seamless buying process.

Should You Buy a Company or Build One?

Why buy a company when you can just build one?

One of the most significant benefits is that you'll save time. Building a SaaS company involves building software, which takes a specific skill set that most people may not possess. It would take you a considerable amount of time to build your sass products from the ground up.

When you purchase a SaaS company, you'll not only get the software but a few years’ worths of market data as well. It will give you a sufficient baseline to work and allow you to focus on improving and scaling the business.

Consider Where To Buy the SaaS Business

If this is your first time buying a SaaS business, then you may not know where to start. You face two options, which are to buy from a private seller or a broker. You need to conduct a market evaluation.

The main difference you will face between a private seller and a broker is the vetting process.

A broker will vet numerous businesses that are trying to sell. Vetting the account is one of the most important steps you can take when you want to buy a company, so decide whether you want to jump into the numbers or have a broker do it for you.

Having a broker doesn't necessarily mean that you should overlook your due diligence. It means that they will take the weight of the load from you, and all you have to do is verify what they bring to you.

If you choose to vet yourself, you'll find that most businesses offer screenshots of their account to back up the traffic and revenue claims.

This proof should not be enough, though, and they should grant you viewing permission to their analytics accounts. These accounts will show you whether the valuation matches the business performance.

You should also ask to see the profit and loss statement and any other additional expenses you should know about before you buy a company.

Some people purchase SaaS companies with seemingly good revenue figures but later realize that the high expenses involved lower the net profit. You can catch problems that you may be able to fix. For instance, you could eliminate SEM advertising if you're good at organic SEO.

Understand the Pricing Model

Once you identify where the money is coming from and the strengths and weaknesses of the business, you should understand its pricing model. A SaaS business’s pricing model can be the difference between having no subscribers and millions of them.

There are several SaaS pricing models available. The payment option can be Monthly Recurring Revenue or Annual Recurring Revenue.

Monthly Recurring Revenue is usually the preferred method because it requires low payments up-front to new customers, and it's easier to track business performance.

One of the most significant results for you to conduct a thorough review of the market is to look for opportunities. Besides checking the SaaS company’s legitimacy, market opportunities will play a huge role in your business’s future.

Decide whether you would like to change it from a flat fee system to a tiered system instead. Such a move will make it more appealing to your target market and, in turn, speed up your ROI.

Check how many active subscribers the software has, then look at the churn rate and the customer lifetime value. It will give you a better idea of how the company works. Check how many free users are involved and whether you can offer them low-tier payments to generate revenue.

Check Out the Source Code

The source code is arguably the foundation of a business. A robust source code technically means the product will last a long time. If you don't have the technical capacity to assess the source code, it's prudent for you to hire a professional that does.

The source code is usually the owner's property and doesn't belong to the developers who created it. You must ensure the source code is included in the sale and transferred to you after the sale.

Check Acquisition Channels

There are several ways a SaaS company acquires customers, and they include paid advertising, organic search, social, referral, and direct. SEO and paid advertising are the primary sources of traffic, so scrutinize what the current owner is doing and how you can improve it to increase your business opportunities. Check if a domain is included in the sale to use the website to get traffic.

Understand the Competition

Buying a company means buying a share of the market, so get to know the companies you'll be sharing the market with. Check their marketing, pricing, and what they offer their target market. Scrutinize how they differ from what your software offers and look for an angle that offers you marketability.

Ready To Buy a SaaS Company?

There are so many reasons to buy a SaaS company, and this is the process you should follow to get it done. Do your due diligence to verify everything before you make the final decision to buy a company. You should also know when to walk away from a deal that doesn't seem appealing at all.

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BUSINESS ACQUISITION

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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.

How to Buy an Existing Business: Tips to Find, Value, and Acquire Something Successful

How to buy an existing business?

Tips to find, value, and acquire something successful

Want to acquire something both pre-existing and successful? Read on to learn how to buy an existing business and put it on the path to success.

How to buy an existing business?

Business acquisition is growing increasingly popular in the United States. Take franchising opportunities for example.

In 2020, there are more than 785,000 franchise establishments in the nation. This is the highest figure in the past 14 years.

Interest rates are still hovering near record lows meaning capital is cheap. The cost of money makes buying a new business more appealing than ever before. In addition, the nation’s economy is sitting on a solid foundation with strong consumer demand.

Read on to learn how to buy an existing business. Explore tips on how to find, value, and acquire a successful business investment.

Reasons to Buy an Existing Business

There are many good reasons for entrepreneurs to consider an existing business. For one, there will be a strong supply as Baby Boomers retire and look to sell.

From a business standpoint, you will inherit a proven business model. You can verify that the concept works simply by evaluating prior sales.

In addition, you get to leverage an established brand and product. The business comes with a loyal customer base, employees, inventory, and other assets.

Finding a Business For Sale

The first step in the acquisition process is finding a business for sale. Unlike homes, it is uncommon for a for-sale sign to be placed in front of the business. Existing businesses rarely advertise that they are looking for a seller.

Traditionally, investment bankers facilitate some business transactions. In other cases, accountants or lawyers will share information with prospective entrepreneurs. These professionals often get a heads up as they help plan the existing business owner’s retirement or other financial endeavors.

Another way to find a business for sale is by networking with local owners. However, these methods are old school and often lead to long waiting periods.

Modern entrepreneurs get to take advantage of online tools. There are online resources that use algorithms to pair together businesses looking to sell with entrepreneurs. Here, you can save search criteria like price and favorite businesses that you are interested in.

Your search may lead you to consider franchising opportunities. You can be matched up with a franchise that is in line with your passions.

Business Appraisal

Once the perfect business is found, you need to get an appraisal. In this process, finance professionals pour over the business to determine its value. Your team will review balance sheets, taxes, revenue statements, and more.

This appraisal is a critical step in getting financing to buy your new business. Unless cash resources are available, you can apply for a business acquisition loan. With cash or a pre-approval in hand, you can now make offers on existing businesses. 

A Recap of How to Buy an Existing Business

Acquiring a business is not simple by any means. It takes a lot of research to find the right one. The good news is that there are professionals and platforms out there that can pair you with the best fit.

If you want to learn more about how to buy an existing business, sign up for BizNexus and start getting matched with opportunities today.

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.

5 Factors to Consider When Purchasing an Existing Business

Purchasing an existing business

Here are 5 factors to consider

You want a business that has a blueprint for success. Here are five critical factors to look for when purchasing an existing business.

Purchasing an existing business

Starting a business from scratch is one of the most stressful things that a person will ever do. The stress associated with doing it can be too much for some people to take.

It's why many people with an entrepreneurial spirit prefer purchasing an existing business and working to perfect it over starting a business from the ground up. There will obviously still be some stress involved, but it won't always be quite as overwhelming.

Are you interested in potentially purchasing an existing business and taking it to the next level? Here are five important factors you should consider before you do.

1. Is the Existing Business the Right Type of Business for You?

Whether you start a business from scratch or buy an existing business, the business that you own needs to be something you feel passionate about. You should be excited to jump out of bed every morning to get to work on your business.

If you don't feel this way about a business that you're thinking about buying, it's not going to be a great fit for you. Even if there is a lot of money to be made with the business, what good will it be if you don't enjoy doing everything it'll take to make it?

2. Does It Have a Business Model That Seems to Be Working?

One of the best parts about purchasing an existing business rather than starting a new one is that it'll come with almost everything you need to run it from day one. It'll have:

• A name and an established brand

• A team of employees

• A loyal customer base

• A lot of inventory

But in addition to having these things, you should make sure that the business also has a business model that is working. This business model should be set up to continue working well into the future.

If you have to come in and start making wholesale changes to a company's business model, it could end up costing you more than it would have to start a business from scratch.

3. Do You See Areas in Which You Can Improve the Business?

You want a business that you buy to have a business model that is working. But you also want to have the opportunity to improve the business in different areas.

For example, you might know for a fact that you can use your current business connections to get the materials used to make a company's products for cheaper than they're making them for now. By using these materials and improving the production process as a whole, you can make a business that you buy more profitable right away.

Check out this video if you are looking to buy a website, eCommerce, an app, or SaaS Company

4. Are You Confident in the Business' Ability to Grow?

By improving small things about an existing business, you should be able to generate more money and make purchasing the business one of the best decisions you ever made. You should also be able to get the business to grow into something larger than it is now.

Are you prepared to take on that challenge? And furthermore, is the business you're considering buying scalable enough to make it worth your while?

You need to have confidence in the business's ability to grow and expand over time. Otherwise, it might not be a great investment on your part over the long run.

5. Can You Afford to Buy the Business?

One drawback often associated with purchasing an existing business is that it can cost more than starting a new business. You're paying a premium to get your hands on a finished product.

But the good news is that most lenders are more willing to lend money to someone buying an existing business as opposed to starting a new one. They see helping someone buy an existing business as a less risky move.

There are also lots of ways to finance a business purchase if you want to do it. Still, you should carefully consider whether or not a business fits within your budget before you even think about buying it.

Get the Help You Need When Purchasing an Existing Business

Purchasing an existing business can be a daunting experience if you've never done it before. You need someone by your side to guide you in the right direction.

We have a large selection of businesses for sale and can help you pick out one that's a good fit. It'll make the entire experience more manageable for you.

Check out some of the existing businesses for sale through us today.

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.