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.

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.