Buying a Business: How to Value a Small Business That's for Sale

Buying a business

How to value a small business for sale?

Buying an existing business can yield big rewards. The more market value a business has the better.

Discover how to value a small business that's for sale.

Starting a business from the ground up is a major undertaking without any guaranteed success after all that hard work. In fact, once opened, only about 20% of businesses survive their first year. This statistic is both staggering and disheartening.

Instead of swinging for the fences and shedding blood, sweat, and tears in the hopes of getting a business to profitability, you can ensure success and profitability by purchasing a business instead of starting one.

You might be wondering how to go about putting a dollar value on an active, profitable business.... There are certain ways you can go about that and make sure that you're investing your money in the right places.

Keep reading to learn how to value a small business that's for sale.

1. Assess the Business Market Value

If you want to know how to evaluate a business, one reliable method is to assess the business market value.

Business value is determined by the market itself. With this in mind, you can compare the type of business you want to buy with the same types of businesses that have already sold.

If a business you want to buy is way above the determined market value, then you might be getting ripped off. However, the market value isn't the only factor to consider.

2. Calculate Assets and Liabilities

Another way to get an accurate idea of how much a business is worth is by determining the difference between assets and liabilities. That number will be a reliable indicator of whether or not you should invest.

Remember that assets are a bunch of smaller chunks of a business that can add up to much more value than what might first meet the eye.

Liabilities, on the other hand, are debts that the small businesses still need to pay off, which takes away from value, of course. With that in mind, too many liabilities can be a red flag when thinking about buying a business.

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

3. Check the Income History

Yet another way to assess the value of a small business is by looking at its income history.

This is a great way to figure out whether your investment will be profitable at the get-go. You can also figure out if you're looking at a low-maintenance business or one that will need more work put into it.

By adding up the net profits of the business from the past and getting the average, you can have an idea of what to expect after you buy the business.

From there, you can use a purpose-driven model to grow that business even further if you're up to the task.

You Know How to Value a Small Business

Now that you know how to value a small business that's for sale, you can start thinking about taking your first steps towards finding an actual business to approach.

Whether you want to buy a business that's for sale or put your business on the market through a business broker, BizNexus can help you get matched.

To get started, sign up and set your acquisition preferences, and start getting matched with businesses for sale and business brokers who can help you. Try it at www.biznexus.com

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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.

The Pros and Cons of Buying an Existing Business

Buying an Existing Business

Here are the Pros and Cons

Are you thinking about buying a business? Learn about the pros and cons of buying an existing business before you move forward.

Buying existing businesses

A record number of businesses were sold in 2019. That number continues to trend upward from previous years as baby boomers seek to retire and millennials begin to realize there might be limited exit options for their would-be unicorns in a public market focused on profit….

The economy is still doing well. Most businesses that sell are financially healthy, with cash flow to pay off the acquisition price.

While buying an existing business definitely has its advantages, there are also a few downsides anyone looking to buy should be aware of. The more you understand the nuances of buying an existing business, the more successful you'll be. 

We want to help you understand the pros and cons of purchasing an existing business. Keep reading to learn more. 

Advantages of Buying an Existing Business

It's not easy to start your own business. Statistically speaking, most startup businesses shut their doors within five years. 

Which makes buying an already established business that's proven to be financially successful a smart move. The hard work has already taken place to get past liftoff and into the atmosphere of profitability.

Access to a Network of People

When you buy an existing business, you get access to an existing network of people who can help guide you and your business including:

• Loyal customers

• Vendors

• Suppliers

• Employees

Also, if the existing owner has established relationships with banks, printers, advertisers, and insurance companies, it's much easier than trying to embark on those relationships from scratch. 

Established Brand

Branding is an essential part of marketing. Without loyal customers, there is no viable business. 

Buying a small business with a well-established brand name makes it easier for you to reach out to attract new business. 

Fewer Financial Surprises

There's a lot of risks a new business owner takes. But when the seller already has everything in place, that means the business is already operating and pricing has already been established. 

There's less of a chance you'll get caught in a money pit because the seller should already have provided you with the financial documents. 

Also, the sale is structured so you can cover all your expenses including the debt service and your salary. 

The Disadvantages of Buying an Established Business

While the business may already be well-established, that doesn't mean a few changes may be necessary. It's also difficult to fully comprehend what changes are needed until you've already purchased the business. 

However, here are a few red flags to look out for:

• High employee turnover

• Outdated or unreliable equipment

• Unreliable suppliers

A business that carries existing debt or has cash flow issues also will mean there's hard work ahead of you to get back into the black. And it's not always easy to walk into an already established business and try to change the rules. 

The Brand May Be Established But Suffer from PR Issues

While it's great to buy a business with an already established brand name, if the company suffers from PR (public relations) issues, you're inheriting a potential disaster that is now your job to clean up. 

Even a new owner may not be enough to change the minds of unhappy former patrons. Make sure you buy a business with a positive reputation. 

A Cheap Business Isn't Necessarily a Good Thing

If a business seems inexpensive it's usually not a good thing. An expensive business means it's doing financially well and has a good reputation. 

A cheap business may mean it has a bad reputation or a good or service isn't performing well in the market. Always ask yourself if it's worth the money and the work you'll need to put in to ensure a company stays successful after you've bought it. 

Start Getting Matched With Acquisitions and Make Some Inquiries

The best way to get going on buying your first business is to start looking at opportunities and reach out to connect with the seller or the seller’s business broker if you’re serious about any specific opportunity. As a buyer, at no cost to you, you can set up your profile and acquisition preferences today on BizNexus and we’ll start showing you opportunities from our $1 billioin+ inventory platform that makes sense for you.

BizNexus -Learn More From Our YouTube Playlist:

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.

5 Best Practices For Preparing Your Business For Sale

Preparing Your Business For Sale?

Here are five best practices you don’t want to miss out.

Are you ready to put your business up for sale? Here are some best practices we recommend you use to properly prepare your business for the sale.

Business for sale

When you have a business for sale, you need to be certain that you are leaving no stone unturned when it comes to the details. 

In addition to figuring out exactly why you want to sell, you'll need to cover your legal bases and come up with a strategy that works. This will help you fetch the biggest price, while also getting help with negotiating the deal.

Follow these tips so you can prepare your business for sale.

1. Get a Thorough and Up to Date Valuation

For starters, you'll need to get a proper business valuation. During a valuation, professionals that understand the market will take an objective look at your company to see how much it is worth.

They will look into all matters of the business, including your cash flow, debt, future growth potential, and other variables.

When your business has been valued, you will know what kind of sell price the market dictates and how much you can stand to earn. Having this report will also give you leverage and clarity when you're speaking to buyers.

Start to put together documentation for your business well in advance so that you can show clean, accurate records of your revenue, budgets, and other important matters. 

2. Understand Completely Why You Want to Sell

Aside from financial implications, you need to know exactly why you intend to sell the business.

For some, it may simply be time for retirement, and selling the company can give you plenty of liquidity. You may also be at a point where cutting your losses and selling a majority of your company in an acquisition might make good sense.

Your reason for selling will help you choose which strategy can work best for you.

3. Carefully Vet Your Prospective Buyers

In addition to the sales price, you need to know who you're selling the company to.

Work with a business broker so that you can research every buyer's background. Finding a broker is crucial because studies show that only 20 to 30 percent of companies ever even find a buyer. 

When you are seeking a buyer, move as carefully as possible so that your company lands in good hands, and at a good price.

4. Have a Plan in Place For the Transition

You need to have a solid exit strategy in place so that you can comfortably transition ownership and management.

When you have a plan, you're better able to choose a successor and make sure the company is in good hands once the sale goes through. It will protect the brand moving forward, and any future equity you might retain in the company.

5. Get Some Marketing Help

Your first two priorities should be to get legal help to know exactly where you stand and making a point to stay silent on it until the time is right for you to share terms with the public.

Once you are ready to announce to the public, make sure that you have a marketing team in place to help you communicate your message.

Follow the Right Tips When You Have a Business For Sale

When you have a business for sale, these are the tips that you need to keep in mind. It will help you get the best deal while protecting your interests.

Get in touch to set up a free consultation for our business sale and acquisition advice.

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PREPARING TO EXIT YOUR COMPANY

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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.

Spend Money to Make It: Financing Options for Buying a Business

Want To Buy A Business?

Financing Options For Buying A Business

If you've found the business you want to purchase, but aren't sure how to pay for it then this guide is for you. Keep reading to get the money you need.

Financing options for buying a business:

It doesn't matter if you're a solopreneur or a budding business owner who will employ hundreds. Starting a business requires capital. 

On average in the United States, it costs a whopping $30,000 to start a small business from scratch. That's averaging out the big guys with the little guys. You can imagine how much some entrepreneurs might be risking on their startups.

If you're unsure how much it will cost to start your business, you can check the estimated cost of your startup with Entrepreneur.com's calculator tool. There's more to consider than you might think.

Once you know how much you need, how are you going to get the money? Like dad says, "money doesn't grow on trees." Let's explore some financing options for buying a business and get you on your way to success.

Angel Investors

If you can snag an angel investor, you're in great hands. These guys know the risk of a budding startup and are willing to take it. They typically own more than $1M in assets which affords wriggle room for more risky investments.

The biggest downside to an angel investor is their need for even more detailed plans. You need to convince them of your credibility. Just because they are willing to take risks doesn't mean they're wanting to throw their money in a hole.

Do your research. Gather competition analysis, create detailed sales and marketing plans. Essentially, show your expertise in your market. 

Your idea needs longevity. If you're just sniffing out a trend but don't know how your product or service will fare in the long run, you won't attract an angel investor.

Lastly, be passionate. If you truly believe in your vision, that's infectious. If you've done your research and your idea has a long half-life, go all-in. Your ardent enthusiasm will help lubricate their pockets.

Micro-lending

If you've ruined your credit on previous passion projects, you may not be able to get a traditional loan. If you really think your business will take off, you might try a microloan. 

Micro-lenders are another group of risk-takers. But the return on their risk is higher. They charge a higher interest than a typical loan. 

How much higher? You could see APR as high as 30% in some cases, although that's rare. No need for collateral either which balances out the high interest rates.

One such example of micro-lending is peer-to-peer lending. Cutting out the gatekeepers gives more people access to small business funds than traditional means provide. 

A few examples of P2P lending companies: 

• Upstart: a group of ex-Googlers started a platform that judges borrowers not on FICO score but on education, academic performance, and work history.

• Funding Circle: After the founder's loan was rejected for the 96th time, they created Funding Circle for U.S. and U.K. small business owners.

• Prosper Marketplace, Inc.: This is the original U.S. P2P marketplace. It now serves over 800,000 people.

A Few Other Financing Options for Buying a Business

There are a few more financing options for buying a business outside of traditional loans from either the government or the bank. Self-funding is one of them. Tap into your 401ks, use a credit card if you have a large credit reserve, or start a crowdfunding campaign (that last needs a previously existing fan base or really great marketing). 

If you're ready to get financed, let us know. We'll show you how it's done. 

BizNexus -Learn More From Our YouTube Playlist:

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.

Financing the Purchase of an Existing Business: Different Financing Methods to Know

Buy A Business Through Financing

Have A Look At Different Financing Methods

Do you want to purchase a business but don't have the money for business acquisition? Here's all about financing the purchase of an existing business. As such, you'll need to learn the ins and outs of financing the purchase of an existing business on your terms. If you are looking into buying a business on your terms, you'll need to explore all options in front of you. If you have been building your retirement money over the years, this can be a great outlet for acquiring a business. Financing the purchase of an existing business is a strategic move that you need to carefully consider.

It's important that you take the proper steps when you are looking to acquire a business. 

As such, you'll need to learn the ins and outs of financing the purchase of an existing business on your terms. Thankfully, there are lots of ways you can go about it. 

Follow these tips to see which form of financing suits you. 

1. Ramp Up Your Own Funds to Allocate

When someone is looking to sell a business, there are countless arrangements that come into play. 

The best thing you can do for yourself is to put up your own money if you have it. This way, you call the shots and aren't worrying about crazy interest rates or strict terms. 

It's always best to have a nest egg set aside, and you can use this nest egg to your benefit when you decide to allocate some of your own money to acquire a business. 

2. Find a Traditional Bank Loan

If you are looking into buying a business on your terms, you'll need to explore all options in front of you. 

Getting a traditional bank loan is still an incredible option. Reach out to either a big bank, community bank or credit union to see what sort of loan options you can explore. 

Make sure that they are feasible for your budget and that the terms are beneficial to your needs. 

3. Talk to the Small Business Association

Be sure that you look into the Small Business Association (SBA) as an outlet when you'd like to get some lending. 

These organizations are allies for small businesses such as your own and can help you get your hands on the funding that makes the most sense.

They'll give you access to the financing options that are most conducive to growth so that you are able to expand your business.

4. Use Your 401k to Roll Money Over

You can use your 401k as a tool to fund a business. 

If you have been building your retirement money over the years, this can be a great outlet for acquiring a business. The benefit of using a 401k is that you'll be able to do so without the same early withdrawal penalties that you would experience when taking the money out for other reasons. 

5. Get Financing Through the Seller

Finally, it also pays to seek financing from the seller. 

A number of sellers will offer you ongoing financing at a great rate, which can expedite the sale of the business. Be sure to thoroughly read through the terms to know what you are getting. 

Financing the Purchase of an Existing Business: Use These Tips

Financing the purchase of an existing business is a strategic move that you need to carefully consider. If you're in the market for buying a new business, let these tips guide you. 

Our company can help you out so that you can find the assistance that you need. 

For more information on buying a business on your terms, stay tuned and get in touch with us for more help. 

Financing the Purchase of an Existing Business: Different Financing Methods to Know

Do you want to purchase a business but don't have the money for business acquisition? Here's all about financing the purchase of an existing business.

It's important that you take the proper steps when you are looking to acquire a business. 

As such, you'll need to learn the ins and outs of financing the purchase of an existing business on your terms. Thankfully, there are lots of ways you can go about it. 

Follow these tips to see which form of financing suits you. 

1. Ramp Up Your Own Funds to Allocate

When someone is looking to sell a business, there are countless arrangements that come into play. 

The best thing you can do for yourself is to put up your own money if you have it. This way, you call the shots and aren't worrying about crazy interest rates or strict terms. 

It's always best to have a nest egg set aside, and you can use this nest egg to your benefit when you decide to allocate some of your own money to acquire a business. 

2. Find a Traditional Bank Loan

If you are looking into buying a business on your terms, you'll need to explore all options in front of you. 

Getting a traditional bank loan is still an incredible option. Reach out to either a big bank, community bank or credit union to see what sort of loan options you can explore. 

Make sure that they are feasible for your budget and that the terms are beneficial to your needs. 

3. Talk to the Small Business Association

Be sure that you look into the Small Business Association (SBA) as an outlet when you'd like to get some lending. 

These organizations are allies for small businesses such as your own and can help you get your hands on the funding that makes the most sense.

They'll give you access to the financing options that are most conducive to growth so that you are able to expand your business.

4. Use Your 401k to Roll Money Over

You can use your 401k as a tool to fund a business. 

If you have been building your retirement money over the years, this can be a great outlet for acquiring a business. The benefit of using a 401k is that you'll be able to do so without the same early withdrawal penalties that you would experience when taking the money out for other reasons. 

5. Get Financing Through the Seller

Finally, it also pays to seek financing from the seller. 

A number of sellers will offer you ongoing financing at a great rate, which can expedite the sale of the business. Be sure to thoroughly read through the terms to know what you are getting. 

Financing the Purchase of an Existing Business: Use These Tips

Financing the purchase of an existing business is a strategic move that you need to carefully consider. If you're in the market for buying a new business, let these tips guide you. 

Our company can help you out so that you can find the assistance that you need. 

For more information on buying a business on your terms, stay tuned and get in touch with us for more help. 

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 Business | Four Vital Questions to Ask

How To ACQUIRE A Business

Four Important Questions to Ask

It can take a lot of time and effort to develop a business from scratch. This is why people savvy enough to tap into available public and private resources decide to buy an existing business. However, going forward with the purchase is not an easy decision to make. Here are four important questions to ask during the process of buying a business.

Where to Find A Business to Buy?

The initial step is to find a place where you can buy a business. Many people go to brokers seeking help to identify the right business for them. Others check industry publications, newspaper advertisements, or various online business for sale platforms.

Online marketplaces can be a great way to find a business to buy, especially if you’re looking to focus on digital business and e-commerce startups that are increasingly putting themselves up for sale.

Is That Business the Right Fit for Me?

Here are three key questions every entrepreneur like you should ask themselves when vetting an acquisition:

1. What are my skills and interests? – You would be more motivated to succeed with a business in a niche that you are passionate about. Needless to say, you want to make sure you know the industry enough to take over the business effortlessly.

2. What is my budget? – The price tag of the business needs to fit your pro forma budget. Furthermore, the business should generate monthly sales to cover the cost of operations with the potential of making a profit. If you need additional capital, you can consider getting a business loan from a financial institution like your local bank.

3. Do I have time and resources? – There is no point in buying a business if you are going to neglect it. You need to have enough time, effort, and energy to ensure that your business has the right allocated resources to become a profitable investment.

What Will You Get for the Price OF THE BUSINESS?

The chances are you will have some wiggle room when negotiating the purchasing price, but before you do that, ask the business seller exactly what assets will transfer for that price? Yes, you will become the owner of the business & manager of the team in place, but will you also get its inventory, social media accounts, a functioning website, and other relevant items?

Do You Have Accurate Historical Financial Reports?

The general rule of thumb is to stick to buying businesses that generate profits for at least a couple of years. The current business owner needs to be ready to provide financial statements and reports for at least that period. This includes a detailed overview of revenues, expenses, and debts. Also, it would be great if they include a projected financial statement.

Learn More About Business Management

While you should have general knowledge about managing a business, we are talking about the day-to-day operations of the business you are acquiring. For example, you may need permits and licenses to continue operating the business. There may also be operating procedures that you can adopt as that can make you a better manager.

Here are some more general questions related to the business operations:

• If the business that you are buying is digital, the product or service will be sold through a subscription model, or use one-time payments?

• Are there any employees whose salary you are expected to pay?

• Are there any contracts with vendors or other suppliers or providers? How long do they last, and is there an extension option?

Are you an entrepreneur?

An Austrian economist defined entrepreneurship as the “competitive behavior that drives the market process”.Thus it creates value for both market and society. Entrepreneurship is the process of creating something new of value by devoting the necessary time and effort, assuming the accompanying financial, psychological, and social risks, and receiving the resulting rewards of monetary and personal satisfaction and independence.

What problems can small businesses face in terms of entrepreneurship?

America's small business owners' optimism took a modest downturn in June, according to the NFIB Small Business Optimism Index, slipping 1.7 points to 103.3. While optimism remains at historically high levels, the June figure reverses the gain posted in May, with six components falling, three improving, and one unchanged.

Fifty-four percent reported capital outlays, down 10 points.

The net percent of owners reporting inventory increases fell two points to a net-zero percent, indicating no further building in inventory stocks in June.

The net percent of owners expecting higher real sales volumes fell six points to a net 17 percent of owners.

Twenty-seven percent of those reporting weaker profits blamed sales (down three points), 12 percent blamed labor costs (up five points), 11 percent cited materials costs, and nine percent cited lower selling prices (down two points).

Final Take On Buying A Business

As you can see, purchasing a business is both challenging and fun! You want to ensure that you pick the right business, which is why you should carefully evaluate all the details related to the purchase. Take as much time as necessary to ensure you are making the right decision as this can be the difference between success and failure down the road.

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.

Tips on How to Buy a Business and Entrepreneurship Through Acquisition

Generally speaking, buying an established business is considered less risky than setting up your own business from scratch. As an entrepreneur, you won’t necessarily need to come up with a unique business idea, sell investors on an unproven concept, or incur the costs & risks of building a business up from the ground level. This practice of acquiring an already established business is known as entrepreneurship through acquisition.

It’s Still Risky To Buy a Business

buying something that is already stable, and profitable doesn’t mean risk won’t still be a huge issue as with any form of business ownership and entrepreneurship. The large majority of businesses out there publicly listed for sale are riddled with issues you’ll have to find, fix and tweak to grow the business and determine the right price to buy a business. In 2019, we’ve seen a huge surplus of small business owners out there hoping to sell under-performing or unprofitable businesses, or businesses that have not yet been optimized for sale and to encourage new ownership. This can be a great opportunity to acquire and grow an existing business, but as an investment, the operational risk is absolutely still there.

So how do you buy a business? To avoid getting married to a bad deal, you need to investigate thoroughly the business opportunities you’re thinking of pursuing. And a well-thought-out approach is necessary for you to find and secure a good business. To help you buy a profitable, well-managed business at the right price, think through the following steps.

Identify What Interests You

Entrepreneurs hoping to buy a business typically focus on existing financials and current cash flow, but it’s equally important to align yourself with a target company’s culture & lifestyle goals. You’ll be considerably happier if you purchase a business that’s already aligned with your ideal work culture, and in an industry with which you care about and already have experience. The more informed and fluent you are with the model of a particular business, industry trends, products, or services, the more inventive and successful your expansion plans will be. Ultimately, it boils down to embracing your passions, skills, experience, and interests, and throwing yourself in head-first the moment transfer of ownership occurs.

Determine Whether It Will Succeed or Not

Other than money, you’ll be spending time, energy, and hair follicles. Take into account the time and energy requirements you intend to take on for the day-to-day management of your new business. Some managers would rather be “grinding” all time, with their employees, but most investment-focused buyers will favor delegation and putting a capable management team in place, while they can focus on oversight and growth through acquisition. The number of resources you’ll need to invest will be influenced by the people and procedures already in place on the ground, and your prior understanding of the industry & relevant players.

Think of Why the Owner Is Selling the Business

If you’re about to purchase an enterprise, you’ll need to know precisely why the business is no longer working for its recent owner. There are many reasons why a company owner might want to sell a business. And you must get an honest outlook of how the operation is doing—without the seller’s influence.

Keep an eye on the existing business debts, condition of the equipment, competition, location problems, inventory problems, and any brand problems. Also, ensure you are updated on the current business’s achievements, failures, future opportunities, and possible challenges. Apart from speaking to the current owner about these issues, also engage employees, existing customers, neighboring companies, residents, and any relevant person you can think of.

Find a Business That Meets Your Budget and Personal Needs

Strategies to find the right business on the market that fits your needs include classified newspaper ads, online business-for-sale websites, and working with a business broker. Bear in mind that business brokers representing existing businesses for sale lawfully represent the seller. For this reason, be careful about passing on sensitive, potentially compromising information to them. Nevertheless, a business broker can help you decide on the kind of business you need, screen companies to eliminate businesses that are unlikely to sell, and assist you with the paperwork and help with negotiations to get a deal done.

Take into account that, if you involve a broker, a commission of 8%-15% will typically be required (paid by the seller), which can be well worth it for a business broker who works hard to facilitate an optimal, pain-free transaction… As a buyer, you’ll want to hire a good accountant to appraise business financials and make sure the cash flow number you are negotiating is accurate.  It’s also critical to have a competent business transaction, M&A-focused lawyer to represent you in negotiations and keep you informed about how the transaction will be executed, and how the delivery of the purchase price will be paid out over time.

Do Your Due Diligence

Assemble as much data as you can before buying an enterprise. This is one of the most critical steps on your way to becoming a business owner. In this period, work with your lawyer and accountant to guarantee you get all the facts and figures you need before proceeding.  This will help you ascertain that the business owner isn’t out to sell a startup for the price of a well-established business with a track record of reliable profits, revenues, and paying customers. Be aware; the seller will most likely require you to sign a non-disclosure agreement. This safeguards the seller should you decide not to buy the business after reviewing the documents. Below is a buy a business checklist of the materials that the seller should have prepared for you:

• Contracts and leases

• Business permits and licenses

• Business Financials

• Environmental regulations

• Zoning laws

• Certificate of good standing

• Condition of the inventories

• Organizational chart

• Letter of intent

• Code

Signing the Sales Agreement

After due diligence, comes the final verdict; whether to buy the business or not. In case you decide to go ahead with the purchase, the sales agreement is the “strap” that binds it all together. The agreement will spell out the final buying price, and every item you are buying, including intellectual property, tangible assets, intangible assets, and customer lists. Make sure you have a good legal representative to help you piece this list together.

Value the Business 

Whether you do it yourself or hire a professional accountant or certified valuation analyst (CVA), being aware of how businesses are valued is important for any buyer. Note that, before a business is transferred to the buyer, both the seller and the buyer have to settle on an agreed-upon price based on revenues & cash flows of the business. Often, buyers and sellers have their own unique processes for zeroing in an agreed-upon financial value, and this forms the basis of their negotiations. Some of the most common models of valuation for an existing business include the market approach, asset approach, and earnings approach.

Raise Funding Needed to Buy the Company

As soon as you’ve settled on a price, the next phase is to get the money. There are numerous distinct channels through which you can access the cash you need to buy the business. Are you aware of the different means of financing a new business acquisition? Some common financing options to business buyers include:

·         Personal financing

·         Debt financing

·         Search fund

·         Seller financing

Closing the Deal

It doesn’t matter you’ve reached an agreement on the terms of sale and price; the transaction could still be torpedoed based on terms, and how compensation will be distributed over time. A buyer can walk away from a negotiation at any time if a deal isn’t working for all parties, or if a seller decides to get greedy or back-track on previously agreed upon negotiation items.

Transitioning the Acquired Business

Typically, the seller will help you for a period of time as a consultant while you get up to speed with the day-to-day requirements of running the business. Make sure you clearly outline the responsibilities of each party in a written contract, and how the training will be conducted. Transitioning to new ownership can be a rough time for existing employees, and you want that to go as smoothly as possible. As a new owner, put mechanisms in place to make sure the business transition goes smoothly for all parties involved. Create time and speak to key personnel, suppliers, and customers before assuming day-to-day leadership. Let them know your plans for the company’s future, and pay close attention to existing stakeholders’ feedback and opinions as you move forward with the business and make incremental changes to the model, processes, and team.

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