ENTREPRENEURSHIP THROUGH ACQUISITION
A Reliable Alternative To Chasing Unicorns
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. 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.
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.
How to use seller financing to buy a business in 2019
There are various ways to go about funding the purchase of a business. A strategic option would be to negotiate seller’s financing with the business seller to alleviate the burden of paying full price for the business upfront. In the U.S., about 60-90% of business sales involve seller financing. Before going through with the purchase, you need to thoroughly vet the business. Because owners rarely finance 100% of the purchase price, you might also need to find other sources of funding, such as a bank loan.
There are various ways to go about funding the purchase of a business. A strategic option would be to negotiate seller financing with the business seller to alleviate the burden of paying full price for the business upfront. Jessica Fialkovich, President of Transworld Business Advisers - Rocky Mountain explains how this works, particularly for small businesses.
In the U.S., about 60-90% of business sales involve seller financing. Before going through with the purchase, you need to thoroughly vet the business. Because owners rarely finance 100% of the purchase price, you might also need to find other sources of funding, such as a bank loan.
Once your business is up and running successfully, you might want to refinance so you are free and clear of the seller.
You can get up to $5,000,000 with an SBA loan, but you'll need a good credit score (680 or better), collateral, and at least a 10% down payment.
If you default, the owner might want to retain the power to take back the business within 60 days of you missing payment.
Helpful Resources:
Helpful Business Sites:
How to choose the right business broker to help you buy a new business in 2019
A business broker is typically working with multiple buyers and sellers of businesses at one time, and communication can slip through the cracks. Buying a business can be a very long, tough process, and having the right business broker there to help feed you potential deals, offer guidance and insight into market conditions can be a great help.
Top Guide On How To Find a Great Business Broker in 2019
Find Your Soulmate Business Broker
A business broker is typically working with multiple buyers and sellers of businesses at any given time, and communication can slip through the cracks if you’re not linked up with a proactive, smart and organized intermediary. Buying or selling a business can be a very long, tough process, and having the right business broker at your side to offer guidance and insight into market conditions, negotiations, and buyer and seller options can be a game-changing solution if you can find the right fit.
Find a business broker to help buy a business
An often overlooked option to help begin the journey towards buying your own business is to simply reach out to a business broker for guidance before you begin your search. If you can identify a quality business broker this can be a way to help jump-start your search and increase the chances of finding a successful acquisition. Brokers typically represent multiple deals within their category of expertise simultaneously, and if you’re able to establish a relationship with a productive broker you gain access to a continuous stream of deal-flow. The trick is to identify that standout broker.. The one who’s knowledgeable, productive, and won’t waste your time pitching you sub-par, low probability deals for sale.
Speak directly with recent references.
Don’t even bother with a business broker if you can’t verify if they’ve historically done well by their clients on both the “buy” and “sell” sides of the transaction. Ask to speak with owners of businesses the professional recently helped buy or sell, and check for relevant reviews online. If you’re researching the professional’s profile online on his or her company site, LinkedIn, or Biznexus definitely prioritize DEAL experience over education, listed skills, or any other potentially biased information manufactured by the professional him or herself.
Make sure the professional keeps working for you
Set communication expectations from the outset. A business broker is typically working with multiple buyers and sellers of businesses at one time, and communication can slip through the cracks. Set up a recurring weekly, or monthly meeting with the broker to review his or her listed deals. Even better, as you develop your relationship with the broker over the course of regular calls you position yourself in the front of the line to hear about the deals the broker may be working on, but hasn’t officially listed… Getting first crack at an unlisted deal is a great way to get a head-start on developing a relationship with the seller, and to potentially avoid a bidding war with competing buyers if you can negotiate terms before the competition gets wind.
Buying a business can be a very long, tough process, and having the right business broker there to help feed you potential deals, offer guidance and insight into market conditions can be a great help. Do your homework before you choose any professional to help you with the process, and make sure you’re clear on expectations and compensation from the outset. Standard shameless plug: We recommend you check the BizNexus directory before making contact with a potential business broker for any helpful reviews, ratings or content that could provide guidance.
A few useful links if you’d like to dig deeper on the topic:
What you Should Know About Working with a Business Broker. -Inc.
How to Find a Business Broker. -Entrepreneur
How to Buy or Acquire an E-Commerce Website for Sale
In this guide, we are focusing on how to buy an e-commerce website business that’s for sale. We will go through the entire process so that you can make the most out of the purchase and set yourself up for success.
How to Buy a Digital Business?
E-Commerce Website for Sale
Buy an E-Commerce Website for Sale
Want to own and run your own online digital business? You basically have two options:
Establish a new company and start from scratch.
Skip the startup cluster consider acquiring an existing e-commerce website business already on a clear upward trajectory, and apply your creative entrepreneurial pivots and experiments while enjoying the benefits of “cash flow” (something startups were expected to think about prior way back in the dark ages of the early 21st century).
In this guide, we are focusing on how to buy an e-commerce website business that’s for sale. We will go through the entire process so that you can make the most out of the purchase and set yourself up for success.
What Type of Business Do You Want and Can You Buy?
If you are planning to buy an e-commerce business, it is important to sit down and think about two things – your lifestyle goals and financial needs. Your goal here is to analyze your current situation and try to stay true to your budget, day to day operational involvement interests, and values, -all keys to successful entrepreneurship over the long-term.
What Are Your Future Objectives?
You should never stop dreaming big, but when it comes to setting the objectives, it is important that they remain realistic. Ask yourself, why are you buying an e-commerce business? This will help you to stay focused with realistic objectives that will shape up your business model.
If you are a beginner, you may be purchasing a company to learn all the tricks of the trade before you engage in starting a business from scratch. In this case, you may want a helpful and experienced e-commerce entrepreneur that wants to sell their e-commerce website who is willing to share essential details about how they made the e-commerce venture that you are consider buying into a profitable business.
You may also think that you have the necessary resources and skills, which is why you want to save time and buy a company that has already positioned itself in the market. This way, you can invest improving resources, and scale the business to the next level.
It is also vital to consider how much time you can dedicate to the business that you are buying. If you plan for this to be your full-time job, that’s great. But if you consider e-commerce business as an additional income, it is important that it won’t take you more than a couple of hours in a day to operate the e-commerce website.
What is Your Passion Aligned with Your Skills?
When choosing the market in which you will purchase an e-commerce business, it is vital to consider two areas – your passions and skills.
We all have our favorite market segments within an industry – some of us are crazy about clothes, others are health freaks that care about staying in shape, or you may be into tech products and gadgets. It would be great if you could buy a business in one of the market niches that you are passionate about. This way operating the e-commerce business won’t be merely a job, but it is aligned with your passion as well.
It is also important to consider your knowledge and skills. If you have graduated from an art university, you may consider selling homemade art or crafts and other related products.
It can also be very helpful if you have tech-related knowledge. Knowing more about website optimization and SEO can help you with search engine page ranking. Being a good writer can be of great importance in preparing unique content to promote brand awareness and increase conversion rates.
The crucial thing is to ensure that you have the right skill set to run the business. If it's necessary, consider hiring someone else but make sure that you can incorporate that expense into your budget.
Think About the Resources You Have
Yes, you need to consider financial capital, which means that you should have enough money to purchase and invest in the business to take it to the next level.
But we are also talking about other resources. You need to ensure you have enough time to run the business, a computer or laptop you will use for administration, etc. You can also use your current social media accounts if you are popular on Facebook or Instagram.
How to Determine the Price for an Ecommerce Business
It varies from one e-commerce website business to another, and ultimately depends on your estimation and business valuation, but the general rule says that an e-commerce website business can be valued anywhere from 10 to 24 times its monthly profit. In other words, if you have a business that secures $3,000 per month, you will need at least $30,000 to purchase it. The price may vary depending on the potential of that e-commerce business’ ability to increase profit.
The main idea is to buy a business that is profitable and can remain profitable as this should be your primary goal when running e-commerce business. The estimated monthly earnings should be high enough to motivate you to work on growing the company.
Here is more about how to evaluate the worth of an ecommerce business
Naturally, business owners wouldn't want to sell their business for less than its worth. There are a number of valuation methodologies you can use to determine the fair value of a business. Let's take a look at what it takes to fairly evaluate an e-commerce business for its worth.
There are a few ways you can determine the value of an e-commerce business.
Multiple of Seller Discretionary Earnings. You might evaluate a business's worth by looking at their historical earnings. When favorable factors are agreed on, the businesses expected worth will be higher during the valuation.
Discounted Cash Flow (DCF) Analysis isn't the primary way to evaluate the worth of an e-commerce business, but it is a useful analysis.
Online business sales fluctuate more widely than those of traditional businesses, which make this analysis less suitable for e-commerce. These can include a company's size, years in business, yearly revenue, and so on.
A company with an active customer base and positive market outlook will be worth more than a company without active customers or a profitable niche.
Evaluating the worth of a company doesn't come easy, however, it's a necessary step you must take before finalizing a sale.
Where to Find an E-commerce Website Business to Purchase
Once you have the required capital, the preferred market niche, and other desired variables, it is time to look online and find an e-commerce business to buy. The good news is that there are numerous marketplaces where you can buy and sell e-commerce websites.
However, we advise you to stick to the reliable ones, such as:
Shopify Exchange – exclusively designed for Shopify stores, and an excellent place to find a website fast. The great thing about this website is that it is free, and there is no success fees or other charges.
Flippa – you can choose between thousands of different business, which means you have a vast range of websites to pick from when buying.
Empire Flippers – it is interesting to note that every website put up for sale passes through the screening process of the administrators.
BizNexus - Inventory of online businesses for sale 100% vetted by expert online brokers from all around the world. Sellers are prohibited from posting directly on the site so there is a built-in level of vetting required as every listing on the site is a business that a broker see’s as sellable, and that a broker has initially vetted themselves.
How to Be Sure You Made the Right Decision
You’ve found e-commerce business that seems like an attractive purchase, but you are not 100% sure that you made the right choice. If you want to be certain in your decision, just follow these steps.
Don’t Hesitate to Ask Questions to the Seller
The chances are that the seller has listed some basic information about the website and themselves, but it is always wise to ask for more details. Start by trusting yourself and conducting online research on the owner and the business.
See if the seller has LinkedIn or other social media profiles, and ensure that they are a real person, and not someone hiding behind a fake identity. Do an online search for the business, too, as it may encounter user reviews and other valuable information.
Here are some other questions to ask the seller:
How long has the business been running – the longer the better and bigger chances for success. Businesses with longer operation period provides a lot more data for making an informed decision.
Why they are selling the business –look for an authentic reason. Perhaps they bought another company, or they got a better job. Maybe they are moving to another country. Whatever the reason, you need to make sure that they are telling the truth.
Tell me more about yourself – that includes the previous experience in e-commerce business, other business they own, and anything else that may be relevant to your purchase decision.
It is also vital to acquire as much information as possible about how the business is operated. Some e-commerce websites have documents that are official standard operating procedures. That will make you're taking over a lot easier as you have a set of rules to follow. Additionally, ask them if they run the business themselves or hire additional staff.
Ask for Sales Data and Website Visits
You should always demand the seller to send you a profit and loss statement for the previous year. That includes detailed information about revenue, gross profit, cost of goods sold, operating expenses, net income, etc. In other words, you want a comprehensive financial report that would prove the claims that the seller makes about earnings.
Furthermore, you may want to check the website traffic. The best way to do that is to ask for access to Google Analytics. There is no need for the seller to worry about anything as the access can be read-only option for this tool, and this is all what you need...
Here are some things to keep in mind:
If you notice a bounce rate less than 30%, or higher than 90%, and session duration lower than at least 45 seconds (or less than two opened pages per session), it may be a sign that the traffic sources are untrustworthy.
You want to ensure that the website has had a constant number of visits over the last several months. If the number has significantly increased lately, make sure to determine the reason for that.
Make a difference between organic, referral, direct, and paid traffic, as well as the one coming from social media. Any option that seems legit and doesn’t require any investment is acceptable.
Finalizing the Sale
If you think you made the right choice, and want to finalize the deal, it is time to enter the negotiation phase. Since you asked so many questions to the seller, it is only natural to introduce yourself. Tell them a bit more what makes you a reliable and trustworthy buyer.
Once you establish trust, you can talk about your plans with the business. It is something that a seller might want to know, especially if they care about their e-commerce business. Finally, ask them about the price, or give your offer. However, make sure to explain why you’ve chosen to offer that amount of money (estimated monthly earnings, future potential, etc.).
Now, once you agree on the price, you may want to ask an attorney to analyze all legal aspects of the deal. That might not be necessary if you are buying small e-commerce online business and using a marketplace as a mediator. However, make sure that the seller confirms there are no lawsuits currently related to the business.
Finally, determine all the details about the payment. You may want to pay in installments, but the seller needs to agree on that. You should also ensure to agree on a support period during which the seller is obliged to answer any question or concern that you have about the business. Also, make sure to negotiate social media accounts, mailing lists, product images, and other resources that may be a part of the transaction.
Final Take
If everything goes right, you will soon become the owner of an e-commerce website. As you can see, the process is not complicated. However, it will take a bit of time and effort to choose the right company, and make sure everything goes smoothly. Once you finalize the transfer, it is time to design a strategy to skyrocket your e-commerce business and boost your profits.
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.
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.
Buying an Established Business: Why It's Better Than Starting a Business
There are so many small businesses today and they come with many risks. Buying an established business is a better option. Here's why. Starting a new business is not easy. Did you know that 50 percent of small businesses fail in the first 5 years? For this reason, many entrepreneurs choose to buy an established business instead. Franchise opportunities, for example, end in failure only 17 percent of the time. There are many advantages to buying an established business and, in many cases, it's a better option than starting one. Read on as we explore the top reasons why purchasing an existing business is a great investment.
There are so many small businesses today and they come with many risks. Buying an established business is a better option. Here's why.
Starting a new business is not easy. Did you know that 50 percent of small businesses fail in the first 5 years?
For this reason, many entrepreneurs choose to buy an established business instead. Franchise opportunities, for example, fail only 17 percent of the time.
There are many advantages to buying an established business and, in many cases, it's a better option than starting one. Read on as we explore the top reasons why purchasing an existing business is a great investment.
Existing Cash Flow and Customer Base
The hardest part of starting a new business is establishing a customer base. Without a steady stream of customers, your cash on hand is minimal.
By purchasing an existing business, you can leverage the prior owner’s hard work. The company has already established itself in the marketplace and there is brand recognition from day #1.
There are processes and procedures in place for servicing customers and delivering a product. Perhaps most important are lessons learned from existing employees and customers. You can learn from the previous owner's failures and so you won't be likely to repeat their mistakes.
Using Historical Financial & Performance Data
Another advantage is inheriting years of financial & performance data. In a startup, you're jumping head-first into the unknown with little existing data to guide you. Everything is a "first," and you just need to make fast, repeat decisions with your gut and hopefully a really, really smart management team. But that cannot ever replace experience.
With an existing business, the company’s financial documents serve as a roadmap for optimizing the business moving forward. You have a baseline and existing trajectory to work off of and improve, and you can evaluate the company’s operating expenses to reduce waste and increase profit margin.
This financial snapshot serves many other purposes. With less uncertainty, your business is more likely to secure loans, and you may be able to attract other investors with an updated business plan.
Purchase at a Discount
If you're buying at multiple inefficient cash flow levels, you are likely to acquire business assets at a significant discount. This is especially true for startups that are overpaying too many employees or purchased a lot of capital equipment.
Social Media Footprint
Nearly every business in the United States has a social media footprint. It is not easy to acquire a robust following or steady web traffic on a blog.
However, purchasing an existing business gives you a head start. Now, you can leverage off of the prior owner’s Facebook or Instagram account.
In addition, there are e-mail marketing lists to inherit. You can start running digital promotions immediately after acquisition. For a startup, prospective customer information has to be collected the hard way, from scratch.
A Recap of Buying an Established Business
There are different ways to start a business. Many savvy business owners prefer to buy an established business over a startup.
The primary reason is taking advantage of all the time and money the prior owner put in. Acquiring business data like financials and email marketing lists goes a long way.
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
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.
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:
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.
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.
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.
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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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 for negotiating a term sheet in 2019
A term sheet covers the major aspects of a deal, reducing the chances of a misunderstanding between parties. It also ensures that expensive legal fees attributed to drafting a binding agreement are not prematurely paid due to disagreements that arise. Here are some tips on creating an effective term sheet.
Tips Negotiating A Term Sheet in 2019
Term Sheet Covers The Major Aspect Of A Deal
A term sheet is a non-binding agreement outlining the basic terms and conditions under which an investment will be made. The term sheet acts as an outline for the parties involved so that once an agreement has been reached, a contract will be formed that adheres to the conditions defined in the term sheet.
A term sheet covers the major aspects of a deal, reducing the chances of a misunderstanding between parties. It also ensures that expensive legal fees attributed to drafting a binding agreement are not prematurely paid due to disagreements that arise. Here are some tips on creating an effective term sheet.
Numbers, Control, & Equity
The term sheet generally covers economic terms such as valuation and equity distributions to mitigate against a down-round or share dilution later. Things such as options or other equity incentives may be up for negotiation, as changes in options tend to change on a pre or post-money basis. It also covers matters pertaining to control and voting rights, as investors enjoy having influence over managerial decisions as a way to control their investment and future liquidation options.
It Goes Beyond Valuations
It is easy to focus all attention on the pre-money valuation in a term sheet, as that defines the financing strategy of the startup moving forward. However, other topics such as governance and control should be equally considered. Investors can put in clauses giving them preference for the sale of a company or the issuance of preferred stock, giving them greater leverage over their investment and control over the company’s major decisions.
Retrofit Your Term Sheet
Not every deal or investor will be the same, which is why it important to draft a term sheet that answers your specific needs, as well as those of the other party. Terms sheets are marginal, meaning that a win for you may mean a loss for the other party, vice versa. Hence, it is important to make sure that (1) you are aware and content with the terms laid out in your term sheet and (2) you leave room for changes or negotiation, as the term sheet is not the final contract, but a starting ground for securing your investment.
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.
Why you need seller financing to buy your next business
If your broker is telling you that seller financing isn’t an option to buy an existing business that you like, I recommend you test that with the seller of the business personally.
If your broker is telling you that seller financing isn’t an option to buy an existing business that you like, I recommend you test that with the seller of the business personally.
What is seller financing?
It’s when the seller of a business acts as your bank. More often than not, when somebody is selling their business, they expect to lend you up to 50% of the business value in the form of a note, carrying interest and being paid off through the cash-flows of the business over a period of five to seven years after the purchase of the business.
In his blog, business broker guru Richard Parker explains:
While the terms can vary including interest rates, length and percentage of the total deal being financed, a general rule is for the seller to carry thirty to fifty percent at current interest rates plus a few percentage points over three to seven years.
The dilemma for many buyers however is never getting to the point of presenting sellers with an offer because they are often stonewalled by brokers or the seller’s legal/financial representative, or family members trying to dissuade them from carrying a note.
I can certainly understand a seller’s trepidation, but the reality is that if they truly want to sell their business, they have to participate in the financing. End of story. Otherwise, their business will be another one that remains on the market forever.
–Richard Parker, author of How to Buy a Good Business at a Great Price
How common is seller financing?
Most sellers start out cold on the idea of seller financing because of the risk involved for them when it comes to the buyer actually paying them back for the loan, but it’s a great move for everybody involved when you consider the fact that this tool helps the seller attract potential buyers, and may even help the seller achieve a higher final price for his or her business. Seller financing can also help lead to a faster closing, which increases the probability of a transaction successfully closing.
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.
Why 2019 might be the best time in history to buy a new business
So if you’re considering a jump into entrepreneurship, -buying an existing small business is absolutely an option you should consider. In his article for business.com, Looking Ahead: Buying a Business in 2017, Bruce Hakutizwi states:
Buy A new business
Here is Why 2019 Might Be The Best Time
As we mentioned elsewhere, 2019 looks like it might shake out to be the best year in a decade to buy a business in the United States. There are a few big reasons for this:
Loans are accessible and still historically dirt-cheap.
First-time entrepreneurs have access to up to $5 million in SBA loans from the government to help finance a new business acquisition.
With small business owners set to skyrocket over the next 10 years, there’s rapidly increasing interest out there for buying and established, viable business.
New technology solutions continue to offer increasingly efficient ways to connect buyers and sellers of businesses and to identify the right professional for you to do so.
So if you’re considering a jump into entrepreneurship, -buying an existing small business is absolutely an option you should consider. In his article for business.com, Looking Ahead: Buying a Business in 2017, Bruce Hakutizwi states:
Depending on your business strategy, industry, location, and other factors, there are more reliable and willing funding opportunities available to entrepreneurs right now than ever before. Between low-interest traditional business loans, government grants and loans, and a striking volume of venture capital available from individual angel investors, large corporations, and established VC funds, it’s easier and faster than ever before to fund a promising new startup or the expansion of an existing business.
As opposed to the relative risk of a brand new startup, obtaining funds to purchase an already established and successful business is even easier. This is doubly true if you’re purchasing another business that naturally extends or expands your own existing company or expertise since you can likely prove to the lender you’re up to the task of making the acquisition profitable. -Bruce Hakutizwi.
Buying a new business can be an exciting, rewarding, and potentially life-changing experience for you and your family. Do your research before you choose any professional to help you with the process, and make sure you’re clear on expectations and compensation from the outset. And as always, we recommend you check the BizNexus Marketplace to help vet financial services professionals, and for any helpful reviews, ratings, or relevant content to help guide your way.
A few useful links if you’d like to dig deeper on the topic:
How to Buy an Existing Website: A Step-by-Step Guide. -Will Lipovsky
How to Find a Business Broker. -Entrepreneur
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.