What to Look for When Buying a BusinessWhen planning to buy an existing business, you will want to look for a type of business that matches your experience and skills. Not only are you buying a business, but you are buying a lifestyle and a means of making a living.
What type of business is right for me?
Obviously, you will want to do some research on different types of businesses available before you make the purchase to see if it will meet your needs and fit into your lifestyle. One of the most common reasons business owners fail is because they get involved in an industry they know absolutely nothing about.
How to find the right business for sale
Ok, now you have decided which industry you feel most comfortable in. Now it is time to find the perfect business. There are many businesses for sale across the US. Finding the right one can many times be very challenging. We have found the best way to search for a business is have the business come to you. BusinessMart.com offers a free Business Buyer Membership. This free membership allows you to set up certain criteria such as type of business, location, asking price and many other factors. You can choose to have emails sent to you daily with only businesses that meet your exact criteria.
After you have chosen a business
You will want to investigate the financial stability of the business, including the location and customer base. It is advisable to be well versed on how to value a prospective purchase so you know if you're paying a fair price. You will also want to seek the advice of professionals, such as business brokers and/or accountants. They can warn you of any possible pitfalls.
Asset purchase or stock purchase
The buyer should also consider whether or not the purchase is strictly an asset purchase or includes stock as well. If you purchase the stock of an incorporated business, you may be in for some hidden surprises such as any pending lawsuits, hidden claims for back wages, or back taxes owed. Also, if you purchase the stock, you may not be entitled to a tax deduction for depreciation on existing equipment.
Something that can be looked into is seller financing. If the seller will finance the purchase of the business with a fairly low down payment, 20% or less, this indicates a high level of confidence not only in the business itself but in your role as the buyer.
You could also consider linking the purchase price to the retention of the current customer base. If you are purchasing a service related business, many times you are heavily relying on the existing customer base. Some deals are made in which the purchase price can be dropped if a certain percentage of customers are not retained over a particular period of time.
If the purchase price is based on customer retention, it can be quite valuable to also have an agreement in which the seller is available for a certain time period during the transition of the business to the new owner. Not only is there an incentive for the seller to remain in the picture, but this also affords the opportunity for the buyer to be personally introduced to clients and vendors.
This is just a basic overview of the business buying process. It is suggested you investigate every aspect of the business during your due diligence process. Due Diligence is probably the most critical stage in the buying process. Many prospective buyers incorrectly identify this period as strictly a financial review, but it goes far beyond that. Due Diligence encompasses a far greater project - that being the complete investigation and review of the business.
About the Author
BusinessMart.com has become the fastest growing business for sale search engine, helping buyers and sellers of small businesses and franchises. BusinessMart.com has many resources to help you on your journey to start your own business, sell your existing business or open a franchise. BusinessMart.com has thousands of businesses for sale in the US and Canada.
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