Do you plan to buy a business?
Do you plan to buy a business? Does your action list include buying a business? It probably makes sense as the economy is getting stronger. If a business has been able to survive the Great Financial Crisis then it should be strong enough and indeed ready to grow as the economy strengthens. Plus there are many business owners that may have put off selling their business in the belief they would get a better price as the economy improves.
So if you plan to buy a business, the first question that comes to mind is “Where do I start?”
My first suggestion would be to understand your options. Most business buyers think they only have two options, start their own business or buy an existing business. In fact there are three options with the third option to buy the local rights to a franchise.
This is probably the hardest question for a new business owner to determine, that is, do they start their own business, do they buy an existing business or do they buy the local rights to a franchise.
Most buyers can quickly and easily eliminate one of the three options. Some buyers are willing to buy an existing business or would like to start their own. Some buyers have no interest in starting their own business because they simply do not have a product or service they think can be successful or if they came up with an idea whether it could be commercially successful. Other buyers have no interest in working in a franchise model.
Within each option there are pluses and minuses. For example, there are many different types of franchises available while starting a business is entirely on the owner while there are generally a limited number of businesses for sale; especially if the business buyer does not wish to move and wants a business close to where they live. Another example is training. If you start a business from scratch everything has to be built. However, if you buy an existing business a lot of the training may be in place or if you buy a franchise, that is, one of the main assets of the franchise model is that the training is highly developed and kept up to date which is a huge benefit to a new business owner.
What are my options?
From the research I’ve done I have been able to isolate and document 15 different criteria that are part of a new business owner’s decision making process which I have put into a PDF. If you want to look at this PDF so you can understand your options, you can download and review by clicking on the following link: Business Ownership – What Are My Options.
If you plan to buy an existing business, one of the first things a seller or their broker will do is require you to sign a Non Disclosure Agreement and provide a Personal Financial Statement. The Non Disclosure Agreement is your legally binding approval that you will not share any information about the business being for sale with anyone except your personal advisors such as accountant or attorney. The Personal Financial Statement shows the seller and his broker you have the financial resources to buy a business and if you need to borrow money to finance the deal, you have the financial resources to qualify for a loan.
Although it is not a requirement early in the process, if you do find a business you like, have an interest to buy it and will require some sort of finance, it’s a good idea to review your FICO score and credit report so you can advise the seller and lender your FICO score and ensure if there are errors on your credit report, you get them corrected. There is nothing worse than finding the right business, making an offer and find it will not be accepted because your credit report has problems and another buyer gets in ahead of you. Many buyers do not understand that a good business will attract many buyers and they are in a competitive situation trying to get the seller to accept their offer ahead of another.
If you find a business you like and the seller’s price seems too high a third party valuation may help you close the difference with the seller. If you find yourself in this type of negotiation with the seller, try to negotiate as many points as possible so if you get a third party valuation you are not wasting your time and money to find something else comes up that kills the deal. To help business buyers with this step, I am able to put together a 19 page Brokers Opinion of Value looking at the financial performance from tax returns and profit and loss statements from the business for the last 3 years and data with sales from the business in the same industry. If you want to see a sample report, click the following link: Sample Business Valuation.
The many steps to buy a business
There are many steps to buy a business as there are so many moving parts. These moving parts can include the lease, third party finance, verifying the representations of the seller, having the right set of legal documents, perhaps working with a franchisor and more. If you want to see a one page summary of the steps to sell a business, click the following link: The many steps to buy a business.
Buy your business from a position of strength. To do this, follow the motto of the Boy Scouts, that is, Be Prepared. If you are prepared you are able to respond and move quickly and positively.
Still need more information? If you would like to know more, you can buy a copy of my book, Successfully Buy Your Business by clicking the following link to my website: Successfully buy your business.
There are many steps to buy a business and they need to be organized in the right order. If you have questions or need additional information, use the following link – Send Email or give me a call on 916 570-2674.