What Should You Consider While Taking An Existing Business?
Getting an existing business is a chance that doesn’t come frequently. It would be good to buy such a business if you don’t have an idea to implement or find it a hassle to establish one.
When you want to buy an existing business, it will cost you a higher upfront cost. The good thing, you don’t have a higher risk than you can experience when starting a new business from scratch. For instance, when starting out in the music industry SoundCloud is a great platform to use. For your marketing campaign here you are going to need some SoundCloud likes. Where to get the likes from is the question that you need to figure out and invest in.
In such a business, you should be concerned about it financially. This is where you have to look at its actual profit and loss the business experiences through the records. That gives you a chance to have an understanding of its sales.
There are countless benefits of buying an existing business. Let’s dive into some of the factors to consider before purchasing an existing business:
- Decide on what you want
If you want to buy a business, this is a significant decision you can make. It is something that can impact your life forever.
The first thing to do is to know the kind of business you would like to buy. When doing your research, consider these factors too:
- Location
The location of the business is a significant factor. Ask yourself whether you are ready to move to another location or need a business close to your home. Besides, you may also want a business that’s not located in a specific location.
In either way, remember that where the business is located affects the taxes, labor costs, and other financials, which may change your bottom line.
- Industry
The other factor is the industry of the business. Perhaps you want a business you are experienced or passionate about.
- Size
Another significant factor is the size of the business. Do you want a small or large bustling enterprise? If you buy a large business it means that you will make huge profits. However, this may also cost you a higher purchase price, making the transition a hassle.
- Lifestyle
If you are concerned about your lifestyle, you should consider a business that involves lots of traveling. Consider whether you can work odd hours or plan to stick to the normal nine-to-five hours.
If you become the owner of the business, you will be a great determinant. You, therefore, have to think before picking a job that sometimes involves emergency phone calls.
- Research for available businesses
The other step after knowing the kind of business and where it should be based is to start looking for one. You have to search for an existing business that’s on sale. However, this may not be the right moment for you to start searching.
Start with where you are based. Perhaps, you have a friend who launched an app and wants to move into a new project. You could also be working in a small business where the owners probably feel it’s time to sell it. And if you know any business you wish to own, there could be no harm to ask about the business.
If you could not find one in your area as you expected, move to the internet to research. However, you should be careful because not everything you find online is legit. You are likely to encounter countless bad deals in your search process.
- Work with a business broker
There are times that you desperately need a business to buy but not found one. After doing your research but not finding a business you may want to run, you should probably hire a business broker. A broker can help you pinpoint the areas you find interesting, prescreen businesses for you and even negotiate the terms of your business purchase.
A business broker acts like a real estate agent. So, you will be charged a commission of the business you purchase, which could be probably 5% to 10% of the price you pay. You can only pay after paying for the business you will buy. Moreover, you have to be cautious with the existing business you buy with the help of a broker. It may be worth the cost, but you should not be pushed to end up making a hasty decision.
Brokers may come in various forms. In our earlier example of SoundCloud likes we mentioned figuring out the ways to get those. Third party social media platforms are the useful alternatives here.
- Complete your due diligence
If you find a good matching business, as a true entrepreneur, you may find it worth buying it immediately. Don’t get too excited; you have to slow down and do thorough homework. A business that may look good when you see it could be having negative issues hidden underneath. These could be the issues that are forcing the owner to sell it.
Before you can proceed, assemble your acquisition team. This will be essential when not working with a broker. You should hire an acquisition attorney and a business valuation firm who can help to determine its health status and value.
Business valuation should be performed to determine how much that business is worth. Remember that the current owner of the business’s expertise and connections could affect the value of the business.
A professional accountant could be useful in helping you evaluate the financials of the business carefully. Such an expert ensures everything is up to date and everything recorded is clear. After buying a business, you have to take a tremendous liability for things that happened before purchasing it. You should not leave your business up to chance.
- You should acquire the necessary funding
There are numerous benefits of purchasing an existing business, but that could be an expensive option. Unless you have a financial backer or independently wealthy, you may need funding.
Once you settle with the seller of the business on the purchase price and the amount of finding you want, you may consider getting money from various sources. You can choose to finance the business completely. Another option is seller financing, where the seller will allow you to continue making payments over time while purchasing the business. Other options could be getting a loan or an angel investor.
Each of these financing options will have pros and cons. Take time to research to come up with an informed decision. You can get help from an independent financial advisor.
