Buying a Business

 

Buying a business is great. There are no startup risks; someone else did that for you. Customers have already been acquired. A big plus. The best part is, the most businesses that are for sale are profitable businesses, which means that you can take over an operation and immediately start putting money in your pocket. This article will examine what to expect as you buy an existing business. This is a very complicated transaction, and is very similar to buying a piece of real estate. There are many things for you to consider, and this article intends to provide you with a brief overview of the process.

 

First, of course, the legal disclaimer

 

Please note that the information in this article is not to be used as consulting, accounting, or legal advice. The following information is provided with the understanding that this article is not a substitute for professional advice, and is merely for informational purposes. TheFinanceResource.com is not responsible for the use of any information contained below or for the factual accuracy of any statements made below.

 

The Article

 

As stated above, one of the best ways to reduce the risk of owning your own business is to own one that is currently profitable and has a market share. However, for this, you will pay a price. This price is determined by the multiple of earnings that you will pay for the business.

 

When you decide to buy a business, you must first decide the type and industry that interests you. There are many different ways to determine which industry is a good fit, but for the sake of brevity we will assume that you have a business in mind, and are ready to make an offer.

 

Once you contact the owner or the owner’s business broker, you will be made to sign a confidentiality agreement, which will provide legal assurance that you will not discuss or make public any information you find about the business as you examine it. The examination period is called due diligence, and once you submit an offer and are deemed a serious buyer, you will be given two weeks to a month to examine the past financial statements and operating history of the business. Some owners will allow you to speak with employees and inspect premises. At this time, you should have an attorney and an accountant working closely with you to ensure that everything that the business owner provides you with is accurate and honest information. Your attorney and CPA will assist you in determining that everything is in order.

 

Once this has occurred, you should make the decision whether or not to buy the business. At this point, you will have probably submitted a preliminary offer, and now it is time to begin negotiation. From here, you, your attorney, your CPA, his business broker, his CPA, and his lawyer will begin to get to a fair price. Although that this seems daunting, it really doesn’t take too much time.

 

One thing that you should keep in mind throughout the process is how you intend to pay for the business. Are you going to pay cash in full, or are you going to require financing? Most likely, you will need some sort of financing to complete the sale. Many business owners will carry back a note against the business to be paid back over a number of years. These notes are usually for two to five years. The size of the note depends on many things including your financial stability and ability to continue to successfully run the business once you acquire it. Most seller financings range from 20% to 50% of the total transaction. Typically, if the business is highly specialized, you will receive more financing as you will be required to have certain licensure or experience.

 

Once financing is in place, and the final offer has been accepted, it is time to close the transaction. Your attorney and the business owner’s attorney will draft a contract and the deal will close. If a business broker was involved in the transaction, he or she will be paid their commission at the closing as well. And then the business is yours.

 

In most cases, the owner will stay with you for a period of time until the transitional period is complete. The transition period includes meeting key customers, acquainting yourself with the operations of the business, and working closely with the current employees. Owners that provided you with financing will work diligently to make sure that you will successfully run the business, as they are depending on you to repay the debt they are holding. In some rare instances, owners will stay on for an extended period with a consulting contract.

 

In conclusion, owning a business is a very exciting opportunity to take control of something that you can instantly start to make money with. However, there are many issues that you will need to face as you purchase a business, and you should always hire the proper counsel to guide you through the process.