Are you interested in running your own business? Sometimes it may be easier to buy an existing business than to start one from scratch. This way, you’ll end up a business owner much faster because everything is set up for you. However, there are some aspects you’ll need to consider before making the purchase. This guide will give you detailed information about buying a business and what you need to know before closing the deal.
Are you really ready to own and run a business?
Business ownership is not an easy thing, as a business won’t run on its own, even if it ready-made. To make a business profitable, you will need to invest time and effort into it. Besides this, you need to be a good time and resource manager.
In other words, you will have to work effectively, without expecting overnight profits. At first, you will have to be patient and invest more than enjoying gains. But, in time, if your management plan is good, the profit won’t fail to appear.
Which option is best for you: a franchise or an independent business?
Each of these options has advantages and disadvantages. So, it is worth knowing both situations and choose the one that suits you best. An independent business is privately owned and free from any control coming from outside the company.
A franchise, on the other hand, means that you’ll get the right to use a company’s name, brand, products, and services to create and run a business. Besides, franchises are not limited to one industry and the choice of the type will mainly depend on your preferences. Your dedication toward education could find fulfillment in learning franchises, fostering knowledge and growth, while your interest in healthcare might align perfectly with pharmacy franchises. It’s like picking the best path that matches what you enjoy and what makes sense for you financially.
Independent businesses give you the freedom to make decisions on your own, while franchises may provide well-established brands that are known on the market.
The level of independents regarding decision-making processes may be lower in the case of franchises, but they enjoy a higher degree of security than most independent businesses. So, you’ll have to weigh all these and see which option suits you best.
Get to know the business well
Never purchase something you don’t know or don’t understand. Research is a must before buying a business because you can end up head over heels in something you can’t control. So, if you find a business that is interesting for you, do proper research before deciding whether it is worth buying it. Need to know whether you’ll be up to the challenge and run that business for profit. What details to look for when researching a business?
See what it is needed to properly run that type of business. Also, find out the operating costs of such a business and, of course, check out the weak spots and strengths of the business. It will be useful to know what you can use in your favor and what to watch out for.
Don’t skip due diligence
Due diligence is more than just seeing what a business is about. You need to check and see if the business is also a good investment. It’s not safe to buy a business that has a lot of debt or serious legal issues that will consume more resources than those produced. This is a step that takes place after you reached common grounds with the seller of the business, but before the deal is actually closed.
So, if you think that a business is right for you and the terms of the deal are set on both sides, it’s time for due diligence. This way, you take precaution methods, making sure you won’t spend your funds on a “black hole” that will consume everything it can get its hands on. During due diligence, you should check financial aspects, legal status, and check for any lawsuits that are unsettled.
Check the value of the business
Just like when you’re buying anything else, you should check the market and see what’s the value of similar businesses. There are a lot of different businesses listed for sale, but the value placed on them might be wrong. Try to find the same kind of businesses and see their selling price to have an idea of this aspect.
Of course, the selling price of a particular business may not entirely reflect the current value of the business you are about to purchase. The assets of the business, intellectual property and capitalized future earnings could add to its value. But, checking out the approximate market value of a property will give you a better view of what to expect.
Place an offer for the business
If you made it so far without any major problems and you’ve made up your mind to buy the business, it’s time to make an offer. Just like other properties, businesses are put up for a price. But this doesn’t mean you can’t negotiate.
Everything can be negotiated, so it’s time to start thinking like a negotiator. You will have to decide the maximum amount of money you are willing to pay for the business. Of course, you won’t throw this in the game right from the start.
Give yourself some room to move, so start with the lowest sum possible. When you choose the lowest sum, make sure it is a reasonable number so that the owner of the business is willing to negotiate with you. The seller will give you a price, but you should not settle for it. In other words, you need to be prepared to play the negotiation game.
Do you need any financing?
While the negotiations take place or even before placing an order for the business, you need to check out your options when it comes to funds.
You may need to borrow some money if you don’t have enough. If you do, then you’re among the few that are very lucky and you can skip this part. But if you don’t, seeing just how much you can stretch is recommended. At this stage, you should know an estimated value of the business and the maximum sum you are willing to pay for it.
So, if you need to get additional funds, it’s time to weigh your options. Talk to family, friends, potential business partners, banks, and other financial institutions. See how much you can borrow, to see how much you’re capable of spending. As a valuable tip, never take more than you can handle.
