For years, you have considered becoming a business owner. Now, an opportunity has surfaced. A company that appears to be an ideal fit is up for sale.
Purchasing an existing business is an easy way to get into the market without having to toil as a start-up owner. However, expect to face challenges. The journey in becoming a business owner may prove complicated and arduous.
Identify assets and value
Here are some of the important steps to complete when considering buying a business:
- Determine the profits: If possible, review records from the past three years of the company. Make careful attention regarding any swings in profits as well as the company’s recent cash flow. You also must consider profit potential.
- Review the company’s budgets: This includes the company’s overall budget as well as budgets for each department. Determine areas that could use some belt-tightening in reducing overhead and operating expenses.
- Identify assets: These include the hard assets — more easily identifiable – such as buildings, real estate, equipment, cash, securities and contracts. In addition, there are intangible assets such as key executives and managers, brands, goodwill (reputation), patents and trademarks.
- Verify the business’s value: Do this by reviewing previous profit performances. However, this is only part of the formula. You also must determine the amount of time you will need to generate profits.
- Seek ways to retain essential personnel: If you want to keep certain employees aboard, negotiate agreements with them.
- Prepare a purchase offer: Be thorough, covering businesses assets, inventory and receivables. Make sure to include a non-compete clause that prevents the soon-to-be-former owner from starting another business within your region. The purchase offer should include the price, payment terms, whether owner financing is an option and sale date.
Following a detailed plan will help you determine whether a business is just the right fit.
Getting off to the right start
Anyone considering becoming a business owner should be applauded for their effort to take on risk and drive toward success. This includes the people considering buying a business. As long as they take the right steps in weighing that risk and reward, they are off to a solid start.