How to Buy an Existing Business: The Ultimate Guide
Why should you buy an existing business?
Often, entrepreneurs want to start their own new businesses. However, this is not your only option. If you’re interested in taking over a particular type of business or don’t want to start a brand-new business from scratch, buying an existing business might be a good idea for you.
Buying an existing business can be less risky than starting a new one, even though there may be higher initial costs involved because it can start making money more quickly. To make sure you’re making the right choice, you can research the background and financial information of an existing company. Additionally, you still have the chance to rebrand an existing company. When you become the business’s owner, you have the authority to make important decisions that will steer it in a new direction.
How to buy a business
Here are seven steps you can take to get the process started if you’re ready to buy an existing company:
1. Pinpoint whats important to you
Take some time to consider what kind of business would suit you the best before you start looking for one to buy. Think about your objectives as well as the location, the travel, the hobbies, and other aspects of your lifestyle that are significant to you. Consider your experiences and skills that could help you succeed in a particular industry, as well as the type and size of business you would like to run.
For instance, you might be interested in purchasing a coffee shop if you enjoy drinking coffee and have previous experience working as a barista. Alternately, if you enjoy working in the retail sector and are interested in fashion, you might want to take over a nearby boutique.
2. Start researching businesses
Start looking into relevant businesses that you might be interested in owning after determining the business factors that are most important to you. You can search online for businesses that are for sale, or you can look locally and ask your contacts for recommendations. Even businesses that aren’t explicitly for sale can be enquired about. For instance, you could ask the owners of a favorite local restaurant if they would consider selling it to you if you were interested in buying and running it.
3. Form a team of advisers
Forming a team of financial advisers to review crucial financial data and assist you in adhering to legal requirements is a crucial step in the process of purchasing a business. Making the best financial decisions possible with the assistance of knowledgeable financial advisors can increase your chances of success as an entrepreneur and business owner.
Consider adding an attorney, a certified public accountant, and an insurance advisor to your team of advisors. You may also want to speak with a lender about your loan options if you need additional funding to purchase a business.
4. Do your due diligence
Once you’ve chosen the company you’re interested in purchasing and put together a knowledgeable team of advisors, it’s time to conduct your due diligence and carefully research the company. With the assistance of your advisors, conduct a review of the company’s financial records as part of your due diligence to assess the company’s financial health and the level of risk associated with purchasing it.
Additionally, you can go to the actual location of the company to speak with the employees and look around for any necessary maintenance or improvements you want to make. You can decide whether or not to proceed with the purchase by conducting a thorough investigation of the company.
5. Sign a letter of intent
Signing a letter of intent, a brief, non-binding contract that stops the seller of the business from haggling with other parties interested in buying it, is another crucial step in the process of purchasing a business. The letter of intent can make both you and the seller feel more at ease moving forward and negotiating the deal because it can include an anticipated closing date and other expectations of both parties. You can carry out more research into the business’s advantages and disadvantages after you’ve signed the letter of intent to help you come to a decision.
6. Negotiate the agreement
Once you’ve made up your mind to purchase the company, you can request that your lawyer draft a purchase agreement between you and the seller. Additionally, you can arrange a meeting with the vendor to discuss the terms of the sale and the purchase price. By haggling with the seller, you can make sure that your agreement is transparent and equitable for both parties. You could try to bargain the seller’s ideal purchase price down to a figure that is more in line with your budget, for instance, if it is too high for you to afford.
7. Close the deal
Closing the deal is the last step in the business acquisition process. Meet with the seller and your attorneys to exchange and sign all required closing documents in order to close the deal. During this meeting, you can also finalize the sale and pay the closing costs. When the deal is finalized, you will be recognized as the new owner of the current company.
What are the steps to buying an existing business?
- Step 1: Find a business to purchase.
- Step 2: Value the business.
- Step 3: Negotiate a purchase price.
- Step 4: Submit a Letter of Intent (LOI)
- Step 5: Complete due diligence.
- Step 6: Obtain financing.
- Close the transaction.
How do I buy a business with no money?
The SBA loan and seller financing are the two most common ways to purchase a business without having any of your own money. Depending on the type of business you are purchasing, there are additional options, such as obtaining an equipment loan. One of the best ways to continuously produce wealth is to own your own business.
How much does it cost to buy an existing business?
For the past four years, a business’s median sale price has ranged between $150,000 and $200,000. It slipped slightly from 2014 ($189,000) to 2015 ($185,000). BizBuySell claims that this is most likely because buyers paid less due to the marginally higher operating costs of a business in 2015.