If you are thinking about becoming an entrepreneur, there are many different options that are open to you. One such option is buying a business that is already in existence. Since most new businesses fail within the first two years, buying an existing business can be a great idea. Here are some of the things that you should know about how to buy an existing business.
Seek Help From a Business Broker
If you have never purchased an existing business before, it may be a good idea to visit a business broker. A business broker is a real estate agent for businesses. Some attorneys specialize in business brokerage. There a few different reasons to think about using a business broker. One of the main reasons is because they may be able to help you find the right business to buy. Another one of the reasons to think about using a business broker is because they deal with this on a regular basis and may be able to help you with the ins and outs of buying a business.
Do a Lot of Research on the Business
Before making the decision to buy an existing business, it is important to do a decent amount of research on the business. One of the most important things that you will want to do is look at the finances from the last three to five years. This will help give you a good idea of what the earning potential of the business is. If you are planning to buy an existing business in a town that you are not familiar with, it is a good idea to find out what people think about it. You wouldn’t want to buy a pizzeria that is known to have the lousiest pizza in town or a nail salon that has been known to cause fungus for its clients.
Seek Financing and Make an Offer
Unless you are able to pay for the business with upfront cash, you will need to get financing to buy the business. A loan from the Small Business Administration (SBA) is the easiest way. The next thing that you will need to do is write a letter of intent to purchase a business. At this point, it is a good idea to seek the help of an attorney, if you have not already. You will need to come up with a purchase agreement. This is when you will make your offer.
To buy an existing business, you will also need to determine if you want to purchase the balance sheet, which includes both assets and liabilities, or just the assets. Opting for only the assets, which allows the current business owner to pay off the liabilities, is usually the best way to go. Having an attorney read everything that you need to know before dotting your i’s and crossing your t’s is a very good idea though.
Buying an already existing business can seem somewhat challenging, but it is important to keep in mind that it can be easier than beginning your own business. Remember that there are other things that you are going to need to think about, such as getting in touch with the landlord, if the property is rented. With the right existing business, however, your career as an entrepreneur can really be off to a great start.
