Anyone contemplating starting a new business inevitably bumps into this quandary: Should I start a brand new business? Should I buy an existing business? While there is no easy answer because a lot depends on your personal circumstances, how much cash is available, your goals, your family, perhaps timing – there is a general opinion that buying a business is a quicker path to success.
Why? If you purchase an established business ( brick and mortar type or online ventures), and you do your homework to make sure is a viable one (due diligence), it is relatively easier to take over, continue the operation, perhaps make some changes later, and go on your merry way. There is history. In contrast, starting from scratch is truly a challenge: there is funding, set up, strategy, initial operations and management, myriad details for which there are no precedents – there is no history. Lots of upfront research.
Some general advice for potential business buyers, collected from personal experience, people involved in business brokerage, internet sources and the BBF and IBBA sites and similar:
Define Your Goals and Criteria
- Clearly identify your business goals, including industry preferences, desired location, size, and budget.
- Create a set of criteria to narrow down your search and focus on suitable business opportunities.
- Define your purpose. Spend quality time stating why you are choosing to purchase a business.
Research Thoroughly
- Conduct extensive research on potential businesses of interest. Gather information about their financials, market position, competition, customer base, and growth potential.
- Verify the accuracy of the provided information and request additional data, if necessary.
Seek Professional Guidance
Business brokers list businesses like real estate brokers list properties. Most professional business brokers are licensed real estate brokers as well, since businesses are sometimes sold along with associated real property. Robert is a member of the Business Brokers Association of Florida (BBF) and the International Business Brokers Association, subscribing to a strict Code of Ethics. brokers also subscribe to a Code of Ethics.
- To properly complete the required research, it makes sense to engage the services of a reputable business broker who specializes in your industry of interest. A skilled broker can provide valuable insights, negotiate on your behalf, and guide you through the transaction process.
- Be ready to sign a Non Disclosure Agreement (NDA), where you agree to keep the identity of the business, its financials and other relevant information confidential.
- Also be ready to present a Personal Financial Statement to help the broker identify the businesses you are most likely to afford.
Perform Due Diligence
- Conduct thorough due diligence on the business you intend to purchase. Review financial statements, tax records, legal agreements, customer contracts, and any other relevant documents. Seek assistance from professionals such as accountants and lawyers to ensure a comprehensive evaluation. Here at Business Broker Advantage, it just happens that Robert Melo has owned companies that provide accounting, tax preparation and payroll services, so we are uniquely positioned to support potential buyers.
Evaluate Financials
- Analyze the financial performance of the business, including revenue, expenses, profitability, and cash flow. Actual owners’ cash benefit is crucial information.
- Look for any potential red flags, such as inconsistent financials, declining revenues, or excessive reliance on a single customer or supplier.
Negotiate Fairly
- Engage in negotiations with the seller to reach a fair purchase price and agree on favorable terms and conditions. Your selected business broker is very valuable at this stage.
- Be prepared to compromise, but also advocate for your interests and seek professional advice when necessary.
Secure Financing
- Determine your financing options and secure the necessary funding for the business acquisition. Identify early on if seller financing is available. This could be a significant factor.
- Research SBA loans, private financing, or seller financing, and carefully consider the terms, interest rates, and repayment schedule.
Consider Post-Purchase Support
- Evaluate the availability of post-purchase support from the seller to assist with the transition and ensure a smooth handover, including training, knowledge transfer, or ongoing mentorship, if applicable.
Engage Professional Advisors
- Collaborate with professionals such as accountants and lawyers throughout the transaction process. They can provide guidance on legal matters, tax implications, and financial analysis. Typically an attorney is involved in the closing transaction.
Trust Your Instincts
- While data and analysis are crucial, trust your instincts and intuition when making the final decision. Ensure the business aligns with your long-term goals and personal aspirations.
Remember, engaging in a business broker transaction requires careful consideration, thorough research, and professional guidance. By following these practical tips, you can increase your chances of making a successful and informed business purchase. While there is no crystal ball, the better prepared you are, the better the outcome will be.