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How To: Tips for Buying a Business

NEWS

How To: Tips for Buying a Business


Buying an existing business is a fantastic way to become a business owner. The main reason most people buy a business, rather than starting one, is for the established infrastructure and ongoing cash flow. People buy franchises for similar reasons – they usually come with supplier agreements and a proven system of what works and what doesn’t. You will need to do your research and conduct detailed due diligence. There’s every chance you’ll need to secure a business loan to pay the required lump sum for the business. Before you rush off and start looking for businesses, it’s important to take a step back and digest the insightful tips below.

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Understand That Buying Is Less Risky Than Starting From Scratch

Buying an existing business means receiving an operation that is already creating cash flow. To reduce your risk when trying to choose a business, start by asking yourself these simple questions:

What am I good at doing? What experience do I have? What is my work ethic? What do I enjoy doing?  Am I a people person, social person, or am I more introverted? Am I a leader, a doer, organiser, or do I need support being organised? Am I creative and innovative, or am I more mechanical and methodical? Take a personality test to learn more about yourself; maybe you will discover some things you didn’t know.

Develop Your Decision-Making Criteria 

Your decision-making criteria are the list of features and benefits that the business needs to offer you. Before any investment decision is made, you need to have established decision-making criteria.

When you think about it, you already have one. It is a combination of your values and your life and business experiences. The trouble is, it’s in the back of your mind, and it’s not very clear. The idea is to get all this information down on paper in a clear and concise format. This way, you can make a logical decision when the time is right. Click here to use our decision-making criteria.

Determine the Type of Life and Income You Want

When searching for the right business, start by determining the minimum amount of income you are willing to earn. If a business you are interested in cannot deliver that income, cross it off your list. Next, decide how much time you want to spend on the business. Narrow down your list even further by removing the businesses that cannot deliver the lifestyle that you want.

Get Close to a Business Broker

There are a lot of choices to face while deciding what business to buy. Business brokers know their market inside and out and offer professional insights to help you narrow the list down. They should guide you through the whole buying process.  They also have access to silent listings, a type of listing that has no marketing program and is only presented to suitable buyers.

Create a Dream Team 

Your business broker can recommend experts in law, business accounting, and finance to help ensure you get the best deal and the most efficient business transfer possible.

Conduct a Thorough and Objective Investigation

Once you have found a business you would like to buy, you must research important information about the business before starting negotiations. Be prepared to sign a confidentiality agreement, ensuring you will only use the information provided to decide if you want to purchase the business. Your Finn broker can help you to understand contracts and leases, financial statements, tax returns and other relevant documents used to operate the business.

Determine a Fair Price

Determining a price is the most emotionally charged part of the whole buying process. We will discuss how businesses are appraised in a later blog. For now, it’s important to note that the seller will have one idea of how much the business is worth, while you will typically have another. Many factors go into determining a price; usually, the party who is most prepared has the most leverage. A business broker will prepare a business profile and due diligence package for the business you are interested in buying, to help you determine a fair price.

Have a Plan

Since businesses already have an established brand and reputation, you must come to the table with a set plan to continue the success of the business. Demonstrate how you plan to grow the business by preparing ahead of time and maintaining your research. Developing a business plan once you have found your ideal business using our business profile and due diligence packs, can help you when applying for finance. It will assist you in preparing for taking over your business once purchased.

Buy at a Fair Price

Business appraisals are a mixture of art and science. While it might seem complicated, there are ways of estimating a fair price. If you would like an expert in your corner to help you accomplish this, then the Finn Buyers Agent Service will help you along the way. The Finn Buyers Agent Service will help you review the business information to highlight your negotiation opportunities. If you choose to go it alone, then this process could prove to be much more difficult.

Getting Finance

Use a professional commercial finance broker who will guide you through the financing process. They will prepare your application and find the best deal for you. Approaching your local bank directly about business finance can result in an unnecessary knock-back. It’s best to speak with a broker before you go to get funding from the major banks. Make sure you allow for a 20% drop in sales and have 30k minimum spare to cover any risks for cash flow while getting started in your new business.

Start the Transition Process Before You Take Over

To ensure a smooth transition, start preparing for the handover in advance. Take the time to talk to employees, customers and suppliers and verify you are properly trained in operating the business.