Monday September 20, 2021

updated - September 20, 2021 Monday EDT

Thinking of Buying a Business? Read This First!

Oct 05, 2020 10:08 AM EDT | By Staff Reporter
Thinking of Buying a Business? Read This First!
(Photo : pixabay)

If you do not want to start from scratch or do not have a business idea of your own, buying a business is a good way to become an entrepreneur. While it is true that buying a business can be much more expensive than starting a new one, there are some advantages to following this route. One, buying an existing business is less risky, and two, it is relatively easy to find financing to buy a business than it is to find financing to start from scratch. But, how do you go about buying a business?

Decide What Types of Businesses Appeal to You

Buying a business is a huge decision, so careful consideration is advised. Before you start looking at businesses, you need to first of all know what types of businesses would work well for you. Remember that if you choose the wrong type of business, it will be much harder to get invested in it, so it would be better to purchase one that you will enjoy growing and working on.

Some of the factors to consider include:

●      Size - Do you want a small business that you can grow yourself or would something bigger work better for you? Remember that a bigger business means more profit but a higher upfront purchase price.

●      Location - Are you open to moving or would you like a business that is located close to your home? You also have the option of not having a specific location but rather any businesses that will work well for you.

●      Lifestyle - Does the job require that you travel a lot? Would you like to have no fixed working hours? How hands-on do you want to be with the business?

●      Industry - What industries do you have experience in? What are you passionate about? What are your hobbies?

Look at Available Businesses

Now that you know what you want, it is time to start looking around. But before you go online to find a business to buy, ask around first. You may find friends and family members who have businesses they would like to sell. You may also know the owner of a business that interests you. Because of this relationship, you might get a better price for the business.

Next, you can move on to any business contacts you know. If you do not find a suitable opportunity there, you can move your search online.

Consider a Business Broker

If you are unable to find something by yourself, it is always a good idea to work with a business broker. They can help pre-screen businesses on your behalf, show you businesses that align with what you need but that you have not looked at, or even negotiate the terms of the purchase on your behalf.

The business broker will take a percentage of the purchase price, which means they get paid once they help you purchase a business and the sale is completed.

Do Your Due Diligence

Once you find a suitable business, it is understandable that you would want to purchase it right away, but you should slow down and do your due diligence. To help you do this, you could put together a team. The team should include an attorney and an independent business valuer.

Business valuers such as WA Business Valuations will go through the business, its earnings before tax and any expenses that are likely to come up in the future. They will then use a formula to calculate the business's projected income and finally take into account both tangible and intangible assets before coming up with a valuation. WA Business Valuations has a team with decades of experience to ensure you pay the right price for a business you are interested in.

You also need to hire an accountant to go through the company's financials to ensure everything is okay.

Get Funding

Most people will need some funding to purchase a business. Fortunately, there are lots of options available to budding entrepreneurs. Once you know how much you need, you can see if you can get seller financing. This is where the seller allows you to pay for the business over an agreed-upon period.

Angel investors and venture capital are also great options. Ideally, you want an angel investor or a venture capital firm that understands the type of business you are buying so they can help you steer it in the right direction.

As always, business loans are an option too. Lenders are always open to financing the purchase of existing businesses that have a good history, so ensure that your accountant did a good job when checking out the business's books and with the projected income.

All three of the above options come with their own pros and cons, so ensure you do your research so that you end up with the best option for your business.

Purchasing a business is an exciting prospect, but it is also a very delicate process. The most important part of this process is doing your due diligence to ensure you do not discover something wrong with the business once the sale is completed.

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