6 Steps to Buying a Business
Step 1: Decide When and What to Buy
The decision to begin the process of buying a business is one of the biggest and best choices you could ever make. After all, you are making a move to invest in yourself and have more control over your income and lifestyle for you and your family. The key to finding the right business is to take adequate time to think about what kind of business you want. Some steps to buying a business and key factors that can influence this are:
- Business management experience
- Your personal interests
- Your contacts and business network
- Goals (what you’re looking to get out of the business)
Be sure to discuss the idea with those who will be directly involved, such as your spouse and immediate family, to make sure everything is out in the open and all are on the same sheet of music. Remember, even though this may be your business, they’re in it, too.
Step 2: Decide on the Size of the Business You Want to Buy
After you have determined the type of business you would be happy owning, the next step is to look for specific businesses that are a manageable size for you and are within your price range. It’s really important to keep focused on your goals during this stage so you can make decisions that are right for you over the long term. On the financial side, it’s generally easier to get financing to buy an existing business than to start a new one. The financial industry feels more comfortable dealing with a business that has a proven track record.
Step 3: The Hunt
There are a number of online sources that list businesses for sale that you should monitor. At this point it is also helpful to determine several “must haves” to help focus your search. By sharing your criteria and goals with your BEACON Advisor, he or she can assist you by reviewing our listings and extensive network of business owners to find a good match.
Step 4: Learning the Business’ “Story”
Once you find an interesting possibility, it’s time to gather preliminary information on the business. In preparation for this you should write down some questions that you feel will assist you in analyzing the business.
At this stage there will be limited information regarding the business, but at least you will be able to determine if it is a business that interests you. If so, you should schedule a meeting or call the broker handling the transaction. They will be able to tell you about the business and answer preliminary questions so you can determine if you want to take it to the next step.
Step 5: Making an Offer & Due Diligence
It’s time to determine what you feel the business is worth and make an offer. There is typically some negotiation involved between the buyer and seller, so don’t be alarmed by this. Once you and the seller reach an agreement, a contract is prepared that will outline your deal terms and any contingencies that may be included. The due diligence stage is a very critical step, because there’s no such thing as a sure thing. If you’re not careful, you could get stuck with obsolete inventory, uncooperative employees or outdated distribution methods. At this stage you will have an opportunity to review the financial statements, customer records, lease agreements, contracts, and all material items that affect the operation and management of the business. This is also your chance to meet the seller, who will explain the nuances of the business. It’s a perfect opportunity for you to ask any questions you feel are important to gaining an understanding of the business, especially things that can’t be measured, like employee morale, daily workload, customer interactions, and the like.
Step 6: Closing & Celebration!
During the due diligence you will be arranging financing (if needed) and working out the transition with the owner. At this point all of the documents are reviewed and submitted to the escrow office for your signature. Congratulations — you’re a business owner!