Are you looking to become a first-time business owner? There are a couple of options available when choosing the right path for yourself. You can go the route of creating a startup company or buying an existing business.
If you decide to build a small business from the ground up, you will have to put in a lot of hard work. You will need to do market research, find reliable financing sources, and create marketing materials for starters.
Aside from the startup work having been completed upfront, deciding to purchase an existing company presents several other benefits to the buyer, which include:
- Existing cash flow
- Established customer base
- Rich supply network
- A business model to work upon
- Existing reputation
Additionally, it’s less risky than building a new business. However, to get the most bang for your buck, you will want to take your time choosing the right business for you.
Before you submit a letter of intent, you must take these three steps first.
3 Steps to Take Before Purchasing an Established Business
- Acquire Reports
Understanding the type of business you want to buy before signing an agreement is an essential step new owners must take. Request to see the current owner’s financial records, such as cash flow statements, balance sheets, and profitability reports. You may also want to see their current business plan and marketing strategies to see if you can improve upon them once you acquire the business. If they are hesitant to provide you with these documents, it could be a red flag.
- Request a Business Valuation
Determining the value of the business is your next best course of action. The business’s financials are not the only factors that go into the business’ market value. Other indicators like its track record with clients, the state of its reputation, and its social presence will influence the purchase price.
Statistics show that most businesses sell between 15 and 25 percent below the initial asking price. Have this in mind before presenting your proposal or offer for business acquisition.
- Determine Assets
One perk of buying an existing business is that some tangible and intangible assets come with the purchase. For brick and mortar businesses, this can mean equipment, supplies, and products. An online business might include intellectual property, stock images, and graphics.
Determining what assets are in the buyout should hold some weight in deciding your desired purchase price.
Buying an existing firm is one of the easiest ways to become an entrepreneur. It can require a lot of working capital upfront, but startup costs are nominal. It can certainly be overwhelming but do not shy away from researching the business you want to buy.
Brokers have the right expertise when it comes to negotiating purchase terms and conditions, facilitating financing, and coordinating a successful closing. If you think you’ve found the right business for you but are interested in assistance, enlist the help of your local business broker.
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