There are many advantages to buying an existing business. Many of you have the vision of being your own boss. You know making all of the important decisions while your employees do everything else. If that is your goal, buy a stock. Buying a company does require some heavy lifting, but when done properly, can be very rewarding.
Advantages of Buying an Existing Business
-
Immediate cash flow!
- Established customer base
- Trained employees
- Established suppliers and credit
- Existing licenses and permits
- Training by the seller
- Availability of owner financing
- Actual results rather than pro forma
If your path to owning a company is through acquiring an existing business, we have outlined the steps to get you going.
STEPS TO BUYING AN EXISTING BUSINESS
Initial consultation with your M&A Business Advisor
- Outline your buying objectives
- Identify your goals, interests, skills, and resources
Selection of businesses best suited for your needs
- A good business advisor will have a network to be able to provide you with a wide range of businesses for you to select from
Review business summary
- Basic information about the business
- Valuation of the business
Tours of selected businesses
- Tour the business to meet the seller and understand the complete business opportunity
- Always be accompanied by your Advisor.
Consultation with your M&A Business Advisor
- Discuss visited businesses as to your likes, dislikes, and concerns
- Review financial summaries of businesses toured that appealed to you
- Meeting/Zoom or Conference call with the Seller & Broker
- Ask probing questions
- Confirm that the business is right for you
Make a proposal with earnest money
- Generally 5% of the purchase price
- Earnest money held by an escrow company
- Contingencies and conditions in offer may include (as examples)
- Proof of sales and expenses
- Training period from the seller
- Covenant not to compete (time and area)
- Approval of Franchise Agreement
- Obtain an Adequate lease
- Approved of 3rd party financing, etc.
- Earnest money refunded to you if contingencies are not realized
- If you are satisfied with the business, your earnest money simply will become part of your initial investment
Due Diligence (in-depth inspection of the business)
- Review financial information provided by the Seller
- Check furniture, fixtures, and equipment (commonly referred to as “FF&E”)
- Remove contingencies and approve authorization to close
- Request to open an escrow, prepare documents and conduct searches
Inventory approved by Buyer and Seller
- Inventory is to be counted by the buyer and seller prior to closing
Closing - CONGRATULATIONS!
The most important factors in buying a business are the track record, management, customer base, and location. If you would like to learn more about the buying process or get started, please contact me here.