How to buy a business
How to Buy A Business: As a California business broker, people often ask me what is the first step I should take when I want pursue an acquisition. On this page, I will discuss some general steps that an individual should take if they are considering buying a small or medium- sized business.
#1 - GOALS
Identify your goals.Before you learn how to buy a business -Why do you want to buy a business? There are other ways to invest money. What end result do you desire. Write down the objectives that you wish to achieve and be specific. Many times when a buyer begins their search, they're amazed at the number and the variety of businesses that are on the market. Having clearly identified goals will help you refine your search and will help you know when you have found the right business.
Please note that different types of buyers will have different goals. A buyer seeking a business to operate on a full-time basis will have different goals and priorities than a buyer who is seeking to buy out a competitor. With that being said, here are some goals one should think about before they begin their search.
Identify the amount of income or discretionary earnings a business should generate that would be acceptable to you. As I've said throughout this web site, California business broker .com, at the end of day, buyers buy businesses for the income that that business generates. The first step you should take if you are buying a business is identifying how much income you will need to make to move forward on this venture.
Identify the geographic area in which you would like to buy a business. A very common scenario I see with buyers is they begin their search with a very narrow geographic area in mind. Then, after not finding what they're looking for, they expand their search outward until they begin to see businesses they are interested in. I generally recommend against this.
There are some businesses that just can't be relocated. If you do locate a business that can be relocated, you will have to factor in any additional costs that would be incurred by moving that business. I generally advise to identify a realistic geographic area and then stick to that area and wait for a business that meets your criteria to come on the market.
Identify the timeframe in which you would like to buy a business. If your goal is to buy a business and begin operating that as soon as possible, you will have to have your resources ready to go and be prepared to move on short notice.
Identify the industry or type of business that you are interested in. Most buyers seek a business in a field that they have some experience in. Lenders and sellers are often look at the buyer to verify that he or she can effectively run the business post sale.
If you are serious about buying a business, I would suggest that you take some time and research the different industries that you would be interested in pursuing. Buying a business is a serious decision and is not one without risk.
Having clearly identified goals will not only help your business broker or your team of advisers guide you to the most appropriate business, but it will also help you in your decision- making process when it is time to make the decision whether or not to move forward with a purchase.
How to Buy a Business #2 - RESOURCES
Identify your resources. To be able to effectively pursue a business acquisition, you need to have a good idea of what resources you have put to work towards this purpose. A big component is the amount of liquid capital that you have available to use for a down payment. Virtually every business that is bought is financed, but the down payments for businesses can be significant.
The amount of funds that a buyer can put toward the down payment will largely dictate the size of business that they will be able to purchase. Down payments for the purchase of a small or medium-sized business can range from 30 to 50 percent.
A buyer will also need funds set aside to use for operating capital once the business is purchased. Many businesses collect their receivables on a 30, 60, or even 90-day basis. If the business is sold as an asset sale, which many are, the receivables go with the seller. Therefore, a buyer may need asignificant amount of funds or credit in order to keep the product going out the door and help the business keep going until the business gets paid.
Your Resume.A potential business buyer should also note that the seller will be most interested in knowing if that buyer has the background and the ability to run the business that they are interested in buying. Sellers are often very concerned with whether or not the buyer will be able to run the business effectively. This is especially the case if the seller is carrying a note. The seller wants to be sure that they're going to get paid so a buyer should be prepared to make their case as to how they'll grow the business and how they'll run the business effectively.
Credit. Buyers need to have good credit. Virtually every business transaction is financed. Lenders look at the strength of the business and the strength of the buyer when they are considering making a loan. It may be smart to identify any potential credit issues ahead of time and to work to resolve those before pursuing any business venture. In addition to getting the loan for the business, a buyer will need to establish credit with vendors and suppliers after they own the new business.
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Would you like to speak to me an ask me your questions about how to buy a business ? Are you ready to pursue a business acquisition? Having a professional business broker on your team can make a lot of sense. If you are interested in a California Business contact me today to learn more about the services that I offer for business buyers.
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