Buying a business is a responsible step, which requires serious research and time commitment. While outsourcing the task to a business broker can seem a good way out, it doesn’t mean you can separate yourself from the process.
More than 10,000 small businesses are sold every year. The majority of them are “healthy”. How can you make sure you are getting the best deal?
Utter involvement of the buyer can make the process simpler, faster, and more efficient. Before diving into the sea of business buying nuances, it’s important to learn a little about the basic stages. We asked Orlando based business broker Cress V. Diglio to explain the process of buying a business in simple terms.
1. Deciding What You Need
The biggest problem people face when buying a business is failing to identify their needs and goals. What are you looking for? Think about the following parameters.
Location. Do you need something close to home? Are you ready to move to take care of your new business? Is the business in high demand in its current location or does it need moving?
Size. Are you ready to manage a medium-sized business or a large enterprise? Or maybe you want a small family business to start with? Bigger businesses are more expensive and harder to run, but they bring bigger profits.
Industry. What industry are you looking for? What experience do you have with certain industries? How willing are you to learn about a completely new industry?
Operation. How much time are you planning to spend on your business? Are you ready to devote your life to it? Or maybe you want additional profit without too much hassle? The output and profits depend on your choice.
2. Surveying The Market
Once you know approximately what you need, it’s time to go to the market and find out if similar businesses are on sale.
Googling and reading newspapers is the last resort. Start by talking to family, friends, and co-workers. If you can find an acquaintance selling a business, it could be an excellent opportunity. The more you know about a business, the easier it will be to run it.
If there is a business you want to buy, don’t hesitate to talk to the owner. Who knows? Maybe it’s on sale.
3. Hiring A Business Broker
Buying a business is a hassle that involves plenty of paperwork, substantial market knowledge, and tiring negotiations. A business broker can do all of the above for you, keeping your involvement to a minimum.
However, the business broker charges about 10 percent of the deal price for the services. If you want to save money on a business broker, you have to be ready to spend a substantial amount of time on research.
Brokers only get paid when the deal is over. So they are likely to rush into an appealing sale. It’s up to you to be careful about not being pushed toward a wrong decision.
4. Exploring The Sales Agreement
The sales agreement is the most important document for buying a business. A business broker or a seller already have drafts for you to go over. Don’t rush when dealing with the agreement. It’s reasonable to take days or even weeks to ensure you aren’t being fooled.
You may want to take advantage of an acquisition attorney’s services draft your own sales agreement.
Make sure you understand the agreement and agree with all points before signing. If something seems off, cancel or postpone the deal.
5. Looking At The Alternatives
When you are ready to buy a business, take a break to look at the alternatives. In the majority of cases, you can find two or three options to consider. Allow yourself a day or two to think and make sure you are making the right decision.
It’s always a good idea to delegate the businesses buying process to a professional. However, it’s up to the potential business owner to control every step of the process.