Buy a Business Tutorial
Do you dream of owning your own business? Buying a business can be a complex process, from identifying the right opportunity to managing the details for a smooth ownership transfer.
Although no business is “perfect,” a business broker understands the importance of finding one that aligns with your needs, skills, and lifestyle. With access to a range of options, a broker provides the expertise to guide you through every step. Below is some useful information to help you decide if buying a business is the right choice for you.
For First Time Business Buyers
Starting your own business is a significant step, often filled with uncertainty and fear. Nearly 90% of people who purchase a small business have never owned one before, and many end up buying a business different from what they originally intended. These buyers explored the market and found a business that better suited them, often with the seller financing the purchase.
As you begin your search, remember that owning a business is not just a job—it’s a lifestyle change, and in many cases, a major one. You’ll likely work longer hours, make all the decisions, and take on a wide range of responsibilities. In essence, you’ll be doing everything from running the business to handling tasks like cleaning and maintenance.
For investors from countries with valid treaties with the United States, you might qualify for an E-2 visa when you purchase a business. If you are an investor who wants to invest or begin a new commercial enterprise to generate jobs in specific unemployment areas, you might qualify for an EB-5 visa. GBB will provide you with the assistance and resources necessary to understand your options and find you the business that meets your goals.
Most buyers are seeking to obtain the following when considering the purchase of a business:
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Income
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Flexibility
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Control of own destiny
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Recognition
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Security
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Status
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Build Equity
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Create a Legacy
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Work your own hours
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Visa Qualification
What should you look for when considering a business to purchase?
Get the Basic Facts – It is vital that you use the services of a fully experienced and professional Business Broker. GBB will meet with you to undersand your goals and desires and then we assist you in indentifying the business or businesses that meet your needs. At GBB we have an extensive network of thousands of sellers seeking buyers like yourself. Our job is to match your goals to theirs, and often at no cost to you.
Once you purchase your chosen business, if requested, we will continue to work with you in organizing and arranging your business to achieve optimum profitability. We work with superb professionals such as Accountants, business analysts and consultants, and attorneys all at your disposal to ensure you achieve exactly what you want in the most cost effective and legal manner possible.
The Bottom Line
Starting your own business is daunting and risky, requiring a leap of faith. You’ll work hard, make tough decisions, and take on many roles. But if independence and control matter, business ownership is for you. Most owners wouldn’t go back to being an employee.
Do you have reasonable expectations?
Buying a business with significant cash flow for $100 isn’t realistic. Sellers often finance, but they won’t give away their business. Many have spent years building it and view it as a major asset.
Can you make the “leap of faith” necessary to buy a business?
Many prospective buyers back out after doing the research due to lack of courage. If you’re unsure about investing and running the business, reconsider whether ownership is the right path for you.
Do you need a guarantee?
If you’re looking for a guarantee, business ownership isn’t for you. Financials and records show history, not future success. You must focus on how you can improve the business—its future depends on you.
Most buyers are seeking to obtain the following when considering the purchase of a business:
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For Business Buyers?Assess your readiness for business ownership.Buying a business requires careful consideration and preparation. Evaluate your reasons, financial readiness, and willingness to take risks before proceeding.
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How long have you been thinking about it?Determine if you're ready to commit to owning a business.Many people consider buying a business but hesitate to commit. The longer you wait, the less likely you are to take the plunge.
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What is your time frame?Plan your timeline and prepare accordingly.Start educating yourself if buying is in your future, but avoid searching for businesses too far in advance as they may not be available later.
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What is your primary reason?Identify your motivation for owning a business.Understand why you want to own a business—whether to escape the corporate world, address unemployment, or pursue financial independence.
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Are you willing to invest your assets?Evaluate your financial readiness for ownership.Owning a business requires significant financial risk. Ensure you’re prepared for the commitment.
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Is your family supportive?Ensure your family is aligned with your decision.Family support is critical, especially from a spouse, as business ownership can be time-intensive.
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Are you open to different opportunities?Keep an open mind when exploring opportunities.Being flexible in choosing a business increases your chances of finding a suitable option.
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Do you have reasonable expectations?Set achievable goals for your business purchase.Have realistic expectations about pricing and the seller’s willingness to assist in financing.
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Can you take the leap of faith?Be ready to commit fully to owning a business.Be prepared to act when the time comes. If you can’t part with your money or take responsibility, business ownership might not be for you.
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Do you need a guarantee?Understand the risks and uncertainties of business ownership.No business comes with a guarantee. Financial history matters, but your ability to manage and improve the business will determine its success.
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Get the Basic Facts about the businessLearn the essential financial details before moving forward.Get preliminary information on price, terms, income, cash flow, and general location. Focus on the cash necessary to buy the business and ensure it meets your financial needs. Most businesses are financed by the seller, and prices are often negotiable, typically selling for 15%-25% less than the asking price.
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Visit the BusinessInspect the location to ensure it meets your standards.Visit the business to evaluate the location and appearance. Pretend to be a customer, and decide if the physical space is appealing before engaging with the seller.
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Get Questions AnsweredClarify essential details with the seller before proceeding.Ask key questions about the business, such as rent, lease terms, and sales history. Confirm the information provided without delving into a full audit of records, which happens during due diligence.
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Make an OfferSubmit your offer and negotiate terms before deeper investigation.Make an offer subject to verification of all provided information. The goal is to see if the seller agrees to your terms and conditions before investing in further due diligence.
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Due DiligenceValidate all critical information before finalizing the purchase.Begin due diligence after reaching an agreement with the seller. Verify all details and address contingencies.
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Are you independent enough?Assess your ability to handle the demands of leadership.Business ownership demands making and recovering from decisions. If decision-making isn’t your strength, consider whether ownership suits you.
For Business Buyers?
The next step to buying your own business is to make sure it is the right move for you and your family. Owning one’s own business is still very much “the great American dream,” but it’s not for everybody.
How long have you been thinking about it?
Many people are interested in buying their own business, but are not willing to make the commitment necessary to move forward. They continue to look just like those who continue to look at new and expensive automobiles, but will never spend the money necessary to buy. One veteran observer has said that the longer you look, the less likely you are to buy.
What is your time frame?
If you’re thinking of buying a business in two years, it’s good to start your education. BizBuySell is a good place to start. Keep in mind that it really doesn’t make much sense to start your search now, since any business you find now will have been sold by the time you are ready to buy. It’s important, however, to arm yourself with all of the information and education available before you begin the search.
What is your primary reason?
If you are not motivated to buy a business, you won’t. You must go into business for yourself for the right reasons. If you’re tired of the corporate world, just have a “job-job,” or perhaps even a dead-end job, then business ownership may be right for you. Certainly if you’re unemployed or being transferred to a place where you don’t want to go – buying your own business can be a viable solution.
Are you willing to invest your assets?
Buying your own business requires a serious financial investment. If you’re the type who does not want risk, you might want to rethink owning your own business. It is not for the faint-hearted.
Is your family supportive?
If your family, especially a spouse, is not behind you 100 percent, then you should think twice about business ownership. It’s very important that you have the support of your spouse. He or she has to understand that running a business can be time-consuming. On the plus side, however, many businesses do allow for flexibility so you can attend the afternoon little league game.
Are you open to different opportunities?
It’s best if you are open-minded, especially if you are a first-time buyer. There are many types of businesses available, and you don’t want to limit your choices. You should be looking for a business that will provide the income you need (or ability to do so), that you can afford, that has numbers that work, and, most importantly, that you can see yourself running.
Do you have reasonable expectations?
Do you think that you can buy a business with lots of cash flow for $100? It’s important that you have realistic expectations about what your money will buy. Many sellers are willing to assist in financing the sale of their business, but remember, they’re not going to give it away. Keep in mind that many business owners have spent years building their business, and it may represent the biggest financial asset they have. They’re not going to just hand it over to you.
Can you take the leap of faith?
Many prospective business owners do their homework, do everything necessary to begin the purchase process, and then back out of the transaction. They just don’t have the courage to go forward. There is nothing wrong with that; not everyone should buy and own their own business. However, if you don’t think you can part with your money and take over operating the business on your own, you may want to take a second look at business ownership.
Do you need a guarantee?
If you are looking for a guarantee or a sure thing, then business ownership is not for you. You can and should look at all of the financials, tax returns, and all of the books and records. Remember, however, that they all represent history. You can’t buy anyone else’s history. A new owner makes changes, no matter how subtle. Their management style is different, and times change. You have to look at the business with the attitude of how you can improve things. The financial history of the business is certainly important, but it does not guarantee the future of the business – you do.
Get the Basic Facts about the business
Get preliminary information on price, terms, income, cash flow, and general location. There is no point in continuing the buying process if the amount of cash necessary to buy the business is more than you are willing to invest.
At this point, don’t worry about the full price. It’s important, but the key factor is the amount of cash that is necessary to buy the business. There is very little outside financing available such as banks, etc., for those who are purchasing businesses. The great majority of business purchases are financed by the seller.
This is why the amount you are willing to invest is a key issue. Also, the business has to be able to meet your basic financial needs. You always expect a business to improve under your ownership, but you have to be able to meet your living expenses as well as meet the debt service of the business.
It is also important to remember that almost all purchase prices and down payments are negotiable. In fact, businesses generally sell for about 15 percent to 25 percent less than the original asking price. There is an old adage that says, “the more cash you are willing to invest in a business purchase, the lower the full price; the less cash you are able to invest, the higher the full price.
Visit the Business
Visit the business to see if you like the location and the looks of the business itself – both inside and outside. This is a visual inspection. Pretend you are a customer.
It’s not time yet to talk to the owner. If the business is the type that does not lend itself to a visit, make an appointment with the seller to inspect the business, or have the seller’s representative schedule a visit. There is no point in going any further if you don’t like the physical location of the business or the appearance of it.
Get Questions Answered
If you like the business so far, it’s time to get your questions answered. For example: What is the rent? How long is the lease? What have been the sales for the past few years? Can the seller support the figures you have been told? Now is not the time to have the seller’s books and records completely checked. There will be plenty of time to do that and review other important issues during the due diligence phase. This is the time to get those questions answered that have a bearing on whether you may want to own and operate this particular business. It is also the time to visit with the seller to get your questions answered about the business itself.
Make an Offer
If you now have your basic questions answered and you want to proceed with purchasing this business, it is time to make an offer, subject, of course, to verification of all the information you have received. The main purpose in making an offer is to see if the seller will accept your terms, price, and structure of the sale itself. Remember, you will have the offer subject to your verification of the important information. It doesn’t make sense to employ outside advisors and go through the time and expense of due diligence unless you can come to financial terms with the seller.
Due Diligence
At this point, you hopefully have arrived at a meeting of minds with the seller, and you are ready to begin removing the contingencies, performing what is commonly called due diligence. Insider Tip: Unless you are completely familiar with the type of business purchased, it is beneficial to include as part of the agreement that the seller will stay with you (30 days is fair, with perhaps another 30 to 60 days of telephone consultation) a sufficient length of time to teach you the business – at no charge. If you want the seller to stay longer, it may be best to offer to pay him or her a consulting fee of some type.
Are you independent enough?
Operating a small business requires continual decision making. You’re the boss, and you are in control. All of the decisions are yours – right or wrong. And, you will make a lot of wrong ones. The question is, can you recover and keep going forward? If you brood about poor decisions or they keep you awake at night, owning your own business may not be for you.