The Best Strategy To Buy A Business

May 9, 2022
Blog Post, Buy Business

How Do You Buy A Business

How do you buy a business with less risk is a question we are commonly asked. Buying a business can be the first step to financial freedom. An existing company for sale is the most effective way to become an owner. The value of a profitable business model is a huge advantage. Even an unprofitable business can be a gold mine if you have the skills that the business lacks.

Procedures, best practices, and customers are already in place, allowing the focus to be on growth and profitability. Existing businesses already have revenue streams that reduce the risk compared to a start-up. Lenders can finance businesses with a history of past earnings to the benefit of the acquirer, reducing the initial cash outlay. There is estimated to be a wave of retiring business owners that must sell their businesses or close their doors. There are some local services that large corporations can’t or don’t do well. Entrepreneurs need to provide the goods and services to local communities, or they will go away if there is nobody to take over.  Following are the steps you need to buy a business:

Steps To Buy a Business

 

Business Search

  1. Search for a business on business for sale websites like bizbuysell.com , bizquest.com, and other resources
  2. Outreach to business owners to see if they would be willing to sell their business
  3. Contact business brokers to see what businesses they have available for sale.
  4. Local Attorneys

 

Business Valuation

  1. Look at comparable businesses for sale and record the asking price (actual sales price on average is 80% of asking)
  2. Get Rules of Thumb for the industries you are targeting
  3. Hire a professional for an Opinion of Value Report

 

Negotiate Purchase Price with Seller

  1. Come to the price you want to pay and create a Letter of Intent for the seller.
  2. Get the LOI accepted

 

Due Diligence

  1. Get a minimum of 3 years of tax returns
  2. Profit and Loss Statements – 3 years
  3. Balance Sheet – 3 years
  4. Payroll records
  5. Equipment List
  6. Any contractual agreements in place
  7. Customer List by Sales
  8. List of staff and duties & pay history
  9. Marketing & Sales Practices and Materials

 

Finance the Deal

  1. Use cash
  2. Bank Financing
  3. Seller Financing and or Combination of other sources
  4. SBA Loan

Why Buy An Existing Business

Buying an existing business is among the best ways to increase income and gain new customers quickly. You are far less likely to fail if you buy a business with a proven track record. Businesses that have been around for five years or more have over an 80% chance of being around for another five years. The benefits of buying a going concern are the following:
  • Financing is available through banks and various lenders
  • Staff and transition assistance
  • Customers are already buying and providing sales 
  • Trained staff in place
  • Suppliers, vendors, and professional services in place
  • The company will have cashflow to support debt service
  • Processes and systems in place

Want Free Help to Buy an Existing Business?

Get a free Letter of Intent to start making offers like a pro. This is where you formally make an offer for your target company. It is non-binding and may be modified multiple times in negotiation to satisfy all parties. Don’t worry about making a mistake because it is non-binding. The LOI is short and sweet and only includes the major negotiation points like price and terms. It is highly recommended that you engage an attorney to create the Purchase and Sale Agreement that will be binding. Find more help buying an existing company here.