There are other benefits too, like buying out competitors.
Whatever your rationale is, you will want to know how you can buy a small business and what the steps are to do so.
Luckily, we've got everything covered with this handy guide. We'll explain everything you need to know about buying a small business and why you might want to do so.
So, if you're interested and want to learn more - then read on!
Not any old business will do. You will want to find a business that has plenty of financial prospects, or at least some sort of incentive to purchase the business in the first place.
Look at the following points:
- A positive and clear cash flow, or at least the evidence of a trajectory that shows there is growth
- An industry that you understand enough about to be able to help grow your business
- A diverse set of customers
-A long term plan for growth
-A business that you know you will enjoy running
If you already have a small business and you're looking to buy out your competitor, these points will still be very important, but you will likely be adding some extra data into the equation.
In other words, you will be looking at when the competitor has ceased to exist, how many more sales will you be expecting? Will you decide to use the space to add an extra store or are you just looking to get rid of the competition?
On top of this, you have to remember that you will likely also be purchasing the assets of the business, so you could tally up the potential sales of these too.
Once you have found a business that you think is right for you, it's a good idea not to just stop there. Flag or save this business for later thought, and continue your search.
It's important not to be narrow minded on a business that you think is a great fit, because you might miss out on a much better idea later.
Consider looking in places like:
- Broker websites such as BizBuySell
- Small, local business brokers
- Established, local small business owners
This is why it is so important that you make objective decisions and research yourself so that you do not overpay for the business.
There are two ways that you can value a business. You could choose to do it yourself or you could decide to hire a professional to do it on your behalf.
Of course, if you do decide to hire a professional, then you will need to recognize that this service will not be cheap. In fact, in some instances it can reach over five thousand dollars.
However, this might be a great investment if you are really unconfident in your abilities to make a valuation correctly, as you may end up paying much more than just five thousand dollars.
Valuing businesses involves the calculation of business revenue, net income and EBITDA. Every business valuation is handled in a different way, so it's not a case of one size fits all.
Okay, so you've discovered the business that you want to purchase and you've done all the research on how much you think this business is actually worth. However, now it's time that you negotiate the purchase price of the business.
You'd normally start by making an unbinding offer which can be either in writing or verbally communicated.
Typically, if your offer is somewhere in the ballpark of what the business owner is willing to sell for, they will normally open a negotiation with you.
It is at this point that there will be plenty of back and forths between you and the business owner. Eventually, if you do agree to a price, you will draft some provisional terms of the sale.
Later, you can make changes to these terms and conditions if you have noticed something in the business that makes a significant difference to the businesses valuation in your eyes.
Once you and the business owner agree and sign the terms, you simply need to inform the relevant parties and do your due diligence - and that's it!
As soon as the purchase agreement is signed and everyone is informed, you are officially the new owner of that business.