Process Of Buying A Business PATCHED

Having your own business is great. Building one from scratch? Really hard. Which is why some entrepreneurs opt to buy an existing business outright. There are other reasons to buy a business too, like acquiring an up-and-coming competitor, or just building your investment portfolio.

process of buying a business

At some point, while jumping through legal hoops, you might have forgotten that you just became a small business owner. Congrats! Your new life awaits. And if your brand new business needs bookkeeping, Bench can help with that.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

Buying an existing business has many advantages over starting an entirely new one. Existing businesses typically already have employees, clients, inventory, processes, cash flow, and historical financial performance. While operations can begin right away, buying an existing business presents several challenges that should be understood before you begin the process.

Buying an existing business will often cost more money upfront than starting one from scratch. But, much of the startup legwork is already done. It is important to explore the business opportunity thoroughly and with professional guidance to understand potential problems or debts that will come with the business purchase. Existing problems can remain hidden until after the final sale, like damaged or outdated equipment or inventory, issues with real estate property or location, or heavy dependence on a single client.

The size, location(s), and maturity of a business will all affect the commitment. Consider how hands-on you want to be with your business and again, be honest and realistic about your expectations of becoming an entrepreneur. You might consider hiring a business broker who can help you explore available businesses as they compare to your interests and ideal business plan, and negotiate deals when the time comes.

The initial research phase of buying a business is critical. Due diligence includes exploring why the business is for sale, the immediate and long-term profitability of the business, its perception in the marketplace, the overall value, and any potential problems associated with the business or property.

Financing options include bank financing and seller financing, in which the seller agrees to accept part of or the entire purchase price over time. If your banker is unable to help you with financing, you can apply for a Business Acquisition Loan from Pathway Lending. We serve as a hands-on lender to entrepreneurs who fall outside the credit box of traditional banks. We offer technical assistance and guidance throughout the process. You can also visit SBA.gov to learn about available SBA bank loan programs.

The agreement should accurately reflect your understanding and intentions regarding the financial, tax, and legal terms of the purchase. At a minimum, have your attorney review and approve the final sales agreement before signing. Make sure the transition process starts before you close the deal. Make sure the previous owner feels good and comfortable about what is going to happen once he/she is gone. Be sure you have a comprehensive checklist for closing on the business that both you and the seller have agreed upon.

Congratulations! You are now a proud business owner and have successfully completed all of the steps to buy a business. We encourage you to explore small business support and education in your area to learn how to maintain proper cash flow, keep track of all your assets, and gain extra help with managing employees and other related tasks.

You have a number of options when looking to finance your purchase of a business. The most common traditional loan avenues are through the Small Business Administration but you should investigate your financing options.

For some people, buying an existing business is a better option than starting one from scratch. Why? Because someone else has done much of the legwork for you, such as establishing a customer base, hiring employees, and negotiating a lease. Still, you'll need to do some thorough research to make sure that what you see is what you'll get.

Look for a business that has some connection to types of work you've done in the past, classes you've taken, or perhaps skills you've developed through a hobby. It's almost always a mistake to buy a business you know little about, no matter how good it looks. For one thing, your lack of knowledge about the industry might cause you to overpay. And if you do buy the business, you'll have to struggle up a steep learning curve afterward.

As you begin your hunt for the perfect company, consider starting close to home. For instance, if you're currently employed by a small business you like, find out whether the present owner would consider selling.

Or, ask business associates and friends for leads on similar businesses that could be on the market. Many of the best business opportunities surface by word of mouth and are snapped up before their owners ever list them for sale.

When looking for businesses, you want to find one that's able to make a profit and can survive the change in ownership. While you could get a good price for a struggling business, you don't want to buy one if it's not recoverable. You also don't want to buy a business that'll dry up once you take it over because customers were loyal to the prior owner and not to the business itself.

Look at the business's reputation. Does it have good reviews from customers? Where does it stand against competitors? Does it have solid relationships with its suppliers and distributors? A less-than-great reputation doesn't necessarily need to be a dealbreaker, but it should be a talking point at the negotiation table.

Get a good idea of the revenue stream you can expect to inherit from the business you're buying. Can you expect sales to continue at the current rate? How many customers will you lose in the transfer? Considering these possibilities will give you realistic expectations as you look at potential businesses to buy.

Tax, environmental, litigation, regulatory, and contractual liabilities are common areas of potential exposure. For instance, you should also specifically look at whether the business is following all Occupational Safety and Health Act (OSHA) standards. If the seller is falling short of any OSHA requirements, it should be addressed and resolved before you purchase the business.

If you're buying a business, you're likely looking at an asset or stock purchase. With a stock acquisition, you're purchasing the company's assets and liabilities. With an asset acquisition, you're only purchasing the company's assets, and only the ones you want to purchase. Make sure that whatever you choose is allowed under the business's current rules. For example, the company could have a shareholder buyout agreement in place that could prevent your purchase.

Sometimes determining the offer price for a business can be fairly easy, especially if you're already quite familiar with the business, have a great deal of industry knowledge, or have familiarity with the past sales of similar businesses. Clearly, the purchase price is critical in determining whether you end up with a good deal.

If you've found a business to purchase but have little insight as to what package of compensation to offer (frequently referred to as "consideration"), then you should recruit a professional. To settle on an appropriate offer, consider working with:

You (and your attorney) should put together a closing checklist, which is a list of every single document, instrument, or action that must be completed, signed, or delivered in connection with the closing. This list should be regularly updated and shared with the seller throughout the process so that there's complete visibility as to expectations and outstanding action items.

If conducted thoroughly and properly, your due diligence process will include a review of all of the seller's contracts, including any provisions in those contracts that would require the counterparty's consent to your transaction.

For instance, the seller could have an ongoing contract with a manufacturer that includes a "successors and assigns" clause. This clause requires the manufacturer's approval before the seller signs over their obligations under the contract to someone else, including someone buying their business.

If you have experience buying businesses and you have expertise in the relevant industry, you might be able to complete the purchasing process yourself. But in all likelihood, you'll benefit from bringing in professional help at some point. You should probably talk with a small business lawyer sooner rather than later so you don't miss key legal considerations at the start that could later stall negotiations or create buyer's remorse.

Why do you want to buy a business? What do you hope it will help you accomplish in terms of your strategic goals? Answering these questions honestly will help you define an acquisition plan and narrow down the types of companies you want to consider acquiring.

The due diligence process will consist primarily of a legal and financial review, but there may be other areas you want to look into as well, such as commercial positioning or IT infrastructure. Make sure you hire qualified professionals to conduct the process, which will likely take a few months.

The process begins when a company identifies a need for a purchase. It may want to replace an existing item, replenish stocks or buy a new product that is just available on the market. You can also stimulate a need that the company may not be aware of by advising them of issues and challenges that other companies in their industry face.

The buying team next works with the requesting department to firm up on the requirement. Your sales team can provide advice and guidance at this stage by offering discussion papers or inviting decision makers to workshops or seminars on the topic. 041b061a72