So, you’ve officially decided that you want to buy a business. Now what?
Purchasing an existing business can be a fantastic way to dive into the world of business ownership without some of the risks associated with a true “start up”. Or perhaps you are interested in increasing your current holdings by adding an existing company to your business.
Either way, once you’ve made the decision that you want to purchase a business, there are several steps you will need to take to get started.
Decide on the type of business you want to buy
There are an overwhelming number of existing businesses out there. There are literally millions of small businesses, and that is just those private companies that have 500 employees or less. In order to decide on and discover an enticing business to purchase, you are going to have to significantly narrow the scope of your search. In addition, it’s worth noting that among the sea of small businesses out there, many of them are not worth buying, and thus, there is a limited supply of “good” businesses to buy.
Start by deciding on the type of company you want to own, and in what industry. Do you want to purchase a technology company? Or perhaps a food service business like a restaurant? The more specific you get with the type of company you want to purchase, the easier it will likely be to wade through the millions of existing businesses to find what you’re looking for. But be careful not to get TOO specific or picky about the type of business you want to buy, otherwise you might limit yourself to less than desirable options. Decide what is important to you and decide what you are willing to compromise on before you begin your search.
Another useful way to narrow your search is to consider where you want to operate the business you are going to purchase. Certainly, you could buy a business and move it to the location you desire, but it may be more cost effective to find a business to buy that is already located in the location of your choice.
Decide whether you want to buy a franchise
Some entrepreneurs prefer to purchase an existing franchise. Buying a franchise business allows you to take over a proven business model, allows for the possibility of in-house financing from the parent company, comes with support for managing the business and training employees, and gives your business an overall higher chance of success. On the flip side, you may be limited in your ability to be creative and do what you want to do with your business and you will pay for that built in “goodwill” through franchise fees. However, if you do decide to go the franchise route, it will likely make your search for a business to buy much simpler. You will still need to follow the two steps we’ve detailed above since there are still thousands of franchises to choose from, but it will certainly limit the scope of your search.
Cold calls and brokers
Once you’ve decided on the type of business you want to buy, you must begin the process of hunting for businesses that the owners are willing to sell. Unlike purchasing a home, you usually cannot drive around town and look for a business with a “For Sale” sign in the window. There are two key methods you can use to seek out businesses that you could potentially buy: cold calling and using a broker or searching listings. Cold calling is simply calling up businesses you are interested in and asking owners about their feelings on selling the company. This can certainly be like searching for a needle in a haystack. Of course, some owners might be willing to sell, but their preparedness to sell or whether their company is worth buying is a totally separate analysis. Many people search for companies by utilizing a professional business broker whose job it is to broker the sale of existing businesses. Many brokers work for the sellers; however, there are some brokers who will take on buy-side engagements and actively search for a business on your behalf.
Once you have found a business you are interested in with an owner who is willing to sell, you will begin the process of negotiating the seemingly endless list of details surrounding the transaction. It is at this point you will certainly want to hire a business attorney to assist. There are many details and processes that need to be addressed and, frankly, unless you’ve done it before, you don’t know what you don’t know about the process. An experienced attorney can help drive the process from start to close to make sure that all of the issues are addressed in the agreements and as part of the transition.
If you are interested in purchasing an existing business, please contact the Doida Law Group today to learn how we can help.