There is a certain entrepreneurial romance to building a business from the ground up. However, not everyone has a fresh idea for making a big splash in the marketplace. There are plenty of small businesses built on a great idea but need to move to the next level with the help of additional funding or a better mind for running a business – creators are great at starting projects, but its managers who often get them across the line.
Not starting from scratch means the new owner generally has more upfront costs, but it involves less risk because the business already launched. Another advantage is that concrete information regarding sales is available rather than projections based on little more than a wing and a prayer. The trick is to find a business that is the right fit for the buyer.
Tips for making the right purchase
The buyer should consider these and others as checkpoints before moving forward:
- Determine what kind of business to buy: This is a significant decision for owners who plan to be hands-on, so think about (a) what industry sparks the buyer’s interest, (b) what is the right size, and (c) whether the owner’s job description fits with your lifestyle.
- Research the market: This includes speaking with business colleagues, those in similar fields, and maybe even approaching an owner whose business looks the most appealing (who knows, perhaps they would consider selling).
- Use a business broker: Some may want to skip this step, but a professional advisor who prescreens potential opportunities can avoid mistakes down the line.
- Do not forget due diligence: A dream business may look perfect, but it can turn into a nightmare if there is pending litigation, a shift in the market, or the financials are not promising.
- Line up financing: This should be an ongoing consideration, but it is time to finalize the funding from a bank, backer or partner. The seller may be interested in allowing the buyer to make payments over time – this win-win deal can cut down on loan interest and can mean more money in the pocket of the seller.
- Draft an agreement: Once the buyer and seller negotiate a deal, it is time for an attorney to draft a contract.
Attorneys can provide insight throughout
Those looking to buy a business will need to build a team that can provide valuable insight based on experience. Attorneys who handle business sales can also work with accounting to judge the finances, recommend business partners, identify potential legal exposure, and help ensure that deals are fair and equitable for both parties.