Usually, when someone thinks of owning a business, they only think about building one from the floor up or starting from scratch. However, there’s a much easier way to become a business owner. Buy an existing business! This is typically a lot less of a risk than trying to start a brand new company. Of course, you’ll need to obtain a business valuation report using small business valuation tools and calculators and it may take a little time but it would probably be worth it.
- The company would already be generating a cash flow and have gotten to the point where it is making a profit.
- There would be an established clientele base.
- People already are familiar with the business.
- There are current employees who know how the business is run and what the goals are, etc.
- There would be no need to try and set up new policies, systems or procedures, unless the previous ones have been unsuccessful.
- Bankers and investors typically prefer working with existing, reputable companies.
- Sometimes taking over a business costs more than starting a new one.
- Even if you get a small business valuations, keep in mind that business valuation reports are not absolute.
- There’s a risk of ending up with obsolete inventory, methods that don’t work or employees that don’t like you and won’t listen to you.
So, how do you make the right choice?
If you want to buy the perfect business then you need to start here:
- Take a look at the type of industry that you want to buy into. There are so many types of companies and businesses out there so make sure the one you choose is something that you are interested in and understand. It should also be something that you have proficient skills in and preferably, experience.
- Determine the size of business you want. These means considering how many employees you want, how many locations and how many sales.
- Next, you’ll need to decide where exactly you want your business to be located. Geographical location will make all the difference.
- Make sure that the labor pool and cost of business in that particular area is right for you. This includes wages and taxes.
- Now you can begin to look into business that are for sale in your chosen region within your chosen industry. You can look for ‘businesses for sale,’ ‘business opportunities,’ as well as running a ‘want to buy’ or ‘in search of’ ad. You could also contact a business broker to find out any businesses that are for sale.
What happens when you find the business you want?
There are many things that happen next. The very first thing you’ll need to do when you find yourself interested in a particular business, is to get a business valuation report. Here are some of the things that should be included in your business valuation report.
- All inventory including products and materials that you can use or resell.
- Assets which includes furniture, office equipment and the building itself.
- Any and all legal documents like contracts, lease and purchase agreements, sales contracts, union, subcontractor and distribution contracts as well as employee agreements.
- Sales records and financial statements for the past five years are among the most critical items needed on the report. This indicates business activity and will help you understand the cycles that the business has gone through in the past.
- A comprehensive list of liabilities and debt. This should include any liens, lawsuits or claims against the company whether they be past history or current situations.
- Accounts receivable and payable. They should each be broken down by 30, 60 and 90 day periods. This will help you to determine how the cash flow goes through the company and how well.
- Rate of return should be known as well. You’ll want to look into merchandise returns to see if it has increased in the past 12 months and if it has, why?
- Anything that can help you determine target audience such as customer data, patterns and habits. This isn’t limited to buying patterns, it could also be how many customers were gained and lost in the past year, how well the company retains repeat customers and when the peak seasons are.
- Insurance needs to be established. Find out what they used before. More like this blog. Good references.