Buying a small business can be an excellent way to start your own venture. However, the process can be complicated and requires careful planning.
Find businesses for sale:
There are many websites that list small businesses that are available for purchase. You can search by industry, location and price point.
1. Identify your goals.
Buying an existing business can allow you to become an entrepreneur without the time and expense involved in starting from scratch. But you must carefully evaluate each opportunity to ensure it matches your goals and resources.
One of the most important questions to ask is why the business is for sale. The answer could give you a clue to how much effort the current owner puts into the company.
As part of your evaluation process, talk to customers, vendors and locals in the area. They can provide an unbiased perspective on the business’s successes, challenges and potential future opportunities. This information will help you decide whether to move forward with a purchase. It also may be helpful when negotiating with the seller or seeking financing options.
2. Determine the business’s challenges.
It’s important to determine what challenges the business you’re considering has. This can be anything from a bad reputation, excessive debt or a poor product line. It’s also important to find out why the current owners are selling the business. It could be a simple lifestyle decision like retirement or something more serious, like a bad company reputation.
This information is often uncovered during your due diligence process. You can talk to the owner, but it’s also worth talking to other people involved with the company, such as employees and local community members. This will give you a more holistic view of the business and help you determine whether it’s a good fit for you. You can also hire a business valuation expert to assess the business’s value.
3. Evaluate the business’s financials.
When you’re looking to buy a small business, it’s important to evaluate the company’s financials. This is to ensure that you’re paying a fair price and that the business will be profitable once you take over.
Evaluate the business’s finances by reviewing its income statement, balance sheet, and cash flow statement. This will give you a clear picture of the company’s assets and liabilities. You’ll also want to look at the company’s accounts receivable, which are amounts that customers or clients owe the business.
Understanding valuations is critical to business owners and those seeking financing. This is the process of determining a business’s worth, considering its assets, earnings, and industry. You can use a number of techniques to value a business, including comparable companies and calculating the company’s potential for growth.
5. Make the deal legal.
Buying an existing business can help you avoid the startup costs and growing pains associated with starting your own company from scratch. However, it’s essential to have a New York business lawyer review any and all legal documentation to ensure the sale is completed correctly.
Typical issues to investigate include federal, state and local tax returns for anywhere from 2 to 5 years; licenses, permits and certificates, including a certificate of good standing from your Secretary of State. You should also look at zoning laws to ensure the business you’re purchasing is permitted in your area.
Finally, you’ll need a non-competition agreement to ensure the old owner doesn’t open up a competing shop down the street and siphon off your customers. Your attorney can help draft this document if necessary.