Thinking of Buying a Business?
Here are some guidelines to think about as you start the process.
Stinson Group - Business Brokers & Advisors 602-331-4699
The idea of owning your own business has great appeal and great benefit to many of us. Buying an existing business is often a good way to enter the arena of ownership because the business has an established cash flow and track record in the market, thus a greater chance of continued success over a start-up.
First, foremost and easiest in your search is to make a list of what kind of business you do not want to be involved in. It is near impossible to make a business successful if you dislike what it is and what you have to do. Don’t let the lure of a business throwing off big cash numbers distract you. If it ain’t your thing, it will tank on you!!!
Next, establish how much cash you can invest to buy a business. Keep in mind you will need working capital as part of the equation. Generally, service businesses require less working capital than a physical product businesses. That is a general rule, not specific to all situations.
Determine what you need the business to pay you as income each year for the first three years. That will be part of the your profile criteria along with the available investment cash.
Describe how you want to interface with the operation. Are you hands on, or wanting to manage it only, work 80 hours a week or work 20 hours a week. What is your expectation of involvement. Do you have a particular expertise. Are you willing to learn a new set of skills such involving maybe medical issues or computers, or contracting for example. Can you handle a business that requires special licensing for example.
Where would you prefer the business be located geographically. This may not be a stopper, but if you have a preference, make it known.
The outcome of the foregoing is that you should write a profile of your search for a business based on your perspectives of your desires, expectations, capital, and skills. This is your Buyers Profile. Now comes the search for the business. As you look at opportunities, it may cause you to edit your profile and that’s fine.
While many people sell their businesses themselves, most will use a broker for good reason involving experience, confidentiality, and market presence. Generally speaking, most brokers represent the seller and while legally obligated to practice full disclosure, they still represent the seller. There are also agents who are buyer’s brokers. These folks legally represent you in looking for a business. So now, you need to determine if you want to represent yourself in dealing with the seller’s brokers or be represented by a buyer’s broker. Both positions are fully viable, you just need to decide how you want to handle it. In all cases, discuss fees and what you are liable to pay for in fees or commissions. Do not sign anything you are not comfortable with signing. Non-Disclosure (NDA) agreements are normal but read them. Some have clauses you will not want to agree to unless eliminated or modified.
When you talk to any broker about what you want to accomplish, give them a copy of your Buyers Profile. It will make it easier for you and for them.
And towards the end of the process when you have made an offer to purchase a business, that is where we can be of service. Our business is making an independent valuation of the business and performing the due diligence to establish that what has been presented as the facts about the business such as books, inventories, and customers are the true facts of the business.
It can be a complex process but these guidelines are a good place to start.