Buying a Small Business

Anne Miller

Anne Miller

Senior Author

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Anne Miller

Senior Author

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The United States prides itself on being a collection of proud small business owners and entrepreneurs. The past two decades have seen a shift in the landscape – technology has made it both easier and harder to start a small business. Accessing the information you need to create a small business has never been easier – there are thousands of websites and resources available for free across the internet. At the same time, technological advances have made it harder to enter the market – large corporations have been able to section off entire markets for themselves.

But these changes haven’t altered the entrepreneurial spirit of the American people. Hundreds of businesses open up every day throughout the nation – and this trend doesn’t seem to be slowing down. If you want to become a small business owner, but you don’t feel the desire to start something from scratch, you can always buy one of the thousands of small businesses currently on the market. It’s a great way to step into business ownership with an established client base and a deeper understanding of the market.

This article is a guide for anyone who is thinking of taking the plunge into business ownership. We hope this post will give you the tools you need to take the best approach to buying a small business.

Contents

The Benefits of Buying an Existing Business

Buying a Small BusinessThere are numerous benefits in buying a business that is already in operation. For the most part, purchasing a business that is already operating is way less risky than starting your own enterprise. If you already have an established client base and cash flow, you can be more assured that you will have a continual source of income.

In addition, purchasing a business often comes with equipment and resources that you know are viable for producing your product or service. If a business has already been successful for an extended period of time, it is likely that the procedures put in place are currently working well within the industry. In addition to the benefits already mentioned.

Those who purchase a business that is already operating will also benefit from being able to attain finance much more easily. Starting your own business with no proof of income or success can be extremely difficult in terms of finance. Those who can show the business they are purchasing has hard assets for collateral, and a proven business model, will be able to access cash much more easily.

The Disadvantages of Buying a Business

While there are many upsides to purchasing a business that has already been in operation, there are also a few downsides. Businesses that have already been running often have less room for growth than ones that you start on your own. In addition, if you purchase a business that has a long track record for success, you will also being paying a premium for it.

You also have to do due diligence to ensure that the business you are purchasing is as viable as the owner says. There is a reason the owner is parting ways with the business, and it can often be because they know something that you are unaware of. Make sure that you are fully in-the-know about the market they operate in, as well as the amount of inventory you will be inheriting when your purchase the business.

Finding the Right Business

Finding the right business is all about what you are most comfortable with. It can’t be stressed enough that you should be looking to purchase a business that you have a direct interest in – not knowing anything about the industry that you’re investing in is a recipe for disaster.

You should consider a range of different factors when determining whether a business is right for you. You want to make sure that it is geographically convenient both for yourself and potential staff that you want to hire. Purchasing a remote business can result in the inability to find labor should you need to replace staff. In addition, you want to make sure that you have affordable access to materials or other resources that you may need for operation.

You should consider all businesses whether they are for sale or not. While most businesses aren’t on the market, if you make the right offer their owners may consider parting ways.

Broker or Individual?

Deciding whether or not to use a broker is one of the most important decisions you’ll make during the process of buying a small business. If you have a lot of experience working within or running other businesses you may not need the added benefits of a broker. But if this is your first foray into the world of small business, we highly recommend you contact a broker prior to beginning your journey. If you find a good broker he will most likely only be selling businesses that he already knows are credible. Good brokers have a large amount of business acumen and can often be trusted to weed out any illegitimate offerings within the market. They’ll also be able to have a consult with you to assess which type of business and industry is most appropriate for your skill and your back ground.

Things to Remember When Assessing a Business

There are numerous factors you should consider when purchasing a business. We’ve outlined some of the top components you should consider when assessing whether a business is right for you:

  • Transparency – Make sure that the business you’re trying to purchase is fully transparent, you don’t want to allow the seller to hide any component of the business history.
  • Well Documented – Make sure every aspect of the business’ financials are well documented. You need to know that the business owner was meticulous and responsible in his ownership of the business.
  • List of Debts – Make sure that you have full disclosure when it comes to debt that the company currently owes to creditors.
  • Inventory and Equipment – You should assess if the current inventory and equipment is completely viable. You don’t want to be paying a premium for components of the business that may not be useful.

Verdict

Purchasing a small business is a huge decision and should not be taken lightly. Make sure that you have the skills you need to operate in the industry that you’re considering. In addition, ensure that you do as much due diligence as possible prior to making any decisions – understanding the vital components of the business you’re purchasing is the best way to ensure a successful purchase.

FAQ

There are many aspects to buying a small business, and it’s a process that shouldn’t be rushed. The following questions are about that business-buying process to help ease any concerns you may have.

How to get Financing for a Business

Most people can’t buy a business in cash, meaning they’ll have to get a loan or some kind of agreement to finance the purchase. This section will answer your questions on financing.

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How to buy a business with no money?

It is possible to buy a business where the seller can finance one hundred percent of the business to you. A more common occurrence will be to get the seller to finance a part to you and get a loan for the difference.

How to get a loan to buy a business?

To get a business loan you will require a good credit score, 680 and above, a business plan, and enough collateral to put up on the loan.

How much can I borrow to buy a business?

Typically, you can get loans ranging from one thousand to fifty-thousand dollars. This number is included when buying a business.

How to get financing to buy a small business?

You will need good credit and collateral like most loans, but also a business plan. A detailed business plan should include how you’ll fit the new business into the structure of the old one.

Can I get a business loan to buy a business?

Yes, you can get a business loan to buy a business. One of the things needed when applying would be a business valuation. The lender would only invest in a business they thought would be successful.

How much money do you need to buy a business?

The amount of money you need to buy a business varies mostly by the industry you’re investing in. The median price for a business purchase is $185,000.

What does owner financing mean when buying a business?

The term owner financing or seller financing means the current owner of the business will loan you money to buy the business from them.

How to apply for a loan to buy a business?

To apply for a business loan, you’ll need strong credit and a valuation of the business will be needed. You should also look into other loan options such as seller financing.

How to buy a business using its own cash?

The key to doing this is to buy a business with assets you can take a loan out on. Set up a loan on the assets of the business as its future owner.

How to get an SBA loan to buy a business?

You can use an SBA loan to buy a business but will have to put some of your own personal cash towards the purchase of the business. You will also need excellent credit and a business plan.

How to use 401k to buy a business?

First you must incorporate a business and open a 401k plan. Then you can roll your existing 401k funds into the new plan. As the owner of the new plan you can direct what the 401k invests in.

How to buy a business with no money or credit?

You can buy a business with no money or credit by having the owner of the business finance one-hundred percent of the business to you.

How to Buy a Business

This section will be on the actual buying of the business process. Such as what steps will have to be taken and what to look for when making your decision. Read below to have your questions answered.

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How to buy a building for a business?

You can buy a building by getting a loan for it through the business. Another good option would be to buy it cash and lease it to your business yourself.

How to buy a business?

The first thing to consider is what kind of business you are looking to buy. Think in terms of location, size, industry, and lifestyle.

How to buy a business name?

You can buy your business name as a trademark by going to the US Patent and Trademark Office’s website www.uspto.gov.

What to look for when buying a business?

When buying a business always check the inventory as it helps to determine the value of the company. You should also check the tax returns for the past five years.

How does buying a business work?

The first step if finding the right business which requires and extensive research stage. Look into things such as reason for selling, customer base, and sales.

How to buy your first business?

One of the best things you can do when buying your first business is to contract an experienced mergers and acquisitions attorney and an accountant to help you make the decision.

What questions to ask when buying a small business?

Some questions to ask when buying are What is the asking price? And another is What assets are included in that asking price.

What to look for when buying a restaurant business?

One important thing to look for is the leasing situation of the restaurant. Location is everything with restaurants and landlords are often hesitant to lease to new owners especially unexperienced ones.

Should I buy a franchise business?

Buying a franchise has the benefit of getting into a known brand and proven business model. The downside being franchise fees, royalty fees, and having to buy supplies from the corporate company.

What does buying a business as a going concern mean?

It means buying a business that is an ongoing business that has not ceased. It is just a phrase that is used when making official contacts.

How to make an offer to buy a business?

The first thing to consider when making an offer is how the current owner values his business. To do this ask them what key performance indicators they review when evaluating their company.

How to buy out a small business?

One easy way to do it is hiring a business worker. The broker will prescreen businesses for you and help with the negotiations of the final price as well.

What do I need to buy a business?

The first step is to decide what you’re looking for in a business. From there you can move on to research business with that in mind.

How to buy a business that isn’t for sale?

The first thing to do is try to estimate business is worth to the owner. You can do that by estimating cash flow and what you may see the business for at a marketplace. Then just make the owner an offer.

How to buy into an existing business?

The two most important things to do when buying into a business is researching the business and defining how you can make the business better.

How to value inventory when buying a business?

There are multiple ways to value the inventory. You can actually buy it separately from the business itself. Another way would be to value the inventory that is a regular seller separately from the others.

How to buy a pharmacy business?

The first step is to finding a pharmacy that is right for you. You might have to hire a pharmacy broker as pharmacy owners aren’t putting for sale signs on windows.

How to buy your own business?

There are many steps to buying a business. They range from finding the business, doing research and finding funding. Perhaps the most important aspect is the business valuation.

What does due diligence mean when buying a business?

Due diligence when buying a business refers to the practice of reviewing all the information related to the business. You can usually do this with your accountant and attorney.

How to value a small business to buy?

There are many ways to value a small business when looking to buy. One way is to value it based on purchases of comparable businesses within the same industry.

How much deposit to buy a business?

The deposit to buy a business will depend on the business and loan you agree to. Expect to pay somewhere between ten and twenty percent as a deposit.

How to buy a bankrupt business?

To buy a bankrupt company you’re going to need to negotiate with the creditors as they have to sign off on the deal. Once that is done a judge must also review it as a court needs to approve the deal.

How to value goodwill when buying a business?

You value goodwill when buying a business by subtracting the fair market value and identifiable assets and liabilities from the purchase price.

How to buy a turnkey business?

To buy a turnkey business research is initially required. Followed by a valuation of the business and then a negotiation process with the current owner.

What does cash flow mean in buying business?

Generally speaking, cash flow is made of Net Profit minus some expenses that are not relevant to the buyer. Some expenses that could be exempt would be one-time purchases or loans that the seller will not inherit.

How to write an offer letter to buy a business?

Writing an offer letter is an important part of buying a business. The two most important things to include are the amount to pay for the business and the terms of the contract.

What to ask when buying a business?

When buying a business, you should ask about the day to day operations. Does it require daily participation from the owner? Does it require significant traveling?

When buying an existing business, one should remember that?

One should remember that doing your due diligence is necessary. A business that looks amazing at first glance could have problems underneath the surface.

What business should I buy?

Buying a business should be personalized to your needs. You should start with what you know. Start the industry you have most experience in as you can be most successful there.

Other FAQ

This section will be questions that don’t fit into the other categories. It features questions such as, how to buy and sell businesses for profit and where to buy business insurance.

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How do I buy wholesale for my business?

The first step is to find a reputable wholesaler. A good place to go is trade shows where you can find manufacturers and wholesalers at and is just a good place to network.

Can a business buy a residential property?

A business can buy a residential property. If the business is getting financing to buy the property, the credit score and name of the business will have to be used not the owner of the business.

How to buy and sell businesses for profit?

The starting point when buying and selling business for a profit is in the negotiations. Negotiating a low buying a price will add to your profit when selling.

What does freehold mean when buying a business?

Buying a business freehold means that you will own the property as well as the business. The opposite of that will be buying leasehold where you don’t own the property.

How to make money buying and selling businesses?

Possibly the most important thing when trying to turn a profit by buying and selling businesses is having a good team of experts around you. Experts such as, attorneys, bankers, accountants, and business brokers.

Where to buy business insurance?

You can buy business insurance from any of the big name insurance providers. The business owner’s insurance policy bundles all the insurance you usually need for a business.

How much does it cost to buy a business license?

Business license cost differs from state to state and from the industry to industry. The prices can range from fifty dollars to four-hundred dollars.

Should I buy a business or start one?

Buying a business is a safer route as you don’t have to go through the initial struggle and you already have a proven business model in place.

Do I have to keep staff when buying a business?

You don’t have to keep staff when buying a business. Keeping the staff should be considered though as they have the necessary experience. Try to recruit them to your new vision for the business.

Anne Miller


Anne is a Senior Author for SBL. She began her career as an independent consultant for local businesses after graduating with a BA in Management. Since that time, she’s expanded to writing as well as consulting to spread helpful knowledge to small business owners across the country.

 

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