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The decision to buy a business is a big one. It could potentially change your life, and it will most definitely change your finances. When seeking out potential businesses to buy, you’ll want to do your due diligence and understand what to look for when buying a business. You’ll want to make sure the business is successful, aligns with your goals, and – most importantly – has the potential to make revenue.
What to know when buying a business?
- When buying a business, you’ll want to consider the potential future returns as well as the new company’s current reputation and financials.
- Mergers and acquisitions are two different types of buying models, each offering different business structures.
- Work with professional business brokers and lawyers who can help you assess the value of the business you want to buy.
- Be wary of businesses on the decline or those with a history of negative customer reviews, as these may not scale well over time.
Understanding the Business Buying Process
Buying a business can be a complex undertaking with many different steps, but the whole process can generally be broken down into five different stages. From researching your potential new business to acquiring it, here’s what you should expect:
- Identify a worthwhile opportunity: You’ll start by finding a potential business that lines up with your areas of interest, knowledge, and abilities. This can be done by networking with people in the industry you wish to do business, consulting a business broker, and looking within your community for businesses looking for new ownership.
- Evaluate the business: Once you’ve identified a business you’d like to buy, it’s time to figure out if it’s even a viable investment for you. You’ll want to consider the business’s financial health, the potential for growth, its market position, and even its current competition.
- Do your due diligence: If you’ve evaluated the business and found that it’s a viable investment, you’ll need to go through a longer due diligence process. This involves hiring professionals to analyze any and all aspects of the business for potential risks, like issues with suppliers or unpaid debts.
- Negotiate: Once you’re satisfied with the due diligence process, you’ll get down to the nitty-gritty — negotiations. To do so, you’ll want to discuss not only the price that you’ll pay for the business but also any contingencies and payment plans that may need to be set up.
- Finance the purchase and acquire the business: After you’ve negotiated the purchase, you’ll need to secure financing. This can be in the form of loans, investors, or even your own personal savings. Once you do, you’ll pay the prior business owner and have the business transferred into your name.
What Does it Mean to Buy a Business?
Simply put, buying a business is the process of acquiring an existing business, whether it be entirely or partially. When you do so, you can expect to take ownership of:
- Business assets: Both tangible and intangible, such as inventory, intellectual property, and equipment.
- Existing contracts: Including leases, permits, and supplier agreements.
- Established business relationships: Such as customers, employees, and suppliers.
- Legal responsibilities: Including liabilities, regulatory enforcement, and business debts.
Mergers vs. Acquisitions
The terms “merger” and “acquisition” are often used interchangeably when you go to buy a business, but they aren’t the same. There are key differences between them
