How to Take a ‘Sprouting Seed’ and Make It Grow
Ideas for buying an existing business for sale
One thing that differentiates entrepreneurs from other people is the ability to see opportunities and take them. Opportunities exist in different forms and buying a business is one of the uncommon ones. There are people that erroneously assume that for a business owner to desire to sell, something must be wrong with a particular business. However, real entrepreneurs do not reason that way.
There are myriad reasons founders may like to sell their businesses. Some may just be bored of the business and are looking for new challenges. Others are particular about getting ideas off the ground and moving into the next idea in their heads. There are businesses that are in the form of ‘sprouting seeds’ with real potentials to grow into great companies. An entrepreneur may decide to buy such an existing business instead of starting a new one from scratch.
Actually, there are several advantages of buying an existing business. The chances of failing with an existing business are slimmer than the chances of failing with a new startup business. This means it is less risky and can be extremely rewarding when handled the right way. Before buying an existing business; however, it is important that a true entrepreneur performs his/her homework. There are so many things to know about an existing business before buying it.
From the time you decide to buy a particular business till the first few months of running it, you have to get so many things right in order to succeed. It may be a little less risky than starting a business from ground zero, but a single wrong move can lead to failures too. Here, we will discuss some tips that can be helpful in setting you and your ‘sprouting seed’ up for success:
Understand Why the Business Owner Really Wants To Sell
This may sound a little disconnected from the picture we painted above about why some founders may want to sell their businesses. We will be living in denial if we don’t point out that there are businesses for sale that are actually not in great shape. There are instances where business owners want to sell because their businesses are going down or are facing some legal or licensing issues. Take your time to understand exactly why the business you want to buy has been listed for sale. This will save you from buying a business that is bound to fail.
Be Sure the Business Is What You Really Want
Before setting out to buy an existing business, it is important that you define what you want in a business. You also need to make sure that a particular business you are interested in meets your requirements before considering it. The most important factors to consider include the location of the business, the size, the industry, and its suitability to your lifestyle and aspirations. It is important that the business you are considering buying meets the majority of these important factors. This will help you to buy a business that you will enjoy running. You should also consider your short-term and long-term goals.
Consider Working With a Business Broker
No matter how experienced you are in business, it is not advisable to go on the road alone when it comes to buying an existing business. In fact, it is impossible to do that. There are a number of people you will need to complete the transaction. It is not compulsory to have a business broker as part of your team but it is very important. There are so many things a business broker can do for you: a reputable one will help you avoid pitfalls while buying an existing business. A business broker can even help you find a business for sale that meets your requirements. He/she will also stand by you to ensure that the process is completed smoothly.
Ensure You Have a Strong Acquisition Team
Asides from your business broker, there are several other professionals that you need to complete your due diligence and buy the right business that you can grow to an organization you will be proud of. You need to assemble a strong acquisition team with members you trust. You will need an acquisitions attorney, a professional accountant, as well as an independent business valuation team. You don’t need to leave anything to chance, have the right professionals by your side to make the entire process smooth.
Take Business Valuation Seriously
There is a mention of an independent business valuation team in the tip above. The point is only stressed here to give you an idea of how important it is. Even if you are very conversant with financials, there are things that can confuse you when you are looking at the records of an entirely strange business. When you have an independent team that is focused on business valuation looking at a business you intend to buy, you will have a better understanding of the business standings and make a better decision. Hiring an independent valuation team will give everyone the impression that you are serious. Take a step further by stressing to the team you’ve hired what you really need.
Consider the Reputation of the Business Seriously
Asides from the financials of the business and its true value, you also need to consider the reputation of the business you are buying. How is the image of the business in the eyes of customers and suppliers? Do not assume that once you take ownership, people’s opinions about the business will change. There is no need to gamble with a business that has a shattered image. To know more about the reputation of the business you are trying to buy contact such important stakeholders as customers, suppliers, and banks. Steer clear if the image is severely damaged.
Consider Current Employees and Organizational Chart
While knowing everything about the financials of a company is very important, the human factors behind the figures are also important. The current employees of a business can be its biggest asset in some instances. There is also the possibility that the employees of a business and the organizational structure is the reason behind its poor performance. Look at the organizational chart, consider the current management practices and the management-employee contracts besides union agreements. Make sure you understand all legal contracts with the employees in time.
Have a Clear Vision of What You Want For the Business
Identifying a good business with potentials is never enough. If you are truly taking ownership of any particular business organization, you must have a clear vision of how to take it forward. There are instances where entrepreneurs that have prepared their businesses for sale will offer a growth plan in their marketing package; you can consider this a bonus. It is important, however, that you have your own vision of how to transform what you have at hand into what you are hoping to achieve in the future.
Sort Out Your Funding Options from the Beginning
Unless you are independently wealthy or have a very wealthy financial backer, there will be a need to sort out your funding options when trying to buy an existing business. You won’t get any good business that is in great shape cheap. Any business, irrespective of size, that has real potentials for growth will be considerably expensive and you must figure out how you will meet the price. It will be necessary to do your math and sort out your funding options before agreeing on a fair price for any existing business you truly want to buy.
Pay Attention to the Sales Agreement
Drafting the sales agreement may be the most emotionally charged aspect of buying an existing business, but you need to set your emotions aside and approach it as an entrepreneur. If you have considered all the factors that matter to you most and have decided to buy a particular business for a certain price, you need to make sure that the agreement is well drafted to avoid any surprises. This is one of the reasons you need an acquisitions attorney as part of your team. If there is any aspect of the agreement you don’t understand fully, speak up until you are sure of what you are signing. Do not leave even a single ambiguity as it could lead to issues at closing or even after the acquisition has been concluded.
As an entrepreneur, you must realize that buying an existing business can offer several benefits. You also need to understand that there are several things involved in it and you need to take all of them seriously. The tips discussed here can be very helpful in taking that ‘sprouting seed’ and making it grow.
Are you finding it hard to decide if buying an existing business is actually worth it? Log in today at BizNexus. Our trusted experts are always available to speak with you and provide suitable answers to your questions and concerns. A fantastic experience awaits you.
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