DECIDING TO BUY A BUSINESS
Some studies indicate that well over half of all Americans are interested in owning a small business, yet the number of people who actually make the leap to an entrepreneurial career is much smaller. For many, it is not a lack of business skills that gets in the way, but the failure to adequately identify a suitable business option.
Buying a business can be an exciting, yet daunting project. With 90% of all of the people who begin the search to buy a business never completing a transaction, and around 50% of the deals that are agreed to between buyer and seller, never progressing to closing, it is important to seek the help of a professional business broker to assist you in closing the deal.
We at Harding & Associates Business Brokerage Services will help you throughout the process. The seller nearly always pays business brokers so their role is not to represent the buyer. Utilizing the services of H&A Business to help you buy a business will:
- Provide you with access to a database of businesses for sale
- Walk you through the valuation process
- Provide you with comparable business valuations
- Keep the deal moving along when obstacles are encountered
- Be the bearer of bad news to the seller when necessary
- Ensure all pertinent documents are assembled for the closing
- Understand the Process
To someone who is new to the buying a business, the process can appear complex and overwhelming. Harding & Associates simplifies this process with our in-depth knowledge and experience of the process and through our network of professionals whose services you will require during your purchase. Ian Harding has personally worked on acquisitions ranging from $50m to $5bn, as well as securing long term organic contracts for his clients adding order book of up to $800m in one transaction.
Harding & Associates puts YOU, the buyer, at the center of the transaction, ensuring that we represent you diligently and professionally to help you purchase the business that will help you thrive. The first step to this representation is to arrange an appointment to review your requirements, where we will start to build a relationship based on trust, and explain the process to you, as well as clarifying your and our obligations.
FINDING THE RIGHT BUSINESS
Many small business owners who have bought an existing business did not have an in-depth knowledge of the product prior to buying their business. It is important to remember to love the profits, but not necessarily love the product. For some buyers, this is an alien concept, but to others it makes absolute sense. What is important to one buyer is not necessarily important to the next buyer. It is for this reason that research into the buying process and seeking the assistance of Harding & Associates is essential to help and guide you, providing you with the best chance of success in finding your perfect business.
When reviewing all of the possibilities you have to decide what will work best for you; however, your chances of success are clearly best when you buy an existing business for many reasons. With any new business you have two challenges: developing the product or service and then seeing what, if anything, people are willing to pay you for it.
Regardless of a company’s past performance, an existing business will have a history from which you will be able to make certain decisions. Even if the company was not profitable in the past, your strengths may lend themselves perfectly to turning it into a viable venture. Furthermore, you have the ability to verify what the company did in the past that resulted in the current status of the operation.
After you have determined the type of business that appeals to you and that you would be truly happy owning, the next step is to look for specific businesses that fit the bill in your price range. Unless you have a large amount of cash at your disposal, you will need to finance a share of the purchase price, so a visit to your banker or other financing professional is a prerequisite to beginning your search. The goal should be to understand how much you can afford to pay for a business, factoring in the amount you may be able to borrow from a bank, friends and family, or the business seller.
INVESTIGATION OF THE OPPORTUNITY
In order to buy the right business, you will be required to do a thorough investigation of its past activities, its operations, its current status, the competition, the industry and its future potential. You will accumulate this information and then you will have to determine how it measures up with you at the helm. Clearly, this information gathering will be substantially more accurate and easier to obtain when dealing with an existing business, as you will have the resources available from which to get the details.
There will be a long list of questions begging to be answered. Sellers are required to provide certain information to buyers in the form of due diligence. It is standard practice for potential buyers to receive access to historical financial statements, as well as other pieces of information that will impact the future of the business.
The seller will usually have conducted a valuation process that serves as the basis for the asking price. Although online business-for-sale marketplaces often provide valuation reports, there is no guarantee that this is accurate or that the seller will have listed the business at or near the quoted price. If the business becomes a serious candidate for purchase, you will need to conduct your own valuation process with the help of Harding & Associates Business Brokerage Services.
The bottom line is that it is imperative to keep asking questions and seeking answers until you are fully satisfied you know as much as you can about the company. If you aren’t completely comfortable with the business or the way the seller is handling the transaction, keep looking.
PURCHASE PRICE
Buying an existing business does not mean that it will cost you more than a startup. In fact, many times it’s less expensive than launching a startup. Even in those cases where it may require a premium, at least you know what you are getting if you investigate it properly. With a new business, you would need to do demographic studies on population, drive-by traffic, potential customer base and a whole series of studies that will indicate that “theoretically” the business should do well. However, the only thing they cannot guarantee is whether or not you will be successful. Also, new locations can take a year or more to build. You can avoid all of this when buying a resale business.