So… You want to be an entrepreneur.
Maybe you love the idea of being your own boss and growing a successful business, but one roadblock is keeping you from moving forward: You’re having trouble coming up with an actual business idea to execute on.
Some entrepreneurs are lucky enough to stumble across a million-dollar idea and start a business. But if this isn’t you—don’t panic. There are a lot of proven business ideas out there for you to work off of.
But if you want to live out your dream to be an entrepreneur without starting from scratch, here’s an idea for you: find a small business for sale, and buy it.
Buying an existing business is a great way to become an entrepreneur. If you buy a business that’s been around for a while, there’s no need to reinvent the wheel—there’ll already be at least some structure in place.
So if this is the entrepreneurial path for you, you’ll need some helping finding and buying a small business for sale. Here’s your step-by-step guide to buying an existing business.
Where to Find a Small Business for Sale
You know you want to buy a company… But where can you find a small business for sale?
In most cases, you won’t just stumble across a small business for sale—you’ll probably need to do some hunting.
Here’s where you can start.
Call Local Businesses
Your first step for finding a small business for sale is to just to call some local businesses directly to get a feel for the current market in your area.
A lot of businesses for sale don’t actually advertise that they’re for sale. Some business owners don’t want to scare off customers or employees by putting a flashy “for sale” sign on their front door. So if you start calling around, you might actually connect with an owner that’s selling. Or more likely, the business owner might be able to refer you to other businesses in the industry or location that are for sale.
You should also tap into your industry or small business network by attending meetups and industry conferences. While there, you can ask around for references or professionals who can help you find the right business to buy.
When it comes down to it, networking is a crucial step to finding a small business for sale. Don’t be afraid to reach out to any and all businesses, professionals, family, and friends to ask for help.
Most business brokers are hired by sellers to find buyers and help them negotiate deals. Individual business brokers or brokerage firms will usually have a list of small businesses for sale, so they can connect you with multiple ptions.
If you’ve heard anything about shady broker practices within the small business lending industry, you might shy away from using one to buy a business…
But business brokers are a little different, and there are a few perks to using them.
Business brokers can:
- Help you figure out what you’re interested in. If you don’t even know where to start when it comes to buying a business, a broker can help you move in the right direction. A good broker will help you pinpoint your skills and interests and then connect you with businesses that might be a good fit. A business broker might even introduce you to an industry that you might not have thought to pursue.
- Tell you which businesses to avoid. A good business broker will know which small businesses you shouldn’t buy. With some experience under their belts, brokers can help you steer clear of bad deals and failing businesses.
- Help you negotiate. Once you find a small business for sale that’s the perfect fit for you, you’ll enter a complicated negotiation process. A business broker can tell you what you need to consider and what you should be asking for in the negotiation.
A business broker is a great way to find a small business for sale, but you should make sure you’re working with a good one. Try to work with a broker who understands and represents your interests, not just the seller’s.
Also, get a sense of the broker’s track record before you work with them. You’ll want to make sure that the broker can successfully connect you to a small business for sale—and not just lead you on a wild goose chase.
And finally, keep in mind that you’ll have to pay a business broker for their services. Business brokers usually charge a 5-10% commission on the price of the business. If you’re new to buying businesses, working with a broker could be well worth the cost.
But if you think you can handle the process on your own, you might want to wait to hire a broker until the very end. All the paperwork associated with buying a small business for sale can be complicated, so it helps to have a second set of eyes during the final process.
Small Business for Sale Websites
You can look for websites that list small businesses for sale.
Websites like BizBuySell.com, Bizquest.com, and Franchisegator.com are online aggregators for small businesses and franchises for sale. These websites let you filter your search by industry, location, and price. So if you’re still unsure of the kind of business you want to buy or where you want to operate, you can use these sites to compare and contrast your options to find the best small business for sale.
And if you do know which type of business you want to buy and where you want to look, these websites can be a huge time-saver. If you know exactly what you want, you’ll spend less time weeding through businesses that you’ve already ruled out.
Most of these websites will set up alerts when businesses go on sale that meet your criteria, helping you stay on top of your search for a small business for sale. You’ll also be able to see details and photos of each business you’re considering, so you can see online whether a business is a good fit—and not waste time visiting businesses in person that aren’t good options for you.
BizBuySell might be your best bet if you choose to find a business for sale on a website. With over 100,000 businesses for sale at various price ranges, you’re bound to find a good match for your needs. On top of business listings, BizBuySell has a long list of affiliate business brokers and tools to find local brokers in your area.
Look For Other Advertisements (Or Put Out Your Own)
Keep an eye out for ads in local newspapers or industry publications posting a small business for sale. You can also look online at Craigslist.com—there will definitely be ads for small businesses for sale in your area.
Or put out your own ad!
Finding a business for sale is a two-way street—it helps if businesses in your area know that you’re in the business of buying, too. You never know where a business buying opportunity might come from, so it helps to get the word out as much as possible.
Ready to Buy a Small Business for Sale? Ask Yourself These Questions First
Buying a small business for sale is a great way to step into the world of entrepreneurship. But it’s crucial that you pick the right small business for you.
Here’s what you’ll need to ask yourself.
Question 1: What am I interested in?
You’ve probably been told over and over to run a business or sell a product that you’re passionate about.
Now, this isn’t always the recipe for success for small business owners. Plenty of small business owners run successful businesses that aren’t their life-long passions.
But if you’re buying an existing business, it makes sense to adopt a business that you’re interested in. You’ll be much happier—and determined to be successful—if the small business for sale is at least related to a passion, interest, skill, or experience of yours.
If you have some existing knowledge or familiarity with the industry, the business model, the product, or the customers, you’re more likely to commit to the business’s success and drive it forward with good ideas.
We’re not suggesting that you take over some totally unfeasible company because you were interested in the product when you were 15. Basing your purchase entirely off interest is rarely the way to go. But we are suggesting that you weigh more than just the business’s future financial promises and potential when you’re deciding which business you’ll buy.
In the best-case scenario, you’d buy a business that’s interesting to you and has the potential to be successful.
Question 2: Is this business a smart investment?
The next question to ask yourself is, “Will this business actually be successful?”
This is when you’ll really need to be realistic and thoughtful. If, a year or so down the line, your business is just getting by without much growth or success, you’ll be kicking yourself for not thinking through its future before you bought it.
So when you come across a small business for sale, think through these things before you buy:
- What kind of industry does it operate in?
- How many other businesses are doing similar things?
- How has this business performed in the past?
- How much will I need to invest in the business for it to be successful?
- How involved do I need to be as a manager for it to be successful?
There are a lot of things to consider, we know. But you’ll need to think long and hard about what kind of potential the business has. If need be, bring in an advisor that can be your second set of eyes. For instance, a business accountant can look at the business’s current and projected financial health to see if buying the business is financially a good idea. Or you might want to consult a lawyer to get a better sense of the business’s legal structure before signing on the dotted line.
All in all, you shouldn’t buy an small business without doing your research first. You’ll want to be fully confident that the business won’t go under right after you buy it and that it has some potential for lasted success.
Digging a Little Deeper…
Before you make the decision to buy, you’ll want to verify some of the details about the business.
To start, look closely into the state of the following:
Look closely into the details of all products and materials inventoried for resale or used in providing the business’s product. Consider the current state of the inventory, what’s on hand at the point of sale, and what was in stock at the end of the previous fiscal years. You’ll also want to think closely about how you’ll sell the inventory. If it’s old or in bad shape, you might not be able to sell it for full value.
Along those lines, you might also want to have the inventory appraised. Inventory is a tangible asset for businesses, so you’ll want to know exactly what it’s worth before you buy.
- Equipment & Machinery
What kind of equipment and machinery does the business currently own? And what condition is it in? This includes both industrial machinery and office equipment.
You’ll want to know what the business owned in the past, what the business currently owns, whether it’s owned or leased, and if there’s any outstanding debt backed by the equipment with equipment financing.
- Financial Documents
You should ask for as many financial documents the business has to offer. Ask for financial statements, tax returns, sales records, all accounts receivables, and all accounts payable.
Looking closely at the business’s financial information will give you a sense of any fluctuations in cash flow and the business’s overall earning power. This is a great point in time to bring in an accountant who’s familiar with the particular type of business you’re thinking about buying.
- Legal Documents and Contracts
Take a look at copies of all contracts and legal documents that are necessary for running the business. Check out all leases, purchases and distribution agreements, sales contracts, employee agreements, and so on. Any document that legally binds the business is worth looking at—you’ll want to know exactly what you’re getting into by buying the business.
On top of that, request access to other legal documents like business registrations, articles of incorporation, registered trademarks, patents, and so on. You’ll want to understand the structure of the business, where you can do business, and what kind of intellectual property the business works with before taking it on.
- Outstanding Debts & Complete List of Liabilities
If the business has outstanding loans or other types of debt, you’ll definitely want to understand the progress of the obligations. Existing business debt isn’t necessarily a bad thing, but you should know what you’re getting into before you take on the burden of repaying lenders.
You should also check to see if the current owner has used assets like capital, equipment, or accounts receivables to secure any loans. On top of that, ask if creditors have put any liens on the business and its assets.
- Location, Market, and Customers
If you’re buying a brick-and-mortar business, take a look at where the business operates. If you’re a retailer or in the service business, it’s especially important to get a sense of where the business sells and what’s in the area. Ask for a map of the area the business covers, look into the surrounding competition, or ask if there are any special requirements for operating the business in certain locations. The more information on the business’s market conditions, the better.
Along the same lines, get some information on the business’s customers. What are the customer patterns? Who buys the most, and during what season? What’s the business’s customer retention rate? How are the customers billed, and do they pay up on time and in full? Getting some insight on the type of customer the business works with is a good indication of whether it’s the right business for you to manage.
When you’re looking to the business’s current customer base, also ask for any seller-customer conditions. In some cases, the business owner might have certain ties with their customers. If the customers are loyal to the business owner—not the business itself—you run the risk of losing your clientele when you take the reins.
- Employees and Organization
Finally, look into the business’s employees and its structure. Just as customers could be loyal to the previous owner, employees might not be so keen to the switch in ownership. Current employees have valuable knowledge about the business, so you’ll want to make sure that the employee structure won’t drastically change after the transition in ownership.
You should also take a look at any management-employee contracts, employee wages and benefits, insurance policies, and so on.
In general, you’ll want to get a sense of the organization of the employees and how the current owner manages the team. If the current structure doesn’t align with how you’d like to manage the company, the business might not be a great fit for you.
Question 3: What are the red flags?
If you’ve found a small business for sale and you’re thinking about buying it, take a step back and ask yourself this: “Why is this small business for sale?”
More often than not, the owner just wants to retire or move on to the next venture. But in some cases, the owner is trying to get the business off his or her hands for a reason.
If the small business for sale is flawed in any way, you’ll want to know. But figuring out if something is wrong with it—and what’s actually causing the problem—will require some digging.
So when you’re doing your due diligence and researching the ins and outs of the business, keep a critical eye on everything you look into. If numbers seem off or things seem fishy, they very well could be.
If any red flags come up, talk to the current business owner. If it isn’t something you should be worried about, the business owner should be able to be upfront and explain it. If they’re not forthcoming about the blip in the business, then there’s reason to worry that the problem is bigger than they’re making it seem.
And finally, talk to other people about the business. If possible, call existing customers, talk to neighboring businesses, or call up any companies that have partnered with the business. They’ll have a good—and unbiased—sense of how strong the business is doing.
Found the Perfect Small Business for Sale? Here are the Next Steps
So, you’ve considered a few small businesses for sale and have done some digging to find the perfect one for you.
You made it past the first steps, but there’s still a lot ahead of you before you can call that business yours.
1. Gather all the information you need to move forward.
You’ve already vetted the business when you were considering whether to go forward with buying it, but now you’ll need to work with a banker, accountant, and lawyer to get all that information you’ll need about the business to move forward with the deal.
There are many, many documents you’ll need to collect, but here are the essentials you need to gather:
- Letter of intent
- Confidentiality agreement
- Contracts and leases
- Business financial statements
- Status of inventory, equipment, machinery, and building
- Sales agreements
When you’re buying a business, these documents tie it all together. You’ve already looked into the details of the business, but you’ll want all this information in writing before agreeing to a deal.
2. Evaluate the price of the business.
How much will you need to pay to actually buy the business? There are a few ways to assess the value of an existing business, like cash flow, tangible assets, or intangible assets.
Whichever method you choose to use to evaluate pricing, make sure you’re looking at both the current financial health and the growth potential that you’re paying for. To get a sense of this, take a look at the business’s balance sheet, cash flow projection, tax returns, and income statements to get the full picture of what you’re paying for.
You’ll also want some help negotiating the price of a business—because not every price tag is set in stone. This is a great time to consult your business broker, lawyer, banker, and accountant for help.
And once you know what you’ll need to dish out to buy the business, figure out how you’ll get the cash. There are a few different ways to gather the capital you need to make the purchase—such as partnering with others, selling stocks, leasing, business acquisition loans, and so on.
3. Close the deal.
Your last step? Sealing the deal.
To do so, you’ll need to put together a lot of legal documents, notes, and agreements—like the bill of sale, adjusted purchase price, patents, trademarks, non-compete agreement, and much more.
Once you’ve reviewed everything with a lawyer, you’ve made it! You’re just one signature away from buying a small business.
Now, we simplified those final steps to buying a small business for sale. There’s a lot that goes into the purchase of an existing business, and you’ll need to invest some time into the entire process.
But now that you know how to find a business for sale, you’re starting the process off on the right foot!
The post Ready to Buy? Here’s How to Find a Small Business For Sale appeared first on Fundera Ledger.
from Fundera Ledger https://www.fundera.com/blog/2016/10/04/small-business-for-sale