Four reasons for buying an existing business are:
- You can avoid the challenges and risks of starting a new business from scratch, such as finding a viable idea, creating a business plan, securing funding, hiring staff, building a customer base, and establishing a brand.
- You can benefit from the existing business’s track record, reputation, customer loyalty, market share, and goodwill.
- You can leverage the existing business’s assets, resources, systems, processes, and networks, such as equipment, inventory, suppliers, distributors, and professional advisors.
- You can generate income and cash flow from day one and have a better idea of the return on investment and growth potential of the business.
The process of evaluating an existing business in detail involves the following steps:
- Identify your criteria and preferences for buying a business, such as the industry, location, size, price range, and profitability of the business.
- Search for businesses that match your criteria and preferences using various sources, such as online marketplaces, brokers, newspapers, trade associations, and personal contacts.
- Contact the sellers or brokers of the businesses that interest you and request basic information about the businesses, such as a summary of operations, financial statements, asking price, and reason for selling.
- Screen and compare the businesses based on the information provided and narrow down your list to a few promising candidates.
- Conduct due diligence on the shortlisted businesses by requesting more detailed information and documents, such as tax returns, contracts, leases, licenses, permits, employee records, customer lists, and market analysis.
- Analyze the strengths, weaknesses, opportunities, and threats of each business and assess their value using various methods, such as asset-based valuation, income-based valuation, or market-based valuation.
- Visit the premises of each business and meet with the owners and key staff to get a firsthand impression of the business’s operations, culture, and potential issues.
- Negotiate the terms and conditions of the sale with the seller or broker of the business that you want to buy. Consider factors such as the purchase price, payment method, financing options, closing date, contingencies, warranties, and liabilities.
- Prepare and sign a letter of intent or purchase agreement that outlines the main points of the deal and protects your interests. You may need to consult a lawyer or an accountant for legal and financial advice.
- Finalize the deal by completing any remaining tasks or requirements before closing. This may include obtaining financing approval, conducting inspections or audits, transferring licenses or permits, notifying employees or customers, or resolving any disputes or problems.
Hope this helps, and have a great day! =)