How to Buy an Existing Business
Do you want to go into business but do not want to build from scratch? If you are independently wealthy or have a financial backer, you can buy an existing business. If you do not have enough personal money or do not want to use your savings, you can take out a business loan to finance your major purchase.
Keep in mind, however, that business acquisition is a serious commitment that should not be entered into lightly. While you aspire to take an existing business into a new era of success, you should also be aware of the complexities involved in the transaction like preparing and processing a lot of legal papers and the risks inherent in a startup such as the challenge of customer retention and engagement.
To help you navigate the complex world of business acquisition, ask yourself the following questions:
1. Is the business potentially lucrative?
Before anything else, know exactly what kind of business you’re eyeing to buy and it’s potential for growth. Some of the most important factors you should consider include:
History. If your business has earned great revenue and has attracted many customers and built a good reputation in the past, it’s likely to succeed in the future. One bad business decision that led to financial trouble or lifestyle change may have caused the previous owner to want to sell the business—Selling it doesn’t mean it’s not sustainable.
- Location. Where your business is situated will affect its labour costs, taxes, and other financials.
- Size. Larger business could mean bigger profits than a startup. However, large business will require a higher purchase price and more complex transition. How many challenges can you handle?
- Industry. What industry is the business in? Do you have knowledge about its industry or at least passion for it? Industry knowledge helps improve your business operations, including cost reductions and maximising profits.
- Lifestyle. Will the new business require you to travel a lot, including overseas? Will it require you to work odd hours or would it follow a traditional nine-to-five? The buck stops with you as the owner of a business so you should be prepared to work according to your business’ needs.
2. Are you passionate about the business you want to buy?
Assess your interest and skills before embarking on any business venture. It’s not easy to run a business, even if it is already lucrative. There will always be challenges along the way that’s going to require your dedication and ingenuity to overcome. However, if you are passionate about what you’ve gotten yourself involved in, these hurdles will excite you and keep you motivated. While you have many lessons to learn as you take over an existing business from another entrepreneur, it pays a lot to have prior experience.
Remember, competitions exist in the constantly evolving business world and it can be strenuous to adapt and rise above your competitors and constantly maintain the lead. But the more you know about the industry you're getting into, the easier it will be for you to achieve your business goals.
3. Do you have the funds at hand?
It is wise to prepare your money for business acquisition in advance early so that when you get to the stage of negotiation, you can save time by having your funding source in place. You also won’t run the risk of losing the opportunity to buy an existing business to another interested entity while you’re still scouring for money.
Purchasing an existing business can be an expensive move can certainly be an expensive option. Without enough money in hand, you would need funding.
Your options for sources of financing include:
- Seller Financing. You pay the seller’s business in installments over an agreed period of time and frequency. Your repayments usually include the purchase price plus interest.
- Financial Investors. You team up with an angel investor or a venture capitalist to purchase the business you’re eyeing to buy. While you become the on-the-ground operator of your acquired business, your investors will have a say in how you run your business. You will also share with them your business profit.
- Business Loan. You borrow money from a traditional bank or an online alternative lender to make the purchase. Your approval will be high if you have a good credit score, stable source of income, and positive bank statements. Your chance will also increase if the business you’re purchasing has a known revenue history.
The commercial loan experts at Positive Lending Solutions can help you secure business financing fast and easily. They can also help you get the best interest rates and terms for your business loan, helping you allocate more funds into your new business.
4. Do you have someone skilled in business acquisition transactions to guide you?
The business acquisition process involves a lot of legal documents to gather and prepare, as well as legal implications to understand. If you’re a first-timer and do not know much about how the process works, it is wise to seek legal counsel.
Your attorney’s expertise about all legal regulations and standards related to the transaction will be invaluable. This experienced person will put together all the necessary documents and structure the transaction leading up to closing.
5. Do you have a post-acquisition plan?
It is not enough to purchase an existing business just because it has earned good revenue in the past. You should also have a plan about how you can operate and grow your business in the future.
Your post-acquisition business plan should include your business strategies and a projected profit and loss statement. Aside from having a plan before running your newly acquired business, you may also need the document when presenting to potential investors or lenders.
While a business acquisition can help you avoid startup costs and get instant access to existing markets and customers, you could suffer heavy business loss and financial difficulties if you handle an acquisition poorly. In order for your new company to be successful, be prepared for a lot of hard work before and after the purchase.
Positive Lending Solutions has a wide network of lending partners across Australia. We can help you find an affordable business loan to start a new business venture or buy an existing one. Call us on 1300 722 210 or fill out the Loan Pre-Approval form now.