If you're ready to start a business in a specific field, you might want to buy an existing business instead of starting from scratch.There are a lot of benefits to buying a business, one of which is the fact that you won't have to find a location, hire employees or buy equipment.Buying an existing business that already has goodwill and name recognition makes it less risky than starting one on your own.Before you make any commitments to the owner, you must research the existing business thoroughly so you know what you're getting into.
Step 1: There is a business for sale.
If you want to buy an existing business, you need to locate one that the owner wants to give up.You can either use a business broker or talk to people you know in the industry.Once the sale of the business is completed, the broker will make a commission.Broker's are usually paid a commission by the seller.If you have doubts about your ability to operate a business profitably, don't agree to buy it from the broker.You should consider the location of the prospects.You want to know how convenient each would be for you and how it would fit in with your daily routine.
Step 2: The right business is chosen.
Before buying a business, make sure it matches your interests, skills, and experience.If you don't understand the market in which the business operates, you will not be able to reap the benefits of buying an existing business.Most of the time, you want to avoid getting into a business sector in which you have no experience or knowledge.Keep in mind that each niche has its own needs.Just because you have experience running seafood restaurants doesn't mean you are ready to operate a bakery.If you're not familiar with the projections, check them out.To find out how businesses are doing in your area, check with trade organizations or the Chamber of Commerce.If you want to find similar businesses in the same area, you should focus on the region where the business is located.The size and scope of the operation should be considered when talking to local business owners who run similar operations.The owners of other independent or family-owned stores in the area may have more useful information than the managers of national chain stores.
Step 3: The business owner should be contacted.
Once you've decided which business you want to buy, you should send the owner a letter of intent with a general offer.This is the first formal communication you will have with the current business owner regarding your desire to purchase the business.To find the legal owner of the business you want to buy, you can check the secretary of state's website.Secretary of State databases include information for corporations and limited liability companies.In some states you can find d/b/a listings, which are listings of the business names of sole proprietors registered for use in that state.You may have to contact the county clerk in the state where the business is located.Begin your letter with a description of who you are and how you intend to purchase the business.Make it clear what your terms are.If the company's client lists are not included in your letter, you aren't interested in buying the business.The basics of the deal should include how you will fund the purchase and a schedule of payments.If you intend to purchase stock in the business, tell us what you plan to do.Let the owner know that you are willing to negotiate and would like to have an appraisal done on the business.You should ask yourself why the owner wants to sell.If there is a significant downside to the business, successful business owners don't want to get rid of it.The offer in your letter of intent should be a ballpark estimate, because your offer may change after you complete your research of the company.It is subject to change and there is nothing binding about the offer.
Step 4: Hire an experienced person to do appraisals.
A neutral estimate of the business's worth can be provided by an appraiser.Since you want to pay as little as possible, and the current business owner may be inclined to overvalue the business to account for his or her time and investment as well as sentimental value, a third party expert is best positioned to objectivelyValuate the BusinessThere are many different methods that can be used to value a business.Unless you're an expert in business valuation, hiring a professional will save you time and money.You can expect an appraisal from a qualified professional to cost between $2,500 and $5,000.If you're looking for an appraiser who has professional certification, you should look for one that has completed significant educational requirements and has experience in the field.To get a fair appraisal, you should insist on a professional who is completely independent from the original business owner.
Step 5: Take a look at what will be included in the sale.
You need to know which of the business's assets will be included in the sale and which you are responsible for buying on your own.If the existing inventory or service contracts are included in the sale, you can drastically decrease your startup costs.While purchasing all of the business's assets may smooth the transition, avoid buying anything you don't need or that could become a liability.If the business has unsold inventory that has been on the shelves for months, it might be a good idea to liquidate it rather than give it to you.
Step 6: Consider talking to an attorney.
If there are large sums of money involved, an experienced business attorney may be the best way to make sure you get a good deal and your interests are protected.A team of professionals who will assist you in buying the business should include an attorney.Your team may also include your accountant.A business attorney with experience buying and selling businesses is a must.Some candidates can be found by checking with your local bar association or chamber of commerce.Your attorney can help you figure out what legal and organizational documents you need to file.Depending on the type of business you're buying, filing requirements from multiple state and federal agencies may be required.An attorney can make sure you comply with the requirements.
Step 7: Obtain certified copies of the business's financial records.
Before you make a final decision to purchase, you should analyze the business's finances.The financial statements for the past three to five years should be looked at by you.A certification statement from a CPA is required for the statements to be accompanied.You should pay close attention to the outstanding debts of the business as well as the amounts that may be difficult to collect.The ultimate purchase price can be affected by this.You should review the business's tax returns over the past three to five years.If taxable income has increased or decreased, look at the deductions and profitability.A CPA can help you review and analyze the business's records.The company's statements will be verified by the CPA instead of you having to take them at face value.Look at the company's advertising costs and compare the prices the business charges for its products or services with industry standards.You will want to find out if prices will increase or decrease in the future.
Step 8: Analyze employee contracts.
It is important that the company's personnel and payroll records are accurate and up to date.You want to know who is getting paid and what skills they bring to the company.Reviewing personnel files and contracts can help you understand how the company works on a day to day basis, as well as where there are possibilities for you to reorganize staff for optimal efficiency.In addition to the files and contracts, you may want to talk to employees directly to get their opinion of the company's reputation and strength.
Step 9: Evaluate intellectual property.
The intellectual property included in the deal could affect the value of the business.A confidentiality agreement may be required by the business owner.You promise that the information you get will only be used to make a decision about buying the business.Intellectual property, such as patents, can have a value other than the business itself.You may have to work out a separate deal if you want to own that intellectual property.If complete ownership of the intellectual property will be included in the sale, or if you will have a license to use it for a specific period of time, talk to the original owner.Before the transfer of ownership is legally enforceable, additional documents must be filed with the US Patent and Trademark Office.If the business has a lot of intellectual property, you might want to have it evaluated.
Step 10: Check for any pending or past litigation.
If the company is involved in a lawsuit, you might want to look into buying the business.Check the court records to see if any lawsuits have been filed against the company.For a nominal fee, many courts have a database of court docket information online.If the company has no lawsuits against it, you should check online customer reviews, industry associations, and organizations such as the Better Business Bureau to see if there are any complaints at all.
Step 11: Corporate documents and other registration should be pulled.
Make sure the business is in good standing with regulatory agencies and has all required licenses.If your purchase of the business includes any real property, make sure you check the regulations for the land and buildings.You want to make sure the property is in compliance with the laws.If you want to buy the business, you need to review copies of the lease and find out what you have to do to transfer it into your name.If the lease doesn't permit transfer without permission of the landlord, you need to secure that permission before you agree to purchase the business.All applicable permits should be up-to-date and in good standing, and the business should comply with federal and state safety regulations.
Step 12: Look at inventory and assets.
Products that will be included in the sale should be assessed and valued.You don't have to accept the original business owner's word for it.If the business has inventory that's been collecting dust for years, or if it isn't in line with your plans, you may be able to lower the price.You can get a list of all the assets of the business from the original owner.To value these assets, you need to know the original purchase price and how long ago each item was put in service.
Step 13: Agree on a price.
You have a good idea of what you're willing to pay for the business once your due diligence is complete.The total purchase price for the business should be negotiated with the original owner.Some assets can be purchased separately.Businesses can be purchased using installments with a significant amount paid up front as a down payment.Keep yourROI in mind when negotiating a purchase price.If you're buying a small business, you want to make sure your return on investment is between 15 and 30 percent.If you get below that point, you'd be better off buying stocks or commodities than buying a business.If you're buying a business for $500,000, you want to be able to make a profit of at least $75,000.If you're buying a business that has never realized an annual profit of more than $50,000 in its 10 years of operation, you should attempt to negotiate a lower purchase price.During price negotiations, the original owner may attempt to inflate intangible assets.Keep in mind that goodwill and business reputation don't have a true monetary value.You shouldn't pay more for a business that has a good reputation than you would for one with a neutral reputation.
Step 14: The closing date should be determined.
If you both have time, you should set a closing date that will allow you to complete the necessary paperwork in the future.If your purchase includes company vehicles, you may have to transfer title and registration into your name or get a new insurance policy.It can take a while to get these things done.
Step 15: Write your agreement down.
Having a written contract for the purchase of the business is essential, even if you can find a template online or have an attorney draw up the agreement for you.If you don't have an attorney draw up the agreement for you, at least have one look over it before you sign it to make sure you've covered everything that a court would refuse to enforce.Financing agreements, promissory notes, leases, and tax documents are some of the other documents that need to be prepared and filed.If the transfer of intellectual property including patents, trademarks, or copyrights is involved, you may have additional licenses or assignments that must be in writing to be valid under federal law.
Step 16: Meet to discuss the terms of the agreement.
The owner of the business and you should go through your written agreement together to make sure that it accurately represents your deal and that both of you accept those terms.The basic sales agreement covers the sale of the business and transfers any assets that aren't specifically covered by another agreement.Multiple agreements, such as property leases or intellectual property licenses, should be included in the sales agreement.
Step 17: The agreement should be signed by you.
The agreement must be signed by you and the original owner.The original business owner should sign a covenant not to compete.This is the opposite of the confidentiality agreement you signed earlier.This document requires a promise from the seller that he or she won't compete against the business for a specified period of time.If the original owner agrees to stay with the business as a manager or consultant, you should include an employment agreement.The original owner may agree to work with you over the first few weeks or months of ownership to train you on the business's operations.
Step 18: There is a transfer of ownership of the business.
Once you've signed your agreement and made your upfront payment, begin transferring names and registration with an eye toward your closing date.During the transition period, you will be familiarizing yourself with the business as well as filing any documents required by state and federal agencies.Financing agreements governed by the Universal Commercial Code should be filed with the Secretary of State.Vehicle ownership transfers must follow the requirements of your state's department of motor vehicles, while real property transfers need to be recorded with the county recorder or county clerk.The assets you acquired through the purchase of the business must be described in IRS Form 8594.The state's tax department may have an equivalent form.