Buying a small business is a way to become a business owner.Buying a small business is not as risky as starting your own.It might not be cheaper.To value the business and draft legal documents, you will need to hire professionals.You need to start looking for financing early on.You need to file paperwork with the government when you complete the sale.
Step 1: Consider hiring a business broker.
A business broker can help you find businesses.They may be able to help you in the negotiation process.More and more buyers are using business brokers.Business brokers are not free because they charge a commission.The fee is usually 10% of the purchase price.It might be cheaper to skip the broker altogether because they do the same things as lawyers and accountants.
Step 2: Hire a lawyer.
A lawyer might be able to help you with the process.An experienced lawyer can help you value the business.The lawyer can help you close the sale in a timely manner.You can get a referral from your local or state bar association if you don't have a business lawyer.
Step 3: You should consult with an accountant.
You will need an accountant to help you understand the financial documents you are looking at.You should schedule an appointment with an accountant, who you can find in the following places:You should get a referral from your attorney.You can get a referral from the Society of Certified Public Accountants.
Step 4: You can visit a Small Business Administration office.
Mentoring, counseling, and training is provided by the SBA and local resource partners.You can find local assistance on the SBA website.You can enter your zip code.The SBA can help you draft and revise a business plan.There are a lot of online tutorials that address a variety of issues involved in starting a small business.
Step 5: A LOI is a Letter of Intent.
The document opens the discussion.It is not an offer to buy the business.It's a way to stop anyone else from buying the business.The proposed purchase price, the assets you propose to buy, and any conditions for the sale of the business should be included in the letter.
Step 6: A confidentiality agreement needs to be signed.
If business owners think you will reveal the financial condition, they might not show you the books.You might have to sign a confidentiality agreement.You should run the agreement past your lawyer first.
Step 7: Look at financial statements.
For the past three to five years, get copies of the financial statements.They should have an audit letter from a CPA firm.Unaudited returns should not be accepted by the business.Pay attention to the owner's discretionary income.After deducting for rent, overhead and the cost of employees, this is the amount left.Be careful if theODI is declining.The best days of the business may be behind it.If you want to understand the financial health of the small business, pull your CPA into the analysis.
Step 8: Take a look at tax returns.
Look at the business's tax returns for the past three to five years before making an offer.You can see how profitable the business has been by studying the returns.The owner has to pay sales tax accurately.The current owner of the business is responsible for any sales tax that has not been paid.If you want the taxing authority to not come after you for sales tax, you should ask for a state clearance certificate.
Step 9: Look at accounts payable and receivable.
Separating out accounts receivable and accounts payable can be used to determine the business's cash flow.It's possible to see whether the business pays its bills on time or not.
Step 10: Current debts and liabilities should be reviewed.
If a profitable business is facing legal issues, you need to check it out.You can ask the business owner to give you a list of their debts, liens, and lawsuits.
Step 11: There are other important documents to look at.
Before making an offer, you should request and study the following business documents: contracts and leases.If there is a current lease, you have to work with the landlord to assume it.Customer lists.It's important to make sure the business has a good customer base.Managers and employees have contracts.If you want to keep your employees, you need to know what they get paid and the terms of their employment.There are advertising materials.
Step 12: Do you know the business's reputation?
You have to rely on more than just numbers and spreadsheets.You need to understand how respected the business is.If you buy a business with a poor reputation, you are setting yourself up to fail.You can ask the locals about the business.The library, coffee shops, and senior centers are good places to talk to people.Check with the police to see if there are any complaints against the business.You can check complaints with the Better Business Bureau.
Step 13: Discuss if the current owner will stay.
Wages and fringe benefits should be discussed.A covenant not to compete is an agreement that the current owner will sign if they want to leave the business.If you want the owner to agree not to work for a competitor, you may have to pay more.
Step 14: Think about the business's potential for success.
It's possible that a business that has been successful in the past won't be the same.The business is likely to succeed in the future.Is the business located in a town that is going downhill?Is the location no longer popular for consumers?If a new competitor is considering opening nearby, think about the business's current largest competitor.
Step 15: Different sources of funding can be identified.
You will need financing in order to buy a small business, unless you have a pile of cash on hand.Rollovers for Business Entrepreneurs (ROBS) are one of the options you have.You can use the money in your retirement account to purchase a company.You should work with a company that specializes in this type of financing.SBA loans.Some loans are guaranteed by the U.S. Small Business Administration.The SBA agrees to repay a portion of the loan if you default.There are conventional bank loans.You can get a conventional loan if you don't qualify for an SBA loan.There is seller financing.You may be able to get the seller to finance the sale.The seller might only finance a portion of the sale price, and this will not be available in all situations.There is other credit.You could take out a Home Equity Line of Credit or get a loan from family or friends.
Step 16: Consider a ROBS.
Equity built up in a retirement account can be used with a ROBS.You can use the money within 3-4 weeks.You will not incur taxes or penalties.There are many downside risks to consider before you go ahead.You need to work with a company that is specialized in ROBS.A large fee is likely to be charged by this company.There are reporting requirements for the IRS.If the business fails, your retirement is at risk.The money is gone when you spend it.
Step 17: There are SBA loans.
You can't get an SBA loan.You can get one with a bank and the SBA will back it.SBA loans have long payback periods.You need excellent credit if you have a score over 700.10- 30% of the business price is a large down payment.
Step 18: A business plan should be drafted.
You need a business plan to get a loan from a bank.It's important that your plan explains why you want to buy the business.At least three years of financial projections should be included.
Step 19: Start the loan process early.
You will need to complete different forms for each lender.You should call as soon as possible.Before applying for a loan, you should check your credit report.Correct any errors in the report.If you have poor credit, you need to get it fixed as soon as possible.Get pre-approved from the lender.You have to provide the lender with information before you take out a loan.Pre-approval can be obtained from more than one lender.When you get to closing, the bank's lending requirements might change.You can go to a different lender if that is the case.As a down payment, pay 15-20%.Make a list of the collateral.Banks aren't willing to lend to small businesses.It is possible that you will have to pledge assets as security.Some banks want to be able to cover at least 50% of the loan amount.
Step 20: The offering price should be adjusted.
The price may need to be adjusted based on your due diligence.The owner should negotiate with you.Be prepared to back up any price with reasons why you are lowering it.The value of inventory accounts receivable and accounts payable should be included in the price.
Step 21: A sales agreement can be entered.
A sales agreement should be drafted by your lawyer.You can have your lawyer review it if the seller's lawyer drafts it.The sales agreement will list the business assets that you are purchasing, such as customer lists and intellectual property.
Step 22: Required documents should be reviewed.
You and your lawyer will have to review many documents at the closing to make sure the sale is legal.If the seller is offering financing and the business is in good standing with the state tax, the corporate resolution will approve the sale.
Step 23: A bill of sale can be obtained.
The bill of sale shows that the sale has gone through.The closing should be reviewed by your attorney.You need to keep a signed copy.The document is used to transfer ownership of business assets.
Step 24: The closing or settlement sheet should be completed.
The details of the sale are listed in this document.Everything on the settlement sheet should have been addressed.This document is typically drafted by your attorney.If you use an escrow to close the sale, the agent will prepare it.
Step 25: Security agreements should be handled.
You probably had to pledge your assets as security for the financing.If you default, your creditor can seize your assets.Signing security agreements at closing is probably what you had to do.You have to record your security interests with the Secretary of State in the state where you purchased your small business.Your lawyer should be able to handle it.
Step 26: The appropriate IRS form should be completed.
You need to complete the IRS Form 8594 asset acquisition statement.The amount of assets is indicated on the form.This information is needed for your tax return.The form and instructions can be found at www.irs.gov/uac/form-8594-asset-acquisition-statement.