I want to Buy a Small Business, Now What?

be-your-own-bossIf buying a small business is appealing to you, begin by determining exactly why you want to become your own boss.

You may be looking for greater independence, an increase in your income, or a combination of the two.

Regardless of what motivates you at this point, these are some steps you should take:

● Consider your past training and experience because you are more likely to succeed with a business that is familiar to you, including the products or services it offers.

● Visit reputable web sites that are devoted to buying and selling business to see what is available in your area, and contact commercial brokers to see what companies are for sale.

● Before you close the deal with the current owner, do a thorough financial analysis of the business you have chosen. Generally speaking, this will include balance sheets, past financial reports, cash flow statements and projected income. You should also focus on all of the company’s liabilities, because once you become the owner, you will inherit its debt along with its profitability. To accomplish this, work with an accountant who is familiar with businesses in that industry.

● Request a package to review that will enable you to perform the necessary due diligence. It should include any major contracts the business has signed—such as leases, past tax returns, and all agreements with suppliers or employees. The package should also contain the company’s legal documents—any past or current lawsuits related to the business. In this case, you should work closely with any attorney in order to evaluate them.

● Spend a week observing how the business operates. For example, if you plan on buying a pet grooming business, study the customer traffic to determine if it equals the revenue the seller has indicated. In addition, talk to some customers to find out how they feel about the services the business provides.

● Determine what the business is worth, and note that most industries use a standard procedure for doing this, based on revenue from the previous year. The market value of capital equipment should also be considered, and a business that is growing rapidly will be valued at a higher rate because of its future potential.

● Find out why the business has been placed on the market. It may be doing well, but the owner could have plans to retire, relocate or recover from “burn out.” However, if there is an unreasonable amount of local competition, the area has changed or the equipment is outdated, you will probably want to end the negotiations at that point.

Raising the capital you need

If this something you have to do, start by preparing a comprehensive business plan. Banks and other financial institutions will expect you to provide a detailed plan explaining how you expect the business to grow. At the same time, determine what you can realistically afford to invest in the enterprise.

You can also find out if thee seller is willing to finance the sale, or perhaps a portion of it. This is often done, and it can reduce the down payment you need and help create a payment schedule that you can afford.

Making a smooth transition

Many times, the current owner is willing to stay on for a certain period of time after the sale is completed, acting as an unofficial consultant. Generally speaking, this can create a great deal of receptiveness on the part of your employees, customers and suppliers.

Once you make the financial commitment to buy a business, allow yourself sufficient time to adjust to the situation.

Experts warn that a sight decline in income for a few months after a business changes hands is not an indication that you won’t succeed in the long run, or any reason to panic.

To start your search to buy a business please visit www.businesssold.com.au/buy-business.html