If you have the drive to be an entrepreneur but don’t want to start from scratch, you may wish to consider buying an existing business. Buying an existing company often involves a larger upfront expenditure than founding a start-up, but usually carries a lower risk than starting from scratch. Financially, you’ll looking at historic profit and loss accounts rather than forecasts with actual sales to back it up. You may even be able to use your skills to push a slow company onto an exciting new direction.
It’s a common misapprehension that if a founder of a business decides to sell it, it must be failing. Either it’s doomed to fail, the finances are in shambles, or the founders are privy to information you’re unaware of. In truth, there are many reasons why entrepreneurs may wish to sell their businesses. They may be at a different stage of their lives, and the company’s demands no longer match their needs. Perhaps they’ve had enough of the present business strategy, or they’re looking to pursue a fresh idea. Although often when a founder is ready to move on, it may be tough to let go of something they built from the ground up. Which is why finding the right buyer — someone with the passion to grow the company and the strategic thinking to keep it running well into the future – helps a founder to go forward with confidence, knowing that the company they established is in good hands.
Purchasing a business is a significant decision that will have long-term consequences for your life and work. So, before you start looking at options, you should have a clear idea of the kind of business you want.
You’ll need to start searching for companies that are for sale and meet your desired characteristics. However, do not restrict your search to only those businesses that are “for sale” approach other firms you may know and enquire whether they would consider selling.
If you’ve done your homework and still can’t find the ideal company, try employing a business broker to assist you pre-screen companies, narrow down your areas of interest, and negotiate the terms of your final business purchase.
When you find a business that is a good match don’t be in too much of a hurry to jump in and buy it. Take a deep breath and do your research before becoming too excited. Remember a firm that seems to be in great shape may be hiding issues, that make it an inappropriate choice for your first purchase.
Once you have identified the business you think is right for you and carried out your initial due diligence it is time to arrange the funding that you will need. Do not be in a hurry to take the first offer of funds. Consider the split between equity and debt and be sure you have all the funds you may need if things go less well than you’d expected.
You’ve chosen a business, negotiated the terms, and secured the finances necessary to complete the transaction. The contract must now be prepared and signed on the dotted line. Make sure you’re working with an experienced lawyer and that you fully understand the all the conditions before signing anything.