Buying an Existing Business Script
Hi everyone, I'm Priyanka Prakash, senior staff writer at Fundera.
If you're looking to start a business, do you know that you don't necessarily need to
start from scratch?
Buying an existing business can give you a head start over competitors, and get you quickly
started in business.
We're going to explain exactly how to buy a business in eight steps, starting with step
1 out what type of business you want to buy.
Hundreds of businesses are up for sale at any time.
More than 10,000 businesses changed hands in 2018 alone, so there's definitely no shortage
of opportunities when you're looking to buy an existing company.
We recommend buying a business in an industry where you have some experience because that
increases the chances that you can run the business successfully.
For instance, if you’ve worked for years at a restaurant as a chef, maybe it's time
to finally own a restaurant of your own.
Or maybe you're a personal trainer, and have always dreamed of opening your own gym.
In those cases, the transition to becoming a business owner would be pretty seamless,
and you'd have the knowledge to spot fatal flaws in any perspective deals.
Step 2 is to search for businesses that are up for sale.
If you've been in the industry for a number of years, you'll often hear about potential
sales by word of mouth.
You might also just be walking around your neighborhood and see a business for sale sign.
You can also find businesses for sale through a business broker or through business for
sale websites such as BizBuySell.
BizBuySell is the largest online marketplace for business sales.
You can choose from multiple business types, and you can also filter by location and budget.
Step 3 is to understand why a business is up for sale.
As you shop around for a business to buy, you should understand why it's actually for
sale.
In many cases, business owners put their company on the market because they are retiring, they
can't manage the business financially or from a time standpoint, or simply because they're
moving on to other things.
However, there are some things about a business that can't be turned around.
For instance, if the business is a retail shop but is located on a very quiet street,
you'll have difficulty bringing in sufficient foot traffic into your store no matter what
you do in a turnaround.
So in that case, you probably want to pass on the business and consider other options.
Step 4 in buying a business is to narrow in on the business you want to buy.
Up until now, just like when you're on the market for a new car and new house, you probably
have multiple businesses that you're interested in and considering.
Now it's time to hone in on your options more closely and choose a business that matches
your budget, goals, and resources.
You'll need to take an initial assessment of what you want to change about this business
and the amount of time and resources that this will take.
For instance, if the business currently has one employee and you're envisioning a 10-person
business, that will take a significant outlay of money.
Similarly, if you want to bring technical changes to a business but lack technical skills
yourself, you'll either need to learn those skills or bring on someone with the necessary
technical know how.
Hiring a business broker at the stage can be really, really helpful because businesses
often have expertise in facilitating sales in particular industries, and they can bring
invaluable insight or knowledge.
You should also hire an accountant who will help you go through the business’s financials,
and a lawyer to help you in future negotiations.
Step 5 is to do your due diligence.
You'll probably hear the phrase “due diligence” a lot during the process of buying a business,
and this is just a fancy term for finding out anything and everything that you can about
the business now so that there are no surprises later once you're the owner.
During due diligence, your accountant will go through the business’s tax returns, balance
sheet, profit and loss statement, and other financial documents.
Your lawyer should also check organizational documents and business licenses to make sure
everything is on the legal up and up with the business.
During this stage, you're likely to be looking at a lot of confidential information such
as customer lists of the company.
That means that the current owner will probably expect you to sign a nondisclosure agreement
where you promise not to reveal this information to anyone else.
Step 6 is to evaluate the price of the business.
One of the most complicated parts of buying an existing business is figuring out how much
the business is worth.
Obviously, you need to come to a price that is fair both for the buyer and for the seller,
and that can be challenging.
Remember that an existing business comes with a lot of things already in place, and that
might include staff, equipment, marketing collateral, and more.
Now, there are multiple ways to price the value of a business, and that could be its
own video.
Some people based the price on historical or projected earnings, others on the value
of the business’s tangible and intangible assets like intellectual property, and others
based on how comparable businesses in the same area and in the same industry have sold
for recently.
The best approach is often to hire a business valuation specialist who will assess the business's
value using multiple methods and help you negotiate with the seller.
Step 7 in buying a business is to get the capital you need.
If you're lucky, you might have enough money saved up to buy the business fully in cash,
but most buyers need some kind of financial assistance.
You can use debt financing, bring on a partner to divide up the costs, or even sell company
stock to employees to get the cash you need.
Another option is seller financing where the seller will extend you a loan to buy the business.
And the last step of buying the business is to close the deal.
During this stage, you want to have all the paperwork signed and officially transfer ownership
of the business over to you.
The bill of sale proves the actual sale of the business and transfer of assets.
There are also certain tax forms that you'll need to complete such as IRS Form 8594.
You might have to notify local tax authorities about the sale under bulk sale laws, so make
sure you understand the requirements in your state and locality.
And those are our eight steps to buying a business.
We hope this makes you feel more confident on your journey to entrepreneurship.
For more small business insights, head over to fundera.com/blog and subscribe to our YouTube
channel for more videos.
Thanks everyone.