5 Things to Consider When Buying a Business

Getting ready to buy a business is a huge personal step. You will be investing time, money, and effort into it on a regular basis. It’s like taking on a new job, but one where you have an incredible amount of responsibility.

Maybe you have been a manager or even owned a business before. Still, every business requires its own unique approach. Here are five things to consider when buying a business.

Do I have the experience I need?
Because every business is different, it is important to have some experience or at least exposure to that type of business before you make a purchase. In other words, if you have never worked in fast food or the restaurant industry, it might not be the right kind of business for you to purchase.

Either that, or before you purchase a business, you can spend some time working in the field and getting to know the industry from an insider’s perspective. Either way, you need to either get the experience you need in an industry or have the support of those who do have that experience before you make a purchase.

Can I afford this business?
When you are looking to buy a business, you need to set up a couple of things: first you need to establish your budget. What can you spend on not only acquiring the business, but learning and running it until it is profitable if it is not already? What will your startup costs really be?

Second, you probably have some business-related goals. How soon do you want to see a return on your investment and what does that look like to you? Can you wait that long for a return? Will this business align with the rest of your personal and financial goals?

These are questions you will have to answer for yourself, but once you have set your budgets and goals you can look at other factors.

Will this business be profitable?
This is a good question, and it involves two things. The first is the income potential of the business itself. What has been the business growth year over year and what is the likelihood that will continue? What sets this business apart from competitors?

Secondly, what is the industry outlook? Is this an emerging, growing industry or is it plateauing or shrinking? Is the industry itself growing year over year, or is this company bucking a trend?

Finding the answers to these questions requires some skill and working with a business broker like those in the Sunbelt network is often the best way to get the kind of information you need to make a good decision.

What is this business worth?
A part of your due diligence will be to determine the value of the business. There are several ways to go about business valuation, and the method or combination of methods you use will be determined by both the seller and the type of business and the reason you are purchasing it and how the purchase will be structured.

The value of a business goes beyond just the assets to earning potential and many other factors. A business broker can help you understand those factors and make sure that you understand the value of the business before you make an offer.

How will I pay for this business?
To purchase a business, you will need to come up with some cash. That might be in the form of a down payment, it might be in the form of a loan, or it might be a combination of several methods. You can look at a number of options.

• Owner/Franchisor Financing
• Investors
• Business Partners
• Bank Financing
• Friends and Family
• Small Business Administration Loans
• Personal Loans
• Asset Equity Loans

Each of these methods comes with its own pros and cons, and a business broker can help you navigate them when you reach the final stages of buying a business.

Ready to buy a business and have questions? Need help finding the business that meets the criteria you have established? Contact the Sunbelt team to learn more.

Don Pippin Jr, CBI CMSBB
Certified Business INtermediary