When working through the process of buying a business, the transaction will go through different stages. The first active stage is obviously when the buyer and seller come together for their first meeting. However, before that happens there are many other things that need to happen before that first meeting which, if it goes well, will lead to a series of follow up meetings.
For the buyer, their first step needs to be learning and understanding the buying process. This means becoming as familiar as possible with the language of buying and selling a business as well as the jargon that’s part of the industry the business you are looking to acquire is in.
Next step is to understand how much of your personal capital you are willing to invest in a venture. A lot of buyers have seen the value in their homes decline. As a result, the equity is not available to pull from the house and use as a down payment. Other options are available such as using 401(k) retirement money but this is not a quick process and requires the buyer researching and understanding how this process works.
A key component is the buyer understanding and supporting their business and management experience. The best and easiest way to do this is with a limited resume. It doesn’t require a detailed breakdown of your employment history but it does require showing management and industry strength especially if the buyer wants the seller to carry a note or they wish to apply to a third party lender for a loan.
Some businesses have either professional or industry license requirements. For example, attorneys, accountants, chiropractors, physical therapists and others require a specialized license while electricians, plumbers, truck drivers and others require an industry license. If a license is required, for example, to run a preschool, do some research to understand the license requirements, the cost and length of time it takes to acquire and if you can run the business while you get that license.
Buying and owning a business changes a person’s lifestyle. The time they spend with friends may have to be put on hold while the business gets attention. Be prepared to understand the lifestyle changes that affect all entrepreneurs.
The next step is to define a geographic area that the buyer wishes to find a business. Most people don’t enjoy traveling anymore than 30 minutes one way to work or a business. Relocating to buy a business in a new location is an option but care needs to be taken not to try and take on too much.
With the above worked out, now it’s time to find a business of interest to you. There are different critical decisions to make. For example, retail, wholesale/manufacturing, home office. Next is business category with food, automotive, residential or business services or children’s services. Next is the role of the owner – involved in day to day, willing to hire and train managers or prefers to run absentee.
There is no shortage of questions and information to gather when buying a business. What’s important though is to put the process in the right order otherwise you will burn out and give up on your dream of owning and operating your business; and end up working for somebody who did.
Andrew Rogerson is a 5 time business owner who specializes in business transfer transactions. For business owners that wish to sell their business, Andrew partners with them to value their business, understand tax issues, market the business to potential buyers and handle all parts of the transaction including third-party lending, due diligence and escrow. For entrepreneurs thinking of business ownership, Andrew partners with them to determine their best option – buy an existing business, buy the rights to a franchise or start their business from scratch. He is the author of four books on business ownership called Successfully Start Your Business, Successfully Buy Your Business, Successfully Buy Your Franchise and Successfully Sell Your Business. For more information including immediate download, visit www.businesstransactionbooks.com.