A lot of people dream of being their own boss, owning their own business and controlling their own lives. Starting a business is not easy. It involves spending a lot of money and time. In fact, you can expect frustrations to get in the way of your possible purchase. However, you can avoid these frustrations if you buy an existing one. Buying a business doesn’t need to be challenging. To avoid overpaying for the business, consider the tips below.
Do your Due Diligence
Doing your diligence helps you identify if the company is the right one for you and the price you want to pay. Know the reason the seller is selling their business. You may have to talk to the employees, customers and suppliers. After ensuring the reason is not to feel from undesirable things which you will inherit, do your due diligence further.
Whether you are considering buying a physical or online business for sale, analyze the company’s financial data, ideally from the last three years. Ensure you uncover pending lawsuits, intellectual property rights, relationship with customers and suppliers and any possible liabilities.
Make a Reasonable Offer
Make use of some formulas to value a business to know how much you should offer. The value must be adjusted to account for information not disclosed while you were doing your due diligence. Make sure you have an accurate picture of the business so you can decide whether or not to buy it and at what price. After you determine the price, present a letter of intent to the seller. Such letter should contain details of the price and terms in which you will buy the business. After you and the seller agree, you both should sign a purchase and sale agreement. This agreement itemizes each aspect of the sale. You may want to hire a lawyer or accountant to help you in the process.
Financing can come from banks, friends or even your family. Regardless of your financing source, keep in mind that lenders have their own requirements you need to meet to get approved for the funds. You may be required to have enough money for the down payment and to maintain your newly acquired business. The closing costs can be paid using your own money or as part of the amount you are financing.
Buying a business is the dream of many. But there are things you have to keep in mind first before you make your final decision. It is important to do your research and make a smart choice.