Buying an Ongoing Business: What You Need to Know
As potential entrepreneurs, one of the options we are presented with is buying a business that is already underway.
There is great value on being able to understand and evaluate the history of an existing business. However, it may come with liabilities which sometimes are not easy to identify. You should analyze your options carefully in order to make the right decision.
Here are some important considerations you should take into account when purchasing an ongoing business.
A Franchise vs. An Independent Business
Franchises usually come from a successful scheme and have working methods and proven processes. However, even with the strongest and most established franchise, business involves risks and there is no absolute guarantee of success. The stronger the franchise, the lower this risk, but also higher payment for the right to use it.
An independent business has intrinsic advantages. When the business is experiencing significant growth and excellent returns there are some strengths that cannot be easily copied and these will help it maintain a competitive advantage. However, independent businesses tend to be closely linked to the identity of the owner, so its necessary to consider how the transition will affect the customer base.
Let's go shopping!
There are multiple sources of information about ongoing businesses for sale, as well as franchise opportunities that are available to entrepreneurs. Among these are local chambers of commerce, networking groups, accounting offices, law offices, friends and relatives, and of course the Internet.
Finding a business broker is recommended, but you must select a true professional that will bring you valuable guidance, and will help you find the right fit for what you like and what your goals are.
The importance of the Due Diligence
The Due Diligence is the process that enables you to answer the question: Is this a good deal? As the buyer, you must ensure that the information that has been provided is true, supported, and that it relates to the established price, i.e. that the business is "healthy" from every point of view.
For the "Due Diligence" you will need to enlist the help of at least an accountant and a lawyer. They will evaluate specialized areas such as financial statements, compliance with tax obligations, the possibility of transferring contracts, etc.
Financing the purchase
If required, external financing may be granted in order to buy the business. In most cases, loans require a good business plan containing both short and long term (3-5 years) projections.
One option is securing a loan guaranteed by the Government for small business. These loans are made through the Small Business Administration and processed through the commercial banking system with the SBA serving as guarantor of the loan.
Having a business and making it successful is a goal worth of fighting for. Once you have decided to enter this world, you must get ready for a difficult, challenging, but ultimately exciting and rewarding experience.
At GBS Group we specialize in helping and supporting entrepreneurs during all stages of the purchase of a business. From the initial valuation, through the due diligence and even helping you attain with the different licenses you may need, our team of multidisciplinary consultants will be with you every step of the way. Contact us to start working with you in the future.