12 Steps To Purchasing An Existing Business

Becoming an entrepreneur is a natural thing for people who deal in the service and similar industries. With the opportunities for starting your own business available nowadays, it is reasonable to say that the willingness to risk the money can be really worth the while. However, some people feel that it is much less of a risk to just buy an already existing business. This means that you do not have to start from scratch and will be able to take charge of a functioning business, which is readily waiting to bring you profit.

When it comes to purchasing an existing business, first we have to see the advantages and the disadvantages of such a course of action.

Advantages:

• There are little to none start-up costs
• Existing inventory and receivables
• The ability to jump-start the profits right away
• All the necessary registration and paperwork

Disadvantages:

• Higher cost than starting a business (influenced by the business concept, existing brands and products, customer base, etc.)
• Hidden problems of the business
• Possible uncollectable debts
• Existing contracts that you have to see to the end

Starting steps

Once you have decided on purchasing, instead of starting your own business, you should be aware that acquiring an existing business does not simply mean that you will go at the place, splash the cash and everything that is connected to the company will be yours that instant. Instead, there is a lot of paperwork to go through, and primarily, there are steps that you need to take even before you start looking for an entrepreneurship that you wish to acquire.

• Step 1: See what you want – The first thing that you have to realize, at the very beginning, is what type of business you wish to obtain. If you are just looking for a way to make money, and do not care much about what line of work will you be in, decide on the ones that seem most appealing to you, so that you don’t lose interest quickly.
• Step 2: See what you are made for – Not every man can do everything. Some are more suited for one line of work, while others are suited for some other lines of work. For this to work, you have to take a good look at yourself and discover your talents and what you are good at. Once you know this, it will be much easier to pick a job.
• Step 3: See whether the business suits your needs – You need to check whether the business has some conditions which may not suit you. For example, it may be perfect for you, but located somewhere where it is completely inaccessible for you. Things like this should influence your decision.
• Step 4: See whether it seems worth it – Once you have narrowed the field down a bit, start looking for reasonably-priced profitable businesses. Since they are for sale, there will definitely be something amiss. You will have to find out what before you go into any serious ventures.

Intermediate steps

Since the starting steps are all about searching for the right business, these intermediate steps are concerned with evaluating and doing the necessary preparations. Evaluation is key to making sure that you do not overpay for the business, thus leaving you with less money to inject into the operation.

• Step 5: Become diligent – Before starting any action, make sure that you have all the necessary paperwork and that everything checks out on your part. Paperwork that is required can be in the form of: licenses and permits (each industry sector has their own set of permits), zoning requirements (some businesses cannot be conducted in certain zones) and/or environmental regulations (should you acquire real property with the business, you will have to behave according to the set regulations)
• Step 6: Determine the value – Before you decide to make an offer for any business, you need to know how much to offer first. There are ways in which you can evaluate any business. There are five of them, and they are: capitalized earning approach, cash flow method, excess earning method, tangible assets method, value of specific intangible assets method. If you need more info about these methods and the evaluating a business, you can go here.
• Step 7: Doing deeper research – If you have evaluated a business, then it is the one that you have chosen. It is time to dig deeper and get into more serious research. First, you need to send them a letter of intent and then to sign a confidentiality agreement. This will show what you have in mind and make sure that only you will access their confidential information. After that, you need to go in and check their current contracts and leases, examine their finances and tax returns and view any important documents. This will give you a good base for deciding for or against purchasing the business.
• Step 8: Hire professional help – You cannot possibly go through all the data by yourself, which is why it would be wise to hire an attorney to go through the organizational and legal matters and documentation, while an accountant might help with the financial side of the documentation.

Closing steps

With all the information in your hands, it is the time to lay down the offer that you feel is reasonable. Then you have to go over all the details with a professional, like an attorney, and to seal the deal. Here are the four most important steps here.

• Step 9: Review the adjusted purchase price – This price will include things like rent, inventory and utilities up to the time when the contract will be closed. This modified price will help you see exactly how much the acquisition will cost you.
• Step 10: Review the necessary documentation – This documentation should include all the required documentation from the previous set of steps. The most important ones are a corporate resolution which will approve the sale, evidence that the business is in good standing and, if the owner has promised them, tax returns to back the evidence up.
• Step 11: Have a professional handle the rest – There are many subtle things that need to be taken care of, as well, like: leases, transfer of vehicles (should there be any), patents and other copyrights, and franchising. These are the details that can seriously endanger the whole venture, if they are not taken care of well.
• Step 12: Finalize the deal – Finalizing the deal means finishing up the paperwork, which includes the bill of sale and the settlement sheet. Once these are finished satisfactorily, you can consider yourself the owner of the new business. Another thing that is good to have is the covenant of not competing, which will prevent the former owner from interfering. Once everything is complete, you need to complete this IRS form (for the USA), or any other corresponding form, so that you could file for tax return.

So, that is it, these twelve steps should cover pretty much everything that you need for purchasing an existing business. There are many ways to start searching for existing businesses for sale, and it is recommended that you use these, because they will help you speed up on your way to becoming the owner of an established business.

This article was written with help of http://www.bizlistings.com.au professional staff.

Read more:

• Buying a Business: What You Need to Know