A Beginner’s Guide to Buying and Selling a Business
Thinking of Buying Or Selling A Business? Starting a business from scratch and building it into a profitable venture is a challenging task. This is why some of the investors prefer to purchase existing profitable ventures in the area of interest. There are a few things that you should do to ensure a perfect fit and pay the right price for the business. We look at Buying a Business – Advanced Offer Structuring How Do I Sell my Business? A How-to Guide Should I Use a Broker to Buy a Business?
Should I use a broker to buy a business?
Using a broker when purchasing a business is advisable for the following reasons. Business brokers have the tools and resources to carry out extensive market research and back ground checks on businesses of interest. This research is important in eliminating businesses that may have internal problems that can hinder growth and prosperity. The research also comes in handy in deciding the offer and structuring it as you will have in depth of the business assets, liabilities, strengths and weaknesses.
Negotiating the deal requires excellent negotiation skills and experience which you may lack. However, the broker is likely to have professional negotiating skills having dealt with a variety of acquisitions before. The negotiation stage could linger based on the complexity of the deal and having a team of experts handling it prevents the chances of feeling coerced and fatigue that may lead to poor decision making.
A business broker has vast networks as well as channels of identifying potential businesses. They may have knowledge of various businesses that may be up for sale even if they are not listed anywhere. They therefore increase the opportunities available to you and therefore the possibility of finding the best business to purchase.
However, it is good to do your own due diligence to find out whether the businesses in your radar are worth your while. Why? Some brokers may fail to do a thorough job and others may want to use short cuts which can be a cause of failure.
Buying a Business- advanced offer structuring
At the end of the day, as an investor, your priority is to get value for your money by purchasing the business with the greatest likelihood for a high return on investment. For this reason, you must give much thought into the structure of the offer. Your business broker should guide and assist you in coming up with the best offer with respect to the target industry among other factors.
If you are buying the business on your own, there are different factors that you ought to put in mind as you come up with the offer. The important factors to consider:
- size of the business,
- its profitability,
- business assets and the value of the business,
- key business personnel,
- availability of financing options,
- risks associated with the deal and the person you are purchasing the business.
Ensure that the offer leaves room for negotiations and involves both financial and non-financial aspects to prevent delays.
How do I sell my business- a how to guide
Selling a business can be complicated. However, with the right knowledge and assistance, things should become easier. Firstly, determine whether it is a good time to sell your business. Do this by studying the prevailing market conditions. If the market conditions are favorable for a sale- a seller’s market- you will can then value your business in preparation for the sale. The valuation could be done in consultation with experienced valuation experts.
Detailed listing for your business
The second step is to come up with a detailed listing for your business. The listing aims at attracting appropriate potential buyers. And should therefore include:
- important financial details of the business,
- the business location,
- the asking price,
- the value of the assets,
- projected business growth rates
- and your contact information.
This is then sent to different directories- digital and traditional- for listing.
Receive bids from potential buyers
The third step is to receive bids from potential buyers. Analyze these bids as they stream in to avoid piling up. Bids can be rejected or put on hold for further analysis and comparison with other bids. In the case that you do not receive any bids, you should change your marketing strategy and tactics in order to reach the correct caliber of buyers.
You can then set up one on one meetings with all interested parties. Do this in order to:
- gauge their seriousness,
- determine whether they are a good fit for your business
- and to understand what their vision for the business may be.
After you have met those whose bids piqued your interest, you should identify the top five bids and rank them. It is possible for deals to fail even after negotiation and therefore the need to have several options.
This is followed by negotiations and development of purchase and transfer contracts. Once you receive the funds or agree on a payment plan, you can transfer the business to the buyer in accordance with the plan. Be careful when payment plans are involved to avoid losing your business without any compensation.