If you are a first-time business owner, you should be absolutely certain that you have a strong interest in what the business does.
It will consume a substantial amount of your time and most likely require an inordinate amount of energy. The expression “choose a job you love and you will never have to work a day in your life” holds true for many successful entrepreneurs.
Know what you are getting into.
Not every business for sale makes a profit, which is not necessarily a bad thing. Many times, just a few small tweaks can turn things around. In the meanwhile, you need to be prepared to cover operating expenses for many months.
Establish an appropriate price for the business.
Determine if your offer should be based on the fair market value of the assets, comparable sales in the area, a multiple of net cash flow, or extraordinary circumstances such as unique assets or favorable lease terms. Many times, competition among buyers can set the price. You should set a limit that you are willing to pay and have the resolve to stick with it. Overpaying for a business can take a long time to recover from.
Establish an appropriate price for the business.
Determine if your offer should be based on the fair market value of the assets, comparable sales in the area, a multiple of net cash flow, or extraordinary circumstances such as unique assets or favorable lease terms. Many times, competition among buyers can set the price. You should set a limit that you are willing to pay and have the resolve to stick with it. Overpaying for a business can take a long time to recover from.
Determine your form of ownership.
An increasing number of businesses take the form of a limited liability company or corporation. Know your options and what works best for you.
Have your financing lined up for both the purchase of the business and the next several months of operations after close of escrow.
One of the biggest factors impacting the success of new companies is the absence of enough working capital. Be prepared to carry the expenses for at least six months.
Insist on using an escrow or the equivalent for the handling of the transaction.
Escrow companies perform a number of important functions in a business sale including the process of working through the contingencies of the deal, securing the funding from the buyer, conducting lien searches and much more.
Work out your business plan and next steps before and during your due diligence or investigation process.
Be prepared to spring into action the moment escrow closes. A lack of planning can be very costly.
Enjoy the process.
Make the most of the business search and escrow processes. Prepared entrepreneurs can reap substantial rewards with a new business.