Don’t Reinvent The Wheel - Buy An Existing Business And Make It Your Own

Investors and operators buy businesses every day. It is an intricate process with many procedural steps, but if done intelligently, can be very profitable. Fortune 500 companies don't happen overnight, but with hard work and perseverance, you can find success in your industry. Buying an existing business may have more upfront costs but, in most cases, is a less risky venture. Taking an existing business and fine-tuning the operations will lead to a more successful acquisition.

Factors To Consider When Buying a Business 

Buying a business is exciting and challenging at the same time. Making the right decisions and considering all of the facets of the business that you are buying, requires much patience and understanding. While there are many steps to acquiring a business, here are the four main factors to consider.

• Quantify your investment - There are many different business models, but agreeing on a valuation and making an offer to buy a business and determining a budget that will allow you to make improvements and manage your business, will help when you are narrowing down your purchase specifications. This will also help you secure financing.
  

• Choose an industry of interest - Eliminate unrealistic business ventures by relying on your talents and experience - do the research to find available business opportunities - buy a business in an industry that you are familiar with and you will have more successful end results. It's important you choose one you can see yourself running from an enjoyable standpoint for a long time.

• Do your due diligence - Look at the existing infrastructure - contracts, leases, cash flow and inventory. This is a very important step - one that requires understanding the business in question from a financial standpoint.

• Draft a Business Purchase Agreement - You have chosen a business, negotiated the terms, looked into the financing and are ready to complete the sale - Now, you have to draft a business purchase agreement that enumerates all of the intricacies of the business you are buying. Companies like Business Brokers of Texas can help facilitate this process with their knowledge of CPA's and attorneys. They help control the process from beginning to the conclusion.

Further Considerations

Finding an established business with consistent revenue and profitability gives you more control and is an easier way to go into business for yourself. There also is a higher failure rate for start-up companies versus buying an existing business. That being said, here are some pros and cons to consider before you "ink" that deal:  

Pros of Buying an Established Business

1. It's a proven concept or product - There are no guarantees when qualifying your industry for the products or concepts that you represent. A proven track record of success and profitability will result in a more successful acquisition.
2. Easier Financing - When you decide to buy an existing business, traditional bank loans are more attainable. This is because most bank loans are given to investors that can prove historical revenue when applying for financing.
3. Don't reinvent the wheel - When you are purchasing an existing business, you will save time and money improving what works well and eliminating problems. This will allow you to increase your profit ratios sooner rather than later.
4. Access to a database of clients or services - It is much easier to grow a business with an established customer database than it is to create a new one. This is an opportunity to improve current relationships and make new ones.
   
5. Immediate Cash Flow - This goes without saying - you can make quicker money when you step in and take over a business than when you are a start-up entrepreneur. However, building a new business takes significant capital, time and effort. Whereas, buying an existing business with a proven financial track record will help you get the immediate cash flow that you need to pay the bills and take care of other financial responsibilities. 
   

Cons to Buying an Established Business 

1. You don't want to purchase someone else's problems - Not knowing all of the facts about a business can lead to future problems for you and your business. Professionals at Business Brokers of Texas can help you avoid this heartache by guiding you through the "due diligence" phase of buying a business.
   
2. Neglected or Outdated Equipment - Sometimes when an owner cannot afford to maintain or replace old equipment, they decide to sell and that's when you can unknowingly acquire their neglected or outdated equipment and machinery. Make sure that during the due diligence process you address these potential problems and perform the appropriate inspections.
   
3. The current culture or work environment is threatening the integrity of the business - It is important to take a close look at the employees and current work atmosphere and make the necessary adjustments. If you address these problems head on, it won't become a "make or break" situation.
   
4. Past Due Payroll or Sales Taxes - During a change of business ownership, payroll and sales taxes can get overlooked. Make sure that you are purchasing a business without unknown liabilities and check with your local tax offices and get the proper tax clearances. Be sure the attorneys you use are knowledgeable transaction attorneys.
5. The "Get Rich Quick" attitude doesn't always work - Just because you are buying an existing business doesn't mean that you are going to be successful. Knowing the industry, being able to predict growth patterns and investing in improvements, will help your business grow and be profitable.
   

As elaborated in this blog, there is no way to predict success when buying an existing business, but as outlined, there are some safety measures that you can utilize to make the acquisition easier and more seamless. Business Brokers of Texas makes it their business to guide you through the buying process. Our dedicated professionals will help you determine the full costs of purchasing and operating the business that you are proposing to buy. This financial forecasting and analysis will help you feel more confident with the buying process and result in a more profitable outcome. Contact us today for a complementary 30 minute consultation.