How to Buy a Business

Buying a company is an exciting decision. If you want to buy a business however, there are 5 things you need to think about before your start your search, and well before you're ready to make an offer.

What type of business is right for you?

If you want to buy a business it's important to know what you want to do – and what you're good at. These two things don't always go hand in hand so it's important that you do a self assessment to find out. For instance, a person who loves food & wine might think that buying a restaurant might be a good decision. Further analysis may uncover that the long hours, risky nature of the business and staff issues might not make it such a good choice after all. The bottom line is that a business buyer needs to take an honest look at what they really want to do.

How much cash can you invest?

If you want to buy a business, it is very difficult to purchase one with no money down. Take a financial snapshot of your current financial situation. Talk to an accountant if you need help. It's important that you know how much cash you can invest in the business for a down payment and not leave yourself stretched too thin.

Leave yourself some cushion in your rainy day fund – buying a business usually comes with unforeseen surprises, so be prepared!

Do you have access to credit?

Think about how you will finance a business purchase and the ongoing operations after the sale. When you buy a business you will usually put some of your own money down, maybe negotiate some seller financing as part of the deal and perhaps get some bank or institutional financing as well.

Talk to your banker. Ask about the SBA loan programs available for small businesses and see if you quality. The idea is to get a broad sense of the financing that will be available to you so you can start your search with a basic understanding of what you can afford.

You will also need to think about business credit for the ongoing operation of a business after the purchase. Again, talk to a banker.

Can you tolerate the risk?

If you want to buy a business there is some risk that comes with the territory. Are you ok with this? Some people are not, so be honest with yourself.

There is certainly financial risk to consider but there are other issues as well. Running a business can mean leading a staff, enforcing rules and making the tough decisions. There is an element of stress involved, that not everyone can handle.

If you want to buy a business these are things you need to think about and figure out.

Some basic skills needed

If you want to buy a business you will have to learn to wear many different hats. Small business owners need to play many different roles in their organizations.

Example, they need to make payroll, budget, pay bills on time, do banking, organize the operations and marketing? and so on.

If they don't do all of this personally then they certainly need to have strong oversight and understanding into all of this. The point is that often small business owners need to be a 'jack of all trades'.

You need to know (or learn) about several different aspects of a small business if you want to operate it properly. If you want to buy a business are you prepared to do this?

All content posted is not a substitute for legal, accounting or other professional advice and not intended to be relied on as such. We always recommend that you contact your own advisors for their input.