business plan to buy an existing business

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How to Buy a Business: Everything You Need to Know

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Buying a business is a big decision — but when you pull the trigger on buying an existing business, you get the opportunity to become an entrepreneur without starting a small business completely from scratch. Every year, more than 500,000 businesses change hands, and that number is expected to skyrocket in the next several years as millions of baby boomers begin retiring and selling their businesses.

Buying an existing business is so popular because it lets you skip past some of the pain points and costs of starting a new business. But the journey from finding a business for sale to closing the deal can be long and complicated.

Before you begin the journey of buying a business of your own, find out everything you need to know to avoid buyer’s remorse. Our buying an existing business checklist will give you a step-by-step guide. We'll also cover the pros and cons of buying a business when you’re still just thinking about the idea, and end with how to buy a business when you're ready to close the deal and get the keys.

Buying an existing business checklist

If you’re set on the idea of buying a business, then it’s crucial to make sure you pick the right business for you . The easiest way to set yourself up for success is buying a business that you’re passionate about improving and taking to the next level. But passion alone isn’t enough — experience and knowing which questions to ask when buying a business are also important when making your choice.

Here is your buying an existing business checklist:

1. Figure out what type of business you want to buy

Narrow down your passions, interests, skills and experience. You’ll be happier if you buy a small business that dovetails with what you already like and have some experience in.

For example, if you’ve been a line cook at a restaurant for several years, maybe you’ve decided you’d like to own your own restaurant. Or maybe you’ve been an employee for a long time at a company that’s now on the market. In that case, who better to buy the business than someone who knows it as intimately as you?

Although you might just want to buy a business for the financials alone — by its expected return on investment — it’s also important to align yourself with the business's immaterial goals. After all, the more knowledgeable and familiar you are with the business's model, products or services, customers, industry and trends, the more innovative and successful your new ideas will be.

How much do you need?

with Fundera by NerdWallet

We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

2. Search for businesses that are for sale

There are plenty of ways to find the right business for sale that fits the criteria you’ve decided on. These include:

Online business marketplaces such as bizbuysell.com, the largest site of its kind with more than 45,000 active listings.

Craigslist ads.

Classified newspaper ads under the “Businesses for Sale” category.

Asking people in your network of small-business owners.

Going to meetups or industry conferences to ask other business professionals.

Working with a business broker.

Business brokers legally represent the seller, so you should be careful about conveying certain information to them (such as how far you’re willing to go in negotiations). However, a broker can help you understand what kind of business you want, prescreen businesses to cut out all the failing companies, keep negotiations civil and smart and help you with all the necessary paperwork. Brokers do earn a commission when a sale goes through, but it’s typically paid by the seller.

3. Understand why an existing business is up for sale

There are plenty of reasons a business owner might put their business up for sale, including something as simple as an innocuous lifestyle choice like retirement. Or, there might be a more worrisome reason, like a fundamental problem with the business. If you’re about to buy a business, you’ll want to know exactly why the businesses you're considering are no longer working for their current owners.

You should ask the current owners what challenges they've encountered, what they’ve done to try solving those problems and how those attempts fared. During every conversation with the current owner, you should ask yourself, “Do I have what it takes to meet these challenges with different or better solutions?”

Be on the lookout for:

A poorly conceptualized business plan (there’s just not a market for the product or service).

Competitors that are far ahead.

Existing business debts.

Location problems.

A brand issue.

Inventory difficulties (the cost of production is too high, low quality is losing the business customers, storage is difficult, there’s no supply and demand balance, etc.).

Bad equipment (it’s outdated and too expensive to upgrade).

Make sure you know as much as you can about the existing business's successes, failures, challenges and future opportunities. In addition to speaking with the owner about these concerns, also talk to existing customers, existing employees, locals in the area, neighboring businesses and so on. They’ll give you an honest view of how the business is doing, without the bias of the seller trying to convince you to buy.

4. Narrow in on a business that aligns with your budget, goals and resources

Until now, you might have been considering several different businesses, but now it's time to hone in on the best option. The best option is the business that aligns with your budget, goals and resources.

Calculating the ideal size, location, sales, staff and so on of your prospective business is an important step in your plan of buying a business, since it will give you a scale to keep in mind when you’re shopping around. Figure out how much you’d ideally want to change a business, and assess how much that will cost you.

Money isn’t the only thing you’ll be spending. Look at the time and energy commitments you’re planning to invest to make the business your own. Some managers prefer to be “on” at all times, in the weeds with their employees, while others prefer to delegate and, one day, own multiple businesses.

The amount of resources you’ll have to invest depends in large part on the people and processes already in place and on the experience you have in the industry. For example, if you’re buying a tech company but lack technical expertise, you’ll need to invest time learning the ropes or hiring people who have the experience.

5. Do your due diligence

Due diligence is the process of gathering as much information and intel as you can before buying a business, and it is a critical step in your journey to becoming a business owner. During this period, you should work with an accountant and lawyer to make sure you have all the information you need to move forward.

As the buyer, you’ll want to have a good accountant on your side to review the business's financials. It's also beneficial to have a good business attorney to represent you in negotiations and to help you understand how the transaction will be structured.

Before you can begin your due diligence, the seller will most likely ask for a signed confidentiality agreement or nondisclosure agreement. By signing, you agree not to disclose any confidential information about the business that’s uncovered during the due diligence process. This protects the seller in case you decide buying the business is not for you after reviewing all the documents.

There are many business documents, files, agreements and statements that you’ll want to collect and analyze, ideally with the help of a lawyer and accountant. Here are some of the must-have documents when doing due diligence in the process of considering whether to buy a business:

Business licenses and permits

First up is to make sure that the business you’re looking at has all the business licenses and permits it needs. If you’re buying a business, you want to make sure that the current owner hasn’t run afoul of any local business licensing laws. Businesses in certain industries, particularly highly regulated ones like food services and childcare, need a valid permit to stay open.

Organizational paperwork and certificate of good standing

If the business you’re buying is a sole proprietorship or partnership, there may not be official “founding” paperwork. However, a registered business entity, such as an LLC or corporation, will have organizational documents on file with the state. For an LLC, this is the articles of organization. For a corporation, this is the articles of incorporation.

The secretary of state in your state should also be able to produce a certificate of good standing for the business you’re interested in buying. This certifies that the business is approved to operate in the state.

Zoning laws

Check with your area’s local zoning laws to make sure that you're buying a business that isn’t violating any restrictions. While some localities allow mixed-use commercial and residential zoning, others have tight restrictions on where businesses can be located. This especially goes for businesses like bars and nightclubs that may not be desirable in a residential area.

Environmental regulations

Has this business been secretly dumping chemicals into the nearby reservoir or violating other environmental laws? Make sure the answer is a firm no before moving forward with buying the business. Double-check that this business abides by all of the area’s small business environmental regulations .

Letter of intent

As you move forward with buying a business, the seller issues a letter of intent, or LOI, to the buyer when both sides have agreed on a price point and about which business assets and liabilities will be included in the transaction. The price proposal, along with the terms and conditions of the business sale, should all be included in the seller’s LOI.

The LOI is an indication from the seller that they are serious about seeing the deal through to the end. Once you have it in hand, you can feel more comfortable forging ahead with the remainder of due diligence.

Contracts and leases

Half the fun of the decision to buy a business is all the stuff it comes with. Whether that means a lease for the location, equipment or something else, you’ll want to make sure the landlord is alright with transferring over these legal documents to your name. Otherwise, you’ll need to negotiate a new lease, which can significantly add to your expenses.

You’ll also want to review any outstanding agreements that the owner has with vendors or customers. This can be very revealing. For example, if your review indicates that 90% of the business's revenue comes from a single client, you’ll want to think twice before buying. If that client parts ways with the business, it could put a serious dent in the business's potential.

Business financials

Before buying a business, make sure to examine its past few years of financials, including:

Tax returns.

Balance sheets.

Cash flow statements.

Sales records and accounts receivable.

Accounts payable.

Debt disclosures.

Advertising costs.

Double-check that the tax returns and financial statements have passed an audit by a certified public accountant; don’t accept those financials from the sellers themselves.

Use the business's financials as an opportunity to analyze its income stream. The business you purchase doesn’t necessarily have to be profitable yet (particularly if it’s a young business), but there should be a clear path to profitability.

Be in the know on whether the business's debts and liabilities will be included in the transaction or not, and be wary of taking these on. For example, if some of the outstanding receivables the ex-owner was dealing with are too old — 90 days or more, for example — then they’ll be pretty tough for you to collect on. You might be better off asking the seller to insure them or contact the customers themselves.

Organizational chart

If you buy a business with employees, make sure you understand how they rank and relate to one another by asking for a business organizational chart. This should also include compensation data, management practices and processes, benefit plans, insurance and vacation policies.

Status of inventory, equipment, furniture and building

Make sure to critically analyze these aspects of the businesses, since their values will directly impact the cost of the business. You’ll want to check:

What’s on hand.

Its quality.

How sellable it is, both in terms of market viability and its condition.

How fast and for how much each type of inventory has sold in the past.

The present condition of equipment and furniture versus its original selling price.

Whether it was maintained well or needs repairs.

Whether the furniture will be useful to you or if you’ll need to replace it to be operational or for aesthetic reasons.

If you’ll need to make larger modifications to the building.

And other similar questions.

Sites like whayne.com can be used to look up equipment and obtain price estimates.

Other important documents

This list of documents will tell you a lot of information about the business, but there’s probably more you’ll want to examine. Your attorney or accountant should be able to identify additional documents specific to the business you’re interested in.

For example, ask the seller for property documents, equipment/asset listing, brand assets for advertising materials, an account of intellectual property assets, business insurance coverage, employee policies and contracts, incorporation information and customer lists.

Once due diligence comes to a close, you’ll need to make your final decision about whether buying the business is right for you. If you decide to go ahead, the sales agreement is what ties it all together.

The agreement will enumerate the final purchase price and everything you’re purchasing, including:

Tangible assets (inventory, equipment, furniture, building).

Intangible assets (goodwill, brand value, etc.).

Intellectual property (patents, copyrights, etc.).

Customer lists.

Have a lawyer help you put this document together or, at the very least, review it carefully before you sign.

6. Evaluate the price of the business with the earnings, assets or market approach

This is where many deals fall apart because buyers and sellers often place very different values on the same business, and several factors affect a business's value.

Buyers and sellers usually use some kind of pricing model to get a ballpark number and frame negotiations. During this process, it can be very helpful to call in an independent business valuation professional to make an objective determination of value. Valuation services, which can be found online or through word of mouth, cost around $3,000 to $5,000, but they can save you thousands more in the long run by coming up with a good estimate.

Whether you do this yourself or hire someone, it’s helpful to have some knowledge of different business valuation method s. To get some insight, we spoke with Mike Bilby, CPA and certified valuation analyst, at Concannon Miller.

Bilby said small businesses should understand three main approaches to valuing an existing company when they're considering how to buy a business:

Earnings approach

Best used for : buying existing businesses that are already turning a profit or have a positive forecast of earnings.

The earnings approach values a business based on its historical, current, and projected profits. Specific methods you may come across that fall into this approach include the capitalized earnings method and discounted cash flow method.

For businesses with a history of fairly stable profits, that history can be used to anticipate future earnings and value the business. Even if a business hasn’t generated a profit yet, earnings models can be used to predict how much the business might earn in the future. The disadvantage of the earnings approach is that it relies on a prediction of future earnings, which may not be accurate.

Assets approach

Best used for : buying capital-intensive businesses, such as manufacturing and transportation businesses, and businesses that aren’t profitable yet.

The assets approach measures the value of a business's tangible and intangible assets minus debts and liabilities. Tangible assets include things like equipment and real estate, and intangible assets include things like patents, trademarks and software. The assets approach considers the current fair-market value of the business's assets but also the future return on investment that the owner could get from those assets.

Market approach

Best used for : accounting for local factors or confirming a price that you arrived at based on one of the other two approaches.

The market approach measures the value of a business based on how much comparable businesses have sold for. It’s a good way to get a ballpark range for a business's value and to account for local factors that the other approaches may miss, such as the business's location in a particular neighborhood.

It might be confusing to get all these approaches straight in your head, but the point of all of them is to assess the current financial health of the business, as well as its growth potential. In reality, Bilby says, none of these methods exists in isolation. All three of these approaches can be used to arrive at a fair price for a business, and the final price will always be the one that both the buyer and the seller agree on.

7. Secure capital to make the purchase

Once you and seller agree on a number, the next step in buying a business is to get the money. There are a few different ways you can gather the capital you’ll need to purchase a business — some specific to buying an existing business, others pretty standard.

Here are some of the ways to finance a business acquisition:

Use personal or family money

If you’re able to cover the costs of buying an existing business, that’s always an option. This is more likely if you're buying a small business rather than a chain. Of course, you’ll want to consult your accountant before ponying up a large lump sum of your own cash. Also, make sure that you’re not using all your money buying a business because running a business takes capital, too.

Many businesses are also funded with money borrowed from family. If you go this route, you should understand the tax implications for gifts and family loans. Make sure that you and your family member put the exchange of money in writing and follow IRS rules for family loans.

Seller financing

Some sellers will agree to holding a note, or accepting staggered payments — sort of like a lender. This way, they get guaranteed income for the coming months (or years, depending on your plan).

There are rules around seller financing, particularly if you plan to use another form of debt financing as well. For example, sellers have to be on “standby” if you’re also getting an SBA loan, meaning they have to agree that they won’t be paid back until you pay off the SBA loan.

Some sellers might also be willing to trade in some assets, like some furniture they really loved or the company car, for a lower price.

By turning to a partnership instead of buying a business solo, you can divide the payments you’ll be making while still owning that company.

Taking on a partner when buying a business isn’t only useful to cut costs, though: You can also bring someone on board with more specific experience or a different skill set. Just don’t forget to draw up a partnership agreement, so co-ownership doesn’t cause any problems down the line.

Sell stock to employees

By selling company stock to your employees, you can get a big discount — making up 50% or even 90% of the business price by some measures. You’ll probably want to sell non-voting stock, if possible, to retain ownership over the business. In order to issue stock, you’ll have to organize the business (or re-organize it) as an S corporation or C corporation.

Start by leasing the business

It might be possible for you to lease the business instead of buying it outright — with the option to make the big purchase down the road once you’re able to afford it.

Understandably, not all sellers will be open to this option, since they more likely than not want to wash their hands and walk away from the sale. However, if leasing is something you’d be more comfortable with — even though it may cost more money in the long run — you might as well ask.

Debt financing

Buying a business will give you tons of documents to approach a bank or alternative lender with for financing: financial histories, tax returns, employee records, cash flow analyses, inventory and equipment valuations, and much more. This wealth of data makes business acquisitions a good candidate for loans because lenders aren’t working with a risky blank slate.

If you’re looking for a small-business loan , here are a few potential financing options that might help in buying a business:

Asset-based financing.

Getting a business acquisition loan is typically easier because the lender has a history to assess. But just like with any business loan, lenders will scrutinize all of the following:

Borrower’s personal credit score.

Business credit report and score.

Annual revenue.

Time in operation.

Balance sheet.

Outstanding debts.

For term loans and SBA loans for when you buy a business, banks typically require buyers to put down a 20% to 25% down payment on acquisition loans. However, the SBA recently made some changes that make it easier for buyers to obtain SBA 7(a) loans for buying a business. Now, the SBA requires the buyer to put down just 10%, and only half of that (5%) has to come from the buyer's own cash. The rest can come in the form of a seller's note as long as the seller agrees to be on full standby — meaning that the seller won't be paid back on their note until after the bank is paid.

When getting a business acquisition loan to help with buying a business, you’ll also have to provide a formal business valuation (like we discussed before), explain your relevant experience, offer an updated business plan, and show financial projections for the business under your command. In short, you’ll want to tell a story of how you'll improve the business.

» MORE: Compare the best business acquisition loans

8. Close the deal with the appropriate documents

The last step in our buying an existing business checklist is to close the deal.

When you’ve finally found the right business, done your due diligence, agreed on a fair price and gathered the capital you need, make sure you (or a broker) have all of these documents, notes and agreements in place before you officially buy a business:

Bill of sale

When buying an existing business, this document will prove the actual sale of the business, officially transferring ownership of the business's assets from the seller to you.

Adjusted purchase price

This is the final count of the cost of your purchase, including all prorated expenses—like rent, utilities, and inventory.

If you’re taking over the business's lease, make sure your future landlord is in the know. On the other hand, if you’re negotiating a new lease, double-check that everyone understands its terms.

Vehicle documentation

Does the business you're buying come with any vehicles? If so, you might have to transfer ownership with the local DMV — make sure to get the right forms completed by the time of sale.

Patents, trademarks and copyrights

Similarly, when buying an existing business, all patents, trademarks, and copyrights might require certain forms to get transferred to you, the new owner.

Franchise paperwork

Check the SBA’s Consumer Guide to Buying a Franchise to see if you’ll need to file any franchise documents.

Non-compete agreement

It’s standard practice — and generally a good idea — to ask for a non-compete from the former owner. This way, the previous owner won’t set up a competing shop right across the street.

Consultation/employment agreement

This document should be drafted in the case that the seller is staying on as an employee. Make sure to file this agreement if so.

Asset acquisition statement

The IRS Form 8594 will list the assets you’ve acquired, and for how much. This document is pretty important in the "buying an existing business" checklist for your tax returns, so don’t forget it.

Bulk sale laws

Bulk sale laws have to do with the sale of business inventory and are designed to prevent business owners from evading creditors by transferring ownership of the business to someone else. To comply, prospective buyers usually have to notify the local tax or financial authority about the pending sale.

And that's everything you need to know about how to buy a small business. But knowing how to do it is one thing, knowing why you're doing it is another. So let's talk about reasons for buying a business.

LLC Formation

Reasons to buy a business

Buying a business is kind of like being in the market for a home. Although some people like the history and character that comes with an older home, others don’t want the baggage that can saddle an older home and prefer something turnkey. Similarly, there are plenty of advantages when you buy a business that’s already been around for a while, but there are drawbacks, as well.

Pros of buying a business

Proven business concept.

When launching a brand-new business, the bulk of your time will be spent on the planning phase. You’ll have to write a business plan and figure out how to turn that plan into a reality.

But when you buy a business that's already up and running, you’ll typically have all of this in place:

A building or office space.

Inventory and equipment.

An established brand and business brand identity (whether or not you want to change it, people know it).

Customer base.

Vendor and supplier base, plus manufacturing resources.

Existing employees who can share their knowledge and expertise.

Management processes and policies.

An understanding of your competition and market.

Granted, each of these things may not be in great condition, and the business might not be turning a profit yet. However, buying an existing business means it has some structure already in place, which will save you time upfront, letting you quickly see what you need to zero in on. Particularly if you’re testing a new market or entering an industry that you don’t have much experience in, zipping past the difficult startup phase can be a huge advantage.

Lower operating costs

One of the major benefits of buying a business is that the operating costs are lower. For example, startup costs for a brand-new restaurant can run upward of $450,000 for initial supplies, food and beverage, signage and a customized kitchen design. With an existing business, your initial operating costs are lower because — unless your acquisition is pretty atypical — many parts of the business are already in place and ready to go once you’re at the helm.

You don’t need to spend as much of your budget on hiring employees, developing marketing strategies or building a customer base because those come with the transaction. Instead, you can pour more cash into expanding the business and adapting it to your vision.

Easier to obtain financing

While the move to buy a business isn’t always a safe bet, lenders and investors see it as lower-risk than launching a new company. This is because there’s a history of financial performance that a lender or investor can use to gauge how the business has performed to date and to predict future performance. Plus, there’s also existing data around the company’s market position, competitors, brand recognition and customer base.

All this makes investors more likely to invest in the business and can make lenders more comfortable in giving you a business acquisition loan. The current owners can even participate in financing the transfer of ownership by giving you a loan.

Intellectual property is on the table

If your business-to-be has patented their products or has a copyrighted slogan or trademarked logo that wins over customers, then that intellectual property value will probably transfer over to you in the acquisition. That means when you buy a business, you sometimes buy more than what the eye can see.

This isn’t on the table with every business acquisition, but it could be critical if you’re dealing with something that you think could be expanded even more. What if you turned this small business into a national franchise? All of a sudden, that patent and copyright becomes a lot more valuable. Patents, copyrights and trademarks are often included in sales of software companies, tech businesses and creative businesses (e.g., music, design and art).

Cons of buying a business

Higher upfront purchasing costs.

By buying an existing business, you’ll be able to save money on operating costs, such as inventory and equipment. However, you’ll probably face some pretty sizable purchasing costs. In fact, those purchasing costs might be greater than what it would take you to start a new business.

That’s because, in addition to the obvious assets, you’re also buying ownership over the following:

Built-out brand.

Design work, from logo to store interior.

Business concept and plan.

Time, effort, and money spent testing out products.

Refined processes, procedures and policies.

Income stream (if the business is already profitable).

Assets and equipment.

Intellectual property, such as copyrights, patents and trademarks.

All of these items will be the subject of negotiations between the buyer and seller and factor into the final purchase price when buying an existing business.

Unfamiliarity with the details

If you’re buying a business you didn't start, you’ll understandably be a bit less familiar with its inner workings and the details of its products, processes, employees and financials than if you built the business yourself. This could be a bit of an obstacle, especially when you’re just starting out. This is especially true if you are entering an industry that you lack experience in. You’ll need to spend a lot of time learning the ropes, and prepare for the learning curve to be steep.

Risk of a hidden problem

As a prospective business buyer, you’ll go through a fairly intensive due diligence process, where you’ll gather information about the business and the current owner. But no matter how much information you uncover, you always run the risk of taking on an issue that you’re not aware of or that’s worse than it appeared. For example, equipment could be damaged, or the brand might have a bad reputation. Once you buy a business, you buy those issues, like it or not.

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Business Plan for Buying an Existing Business

Published Oct.18, 2023

Updated Apr.19, 2024

By: Alex Silensky

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Table of Content

Buying an existing business is a great way to enter a new market, expand your product or service offerings, or leverage the seller’s existing customer base and brand recognition. However, before making an offer, you need a clear and realistic acquisition business plan for running and growing the business post-acquisition.

A business plan for buying an existing business is a document that outlines your vision, goals, strategies, and financial projections for the business you want to buy. It is similar to a regular business plan but also includes information about the seller’s business history, performance, strengths, weaknesses, opportunities, and threats. 

A business plan for buying an existing business via franchise business planning services helps you to:

• Evaluate the feasibility and profitability of the deal
• Negotiate the best price and terms with the seller
• Secure financing from lenders or investors
• Manage the transition and integration process smoothly

What to Include In an Acquisition Business Plan?

A business plan for purchasing an existing business should cover all the essential aspects of running and growing a business, such as:

• Executive summary
• Company overview
• Industry analysis
• Marketing plan
• Operations plan
• Organization and management
• Financial plan

Why Do You Need a Business Plan Sample for Buying an Existing Business?

A business plan sample can help you write a business plan for buying an existing business by providing a template and examples of how to structure and present your information. A business plan for buying an existing small business can also inspire you with ideas and insights on improving or innovating the existing business.

To help you get started with writing your acquisition business plan template for buying an existing business, we have created a sample based on buying a restaurant for you.

Executive Summary

We are XYZ Restaurant Group, a company that owns and operates several successful restaurants in New York City. We seek to acquire ABC Restaurant, a well-established and popular Italian restaurant in Brooklyn, New York.

For over two decades, ABC has been a mainstay in the community, earning devoted regulars and renown for top-notch cuisine and hospitality. This 100-seat eatery runs at full capacity for lunch and dinner daily. Raking in $1.2 million yearly with $150,000 left over after expenses, ABC shows no signs of slowing down after its longstanding prosperity.

ABC Restaurant is an excellent opportunity to expand our portfolio and enter a new market. We have identified several areas where we can add value and improve the performance of the restaurant, such as:

• Updating menu and dishes
• Enhancing online presence and marketing
• Renovating interior/exterior
• Hiring and training new staff

We estimate the total cost of acquiring and improving ABC will be $500,000. We project that ABC will generate an annual revenue of $1.5 million and a net profit of $200,000 in the first year after the acquisition and grow by 10% annually.

Company Overview

XYZ Restaurant Group owns and whips up several nifty eats-places in the Big Apple. We’re crackerjack at serving out first-rate delicious eats from all over the world, like Mexican, Thai, Indian, and Mediterranean. Folks rave about our mouthwatering chow, friendly service, cozy mood, and fair coin.

Our mission is to dish up a memorable dining experience that delights taste buds and beats hopes. Our vision is to become top cook in the USA, with a diverse and brainy bill of fare for different chowhounds. We value being the cat’s meow, passionate, upright, diverse, and keeping customers cheerful.

We aim to acquire ABC, a swell and popular Italian hub in Brooklyn. ABC has loyal eaters and a dynamite food and service name. We want to buy ABC because it has a potential for growth and bankroll.

Industry Analysis

The restaurant industry in the USA is a large and diverse sector that includes various types of establishments, such as full-service restaurants, fast-food restaurants, cafés, bars, and catering services. 

Here are some key stats regarding the restaurant industry in the USA:

• The food service industry might reach $997B in sales in 2023. (Source – National Restaurant Association )
• There are 749,404 restaurants in the United States as of 2023. (Source – Zippa )
• Between April 2022 and March 2023, new business openings in the restaurant industry increased by 10%. (Source – Yelp )
• The US restaurant industry shall grow at a CAGR of 10.2% in 2022 and 2023. 

Some of the key trends and drivers that influence the restaurant industry are:

• Consumer preferences
• Regulations

Our primary competitors in the Italian restaurant segment are:

• Strong brand recognition
• Diverse menu selection
• Provides good value
• Menu lacks innovation
• Food quality is inconsistent
• Customer service needs improvement
• Expensive menu prices
• Small capacity limits covers
• Relies heavily on its location

Marketing Plan

Our marketing plan for ABC is based on the following objectives:

• To increase the awareness and recognition of ABC.
• To attract new customers and retain existing customers.
• To increase the sales and profitability of ABC.

Our business plan for buying an established business consists of the following elements:

• Professionals
• Millennials
• Updating the menu and introducing new dishes
• Enhancing the online presence and marketing
• Renovating the interior and exterior
• Hiring and training new staff and implementing best practices
• Branding – Our brand name is simple, memorable, and distinctive. Our brand logo is a stylized letter A with a fork and knife on either side. Our brand slogan is “ABC: A Taste of Italy.” Our brand colors are red, white, and green, representing the colors of the Italian flag. Our brand voice is friendly, professional, and authentic.
• Offering discounts and coupons
• Implementing dynamic pricing
• Creating bundle deals
• Providing upselling and cross-selling opportunities
• Online – Search engines, social media, email, and blogs, online reviews, testimonials, and referrals
• Offline – Newspapers, magazines, radio, TV, billboards, print ads, radio spots, TV commercials, outdoor signs, flyers, brochures, and business cards
• Events – Trade shows, festivals, and community events via booths, banners, and samples to display using contests, games, and giveaways

Operations Plan

Our operations plan for ABC is based on the following objectives:

• To provide a safe, clean, and comfortable environment
• To deliver high-quality food and service
• To manage our resources and costs effectively

Our business plan for buying an existing company consists of the following elements:

• Location and Facilities – ABC operates at 123 Main Street, Brooklyn, New York. It is a prime location with high foot traffic, visibility, and accessibility. The restaurant occupies a 2,000-square-foot space, including a dining area, kitchen, storage room, restroom, and office. The dining hall has a capacity of 100 seats and can accommodate up to 150 customers at peak times.
• Food: We buy ingredients from XYZ Food Distributors, a local company specializing in Italian food products.
• Beverages: We buy our beverages from ABC Beverage Company, a national company that offers a wide range of alcoholic and non-alcoholic drinks.
• Other: We buy our other supplies from DEF Supply Store, a regional company that provides various supplies.
• Food Safety – Adhere to all FDA and DOHMH guidelines. Monitor and log temps, freshness. Train staff on protocol.
• Service Excellence – Follow XYZ standards for hiring, training, dress code, incentives, feedback. Address complaints ASAP.
• Performance Evaluation – Track KPIs (sales, costs, satisfaction, retention) with POS, software, spreadsheets. Hold regular reviews to improve.
• Business License from NYS Department of State
• Food Service License from DOHMH
• Liquor License from NYS Liquor Authority
• Health Inspection clearance from DOHMH
• Fire Inspection clearance from NYFD
• Workers’ Compensation Insurance
• Liability Insurance
• Sales Tax registration and remittance with NYS Taxation and Finance
• Passed inspections for health, sanitation, and fire safety standards
• Obtained all necessary permits, licenses, registrations, and insurance

Organization and Management

XYZ Group is a partnership between Alex Smith, Park Smith, and Mark Wood, who own 33.3% and oversee strategy, operations, and technology, respectively.

ABC is a subsidiary operated by the following staff:

• General Manager – Reports to Alex Smith, oversees daily strategic and operational planning services
• Chef – Reports to Park Smith, manages kitchen and food preparation
• Sous Chef – Assists the Chef ensures food quality
• Kitchen Staff – Report to Sous Chef, perform various kitchen duties
• Servers – Report to the General Manager, take orders, and serve customers
• Host – Reports to General Manager, greets and seats guests
• Bartender – Reports to General Manager, prepares and serves drinks
• Delivery Driver – Reports to Mark Wood, delivers orders to customers

We have an experienced, competent team at ABC with proper training, compensation, and a collaborative work culture to drive success. The organizational structure establishes clear roles and reporting lines.

Financial Plan

Our financial plan for ABC is based on the following objectives:

• To generate sufficient revenue and profit
• To maintain a positive cash flow
• To secure adequate funding

When buying an existing business, it’s important to determine how much operating capital you should plan for. Our financial plan consists of the following elements:

• Funding Sources
• Assumptions

Income Statement

• Balance Sheet
• Cash Flow Statement
• Ratio Analysis
• Break-Even Analysis

Get Expert Help with Your Acquisition Business Plan

As you can see, developing a comprehensive business plan for buying an existing business requires significant time and expertise across various areas like finance, operations, marketing, and more. That’s where our expert advisors at OGSCapital can help.

With over 15 years of experience in M&A, strategic planning, and business planning, OGSCapital has helped numerous clients acquire and integrate businesses successfully. Our business plan writers can conduct diligence, analyze the deal, create projections, and craft a winning plan tailored to you. If you’re still thinking about how to buy an existing business, partner with our seasoned advisors to maximize your chances of closing and profiting.

Frequently Asked Questions

What is acquisition in business plan.

Acquisition in a business plan is buying or merging with another company to achieve strategic or financial goals. Acquisition planning can help a company expand its market share, diversify its product portfolio, acquire new technologies or skills, or reduce competition.

How do you create an acquisition plan?

To create a business plan for buying an existing business, you must define your objectives, identify and evaluate targets, conduct due diligence for merger and acquisition , negotiate the deal, plan and execute the integration, and monitor the outcomes.

How do I prepare my business for acquisition?

To prepare your business for acquisition, you should improve your business value, know your valuation range, establish an advisory board and a transition team, clean up your financials and legal documents, and prepare a pitch deck and better buy side due diligence services .

What should be included in an acquisition plan?

A business plan for buying an existing business should include an executive summary, target description, market overview, sales and marketing, financial history and projections, transition plan, deal structure, and appendices/supporting documents.

OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.

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How to Buy an Existing Business (7 Steps)

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March 29, 2022

This article is Tax Professional approved

Having your own business is great. Building one from scratch? Really hard. Which is why some entrepreneurs opt to buy an existing business outright. There are other reasons to buy a business too, like acquiring an up-and-coming competitor, or just building your investment portfolio.

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Whatever your reason, the process of buying a small business follows the same pattern. From finding and evaluating the right business, to closing the transaction, we’ll walk you through the whole process so you know what’s coming.

Step 1: Find a business to purchase

The first step is not just finding an available business, but finding one that’s worth buying. There’s plenty of businesses for sale. But ones with financial promise that actually hold your interest aren’t so common. You need to find a business that’s primed for profitability, and isn’t hiding any skeletons.

When you’re ready to buy a business you should look for these things:

• Positive cashflow (or a trajectory that shows potential)
• An industry you’re familiar with
• A diversity of customers (no one client should be more than 20% of revenue, roughly)
• A long-term growth plan
• A business that you could see yourself enjoying

Where to find a business to purchase

The wider your search, the more likely you are to find a gem. Don’t just stop looking when you’ve found a business that ticks all the boxes. Look in as many places as possible before you start ranking your favorites.

Some of the rocks you can turn over include:

• Online broker sites like BizBuySell
• Local business brokers
• Local attorneys
• Franchisors
• Existing small business owners in your ideal industry

Step 2: Value the business

Once you’ve identified a business you’re interested in, it’s time to figure out how much the business is worth. You’ll find plenty of sellers that overvalue their business, and it’s important to make sure you don’t overpay.

When valuing a business you have two options:

• Do it yourself
• Hire a professional

The problem with hiring a professional is it can be expensive—up to $5,000 or more. But if you’re not confident in your ability to make an objective assessment, we’d recommend this.

A business valuation is typically calculated through either business revenue, net income, or EBITDA . We can’t give just one answer about how to value a business , because each type of business is handled differently.

Step 3: Negotiate a purchase price

Once you’ve decided you want to move forward with a business acquisition and you think you have a good idea of what the business is worth, it’s time to negotiate the price. You’ll typically do this by making an unbinding offer, either written or verbal. If your offer is close to what the seller is willing to sell for, they will start negotiating with you.

With most business transactions, you’ll go back and forth, negotiating different purchase prices and terms before you come to a tentative agreement. These terms can be changed later if you find something during due diligence that changes your opinion on the company’s value.

As part of the negotiation, you’ll decide whether you want to purchase the assets of the business or if you want to make it a stock sale.

A stock sale is preferred by most sellers for tax purposes . In a stock sale you’ll be agreeing to take on any outstanding legal liability because the company operations will continue as is, just with a new owner. Some sellers will even give you a discount on the purchase price for agreeing to a stock sale.

Step 4: Submit a Letter of Intent (LOI)

Once you have a general idea of the terms and structure of the business purchase, you’ll submit a letter of intent . This is a letter that outlines everything you’ve previously negotiated, including the purchase price, and states your intent to buy the business. This is a non-binding agreement that just furthers the business acquisition process. It shows the seller you’re ready to commit and move forward in the process.

The letter of intent will also typically give you exclusive rights to buy the business for a time period, usually up to 90 days. This means that you’ll be the only one that can purchase the business during the time frame, and the seller has to act in good faith to close your transaction if you’re able to meet the terms of your LOI.

Step 5: Complete due diligence

When the LOI is signed by you and the seller, then you’ll get access to more information about the business. Typically, when you first show interest in purchasing a business you’ll get a basic overview of how the business is performing. But when you enter due diligence, you’ll get access to any financial or legal information that you feel is needed to close the transaction.

We suggest making sure you review the following documents, at a minimum, before you close:

• Organizational documents for the business (e.g. incorporation docs, certificates of good standing, business licenses, etc.)
• Previous 3 years of business tax returns
• Current year income statements, balance sheets, and cash flow statements
• Revenue broken out by customer for the last 3 years
• Information on existing business debt
• Customer lists with proprietary information blocked out as necessary
• Existing contracts—can these be assigned to the new owner?
• Commercial lease or other property documents
• Rent rolls if the property has tenants
• Uniform franchise disclosure document (if the business is a franchise)
• Employee and manager information
• Marketing and advertising materials
• Legal records for pending litigation, if any

Step 6: Obtain financing

During due diligence you should also be working on financing for the transaction. Most businesses are purchased with a combination of debt and equity, meaning you’ll come up with part of the purchase price and the rest through a loan. You’ve got lots of options here, including SBA loans , traditional bank loans, and using a Rollover for Business Startups (ROBS). If you have a strong 401K, going for a ROBS is the best solution, as you can finance the purchase without having to pay back debt or interest.

Before you enter due diligence you should know whether or not seller financing is an option, which could alleviate some of the financial burdens of finding a loan. Seller financing is a loan provided by the owner of the business instead of an outside lender. This typically takes a lot of documentation from you as the new business owner and from the business itself. That is why it’s important to work through this process during due diligence. You’ll want to make sure your lender is ready to fund when you need to close the transaction.

7. Close the transaction

If there were no surprises during due diligence, then it’s time to close the transaction. This is where you’ll draft a final purchase agreement and agree to every term of the deal with the seller.

You should always hire a lawyer to help you negotiate this part of the process. At the very least, they can review the purchase agreement to make sure you’re getting what you negotiated through the contract.

After both parties sign the purchase agreement, you’re ready to choose a closing date and have your lender fund the purchase. Your funds will typically go into escrow (meaning a bank or law firm will hold the money for sake keeping) on the day you’re supposed to close, until all documentation is final. Once both parties give their approval then the money will be given to the seller and you’ll own the business outright.

As soon as closing is finalized , you’ll need to apply for any necessary business licenses to make sure your business operations have a smooth transition. Some states will let you operate with the existing licenses during the transition period, but don’t let it slip out of your mind. If your business acquisition is a stock purchase then you may not have to worry about this at all since the business entity won’t change.

At some point, while jumping through legal hoops, you might have forgotten that you just became a small business owner. Congrats! Your new life awaits. And if your brand new business needs bookkeeping, Bench can help with that.

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Buying An Existing Business in 2024

• There are many opportunities to buy an existing business, offering an excellent way to break into entrepreneurship without starting from scratch.
• The positives of buying an existing business include inheriting a customer base and operational plan, while the negatives include a potentially high purchase price and perhaps having to deal with problems that may not be disclosed.
• Find out what you need to look for in a potential business purchase, the pros and cons, where to find the right one, and the best funding options to purchase an existing business.

Plan ahead – see what you qualify for today

State of the “businesses for sale” market.

The “businesses for sale” market refers to the sector that deals with selling and buying businesses already in operation. It’s made up of a wide range of industries and sectors, from small local businesses to large enterprises. The market is influenced by a variety of factors, including:

• The state of the economy : During times of economic growth and stability, the market tends to be more active, with a higher number of businesses being bought and sold. On the other hand, during economic downturns or recessions, the market may experience a slowdown as buyers become more cautious.
• Industry trends : Different industries have varying levels of demand. Some sectors, like technology, healthcare, and e-commerce, traditionally have more potential for growth and profitability. Other industries may experience fluctuations based on consumer preferences, regulatory changes, or market disruptions.
• Demographics : The aging population and retirement of baby boomers have had a significant impact on the “businesses for sale” market. Many business owners from this generation are looking to sell their businesses and transition into retirement, creating a supply of businesses for sale. This trend is expected to continue as more baby boomers reach retirement age.
• Online marketplaces : The invention of online platforms and marketplaces has transformed the way businesses are bought and sold. Websites and platforms dedicated to connecting buyers and sellers have made it easier to access a larger pool of potential buyers. These platforms offer various tools to streamline the buying and selling process.
• Financing and deal structure : The availability of financing options and deal structures can impact the market. Access to capital and favorable lending conditions can motivate buyers and make acquisitions more feasible. On the other hand, the market can go down when interest interest rates are high and credit is less easily available.

Like all markets, the “businesses for sale” market is dynamic and can vary significantly based on regional and local conditions. Factors like government regulations, tax policies, and cultural norms can also shape market dynamics. 

Pros and Cons of Buying an Existing Business

Buying an existing business can offer several advantages and disadvantages for small business owners. Here are some pros and cons to consider when finding the right business to purchase:

• Established operations: An existing business already has a foundation in place for things like operational systems and processes. This can save time and effort compared to starting a business from scratch.
• Brand recognition: You’ll get a brand name, reputation, and customer loyalty built into the deal. This can provide a head start in terms of market recognition and customer trust (although make sure that the brand reputation is a positive one).
• Established customer base: One of the biggest advantages is inheriting an existing customer base. This can generate immediate revenue and provide a platform for future growth and expansion.
• Cash flow and financial history: An established business often has a track record of financial performance, which can help in securing small business loans and assessing the business’s financial viability. Positive cash flow from day one can also reduce the risk of initial losses.
• Supplier and vendor relationships: Established businesses may already have established relationships with suppliers, vendors, and partners. This can make it easier to access reliable suppliers and favorable terms from the get-go.
• Higher cost: Buying an existing business can cost more than starting a new business. The value of an established business may reflect its assets, customer base, and potential for future earnings.
• Existing challenges: The business you acquire may come with existing problems or challenges that need to be addressed, like outdated equipment, inefficient processes, or legal issues. Assessing and fixing these issues can require time, effort, and investment on your part.
• Management challenges: It’s hard for a new owner to integrate into an existing business culture and manage employees who already work there. These challenges can lead to difficulties putting needed changes into place or achieving desired outcomes.
• Hidden liabilities: It’s crucial to conduct thorough due diligence to uncover any hidden liabilities — this could be pending lawsuits, unpaid taxes, or contractual disputes. If you don’t identify these risks ahead of time, you may end up paying for them down the road.

Ultimately, you’ll want to consider both the advantages and disadvantages, as well look closely at the specific business and its market conditions. Conducting due diligence, seeking professional advice from a business valuation expert, and creating a well-informed business plan can help mitigate risks and increase the chances of a successful acquisition.

Where to Find Existing Businesses

There are several ways to find businesses that are for sale. Here are some common strategies to help you locate businesses that are on the market.

Online business marketplaces

There are online platforms dedicated to buying and selling businesses. Websites like BizBuySell, BizQuest, and BusinessesForSale.com offer listings of businesses for sale across different industries and locations. These platforms let you search for businesses based on specific criteria, like industry, location, and price range.

Business brokers

Working with a business broker can help you access a wider range of businesses for sale. Brokers specialize in connecting buyers with sellers and often have a large network and access to confidential listings. They can help you navigate the buying process, negotiate deals, and provide guidance throughout the transaction.

Professional networks and associations

Engaging with professionals such as lawyers, accountants, and financial advisors who work with businesses can provide access to potential opportunities. They may be aware of businesses looking for buyers or have connections with business owners who are planning to sell.

Direct outreach

If you have a specific industry or location in mind, you can proactively reach out to business owners to ask about their interest in selling. This approach requires research and targeted communication, but it can lead to discovering businesses that are not actively listed for sale.

Industry-specific publications and websites

Some industries have specialized publications, websites, or newsletters that feature businesses for sale within their niche. These resources can provide insights into opportunities within your industry.

When searching for businesses to potentially buy, having a clear understanding of your own criteria, budget, and objectives will help streamline the search process and focus on opportunities that line up with your requirements.

Why Consider a “Boring” Business

When people think of successful businesses, they often first think of flashy startups like Google or household names like Target. But there are a lot of lesser-known businesses with less of the pizzazz that provide fantastic opportunities for any entrepreneur looking to buy an existing company. More localized businesses or family-owned companies can have a proven track record of success, be profitable, and provide stability for you as an investor. 

Types of “Boring” Businesses

There are many types of businesses that might be more low-key than a billion-dollar tech startup or high-profile company but are profitable and stable. These businesses include:

• Construction or landscaping companies
• Vending machines
• Personal training
• Online teaching
• Cleaning service
• Accounting and bookkeeping
• Real estate

When you’re looking to buy a business, it’s best to look at the financial details and potential for future performance rather than being drawn in by a shiny idea. Making sure the business is a stable investment is the best way to set yourself up for success.

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What Are the 7 Steps To Buying an Existing Business?

Though the exact steps may vary somewhat,  most buyers will want to incorporate the following 7 steps into the process of buying a business. 

1. Decide what you want. 

Running a business is hard work, so you want to carefully choose the kind of business you want to own. The right business should combine your skills and/or interests with the potential to build a profitable business. Everyone wants a high cash flow business , but if you really don’t like the business you may find it hard to stick with it or grow it. 

You’ll want to research the business model and industry, as well as the company itself. 

2. Prepare financially. 

How much money can you afford to put toward the purchase price? What are your credit scores, and how much will you be able to borrow for a business acquisition loan? How long will it take before you can pay yourself a salary, and how will you survive financially until then? 

3. Find a business to buy. 

If you’ve ever bought a house, you know that sometimes things fall together quickly and sometimes it takes a long time to find the right house, get your offer accepted, and close. Patience at this stage can pay off. Rather than rushing into a less-than-ideal business, be willing to take time to find the right deal using the resources in this article. 

4. Make your offer. 

Here’s where you decide how much you think the business is really worth. Like buying a house, it may involve some back and forth negotiations. A broker can prove very helpful here. Contingencies can protect you if the seller wasn’t completely truthful and you uncover issues during the next step of the process. 

Another option is to sign a letter of intent that will allow you to proceed to the next step before making a formal offer. 

5. Do due diligence

Thoroughly vet the prospective business, and enlist the help of professionals to minimize expensive surprises. (See more details about the due diligence process below.) 

6. Secure financing

If you need financing, and if the seller is willing to wait for you to get financing, you can apply for a loan at this stage. If you have already been preapproved, this step can go more quickly though that’s not always possible. 

7. Close the deal

You legally purchase the business and transition to full ownership.

Business Formation: Due Diligence and Legal Considerations  

With any new venture — whether that’s forming your own business or buying an existing one — you’ll need to both conduct due diligence and address legal considerations to ensure compliance, mitigate risks, and protect your interests. 

Due diligence is the process of thoroughly investigating and assessing a potential business opportunity before going ahead with it. You’ll need to gather relevant information (like the asking price vs. the fair price), analyze these details, and make informed decisions before agreeing to a sale of the business. Due diligence helps you understand the risks, opportunities, and overall viability of the business you’re forming or acquiring.

During due diligence, you’ll want to think through the following aspects:

• Compliance : Make sure that the business complies with all applicable laws, regulations, and licensing requirements. Assess any potential legal liabilities, ongoing litigation, or regulatory issues that may affect the business.
• Finances : Review financial statements, balance sheets, tax returns, and other relevant financial documents to assess the business’s financial health, revenue, expenses, profitability, and cash flow. Identify any outstanding debts and liabilities.
• Contracts and agreements : Examine contracts with customers, suppliers, landlords, and employees. Evaluate their terms, obligations, rights, and potential risks. Identify any limitations, exclusivity, clauses, or potential disputes that may impact the business.
• Intellectual property : Determine whether the business owns or has the right to use any patents, trademarks, copyrights, or trade secrets. Assess the protection and enforceability of its intellectual property.
• Assets and liabilities : Identify and evaluate the assets and liabilities of the business, including real estate, equipment, inventory, leases, loans, and outstanding obligations. Assess any potential environmental, legal, or operational liabilities.

In addition to due diligence, you’ll want to consider several legal aspects when forming or acquiring a business. While the specific legal requirements may vary depending on the jurisdiction and type of business entity, some common legal considerations include:

• Business structure : Make sure the business uses the appropriate legal structure, such as a sole proprietorship, partnership, corporation, or limited liability company (LLC). Each structure has different legal and tax implications.
• Registration and licensing : Check that the business is registered with the relevant government authorities and has the necessary permits and licenses required to operate legally in your area.
• Contracts and agreements : Review contracts, like partnership agreements, operating agreements, shareholder agreements, employment contracts, customer agreements, and vendor contracts. Make sure they’re comprehensive, clear, and protect your interests.
• Compliance with employment law : Ensure the previous owner understands and complies with employment laws, including hiring practices, wage and hour regulations, employee benefits, workplace safety, and anti-discrimination laws.
• Tax obligations : Check that the business complies with tax laws and obligations, including obtaining tax identification numbers, understanding tax reporting requirements, and fulfilling tax payment obligations.
• Data privacy and security: If the business handles customer data, make sure there are appropriate privacy and security measures to protect it in compliance with the law.

It’s a good idea to consult with legal professionals to ensure that all legal requirements and considerations are adequately addressed when you’re acquiring or forming a business. Using a business formation service is one of the best ways to form a business and make sure you’re compliant.

Financial Requirements and Funding Options for Buying a Business

When you buy a business, you may need a significant amount of money to cover startup costs like the purchase price and the down payment. You may also need working capital if the cash flow of the business isn’t currently strong, or if you want to introduce new products or services.

There may be a variety of sources for this capital, including private funding (from investors, personal savings, and/ or loved ones) or from lenders, including traditional banks or lines of credit. 

Some of the best business acquisition loans include term loans and SBA loans . Retirement funds ROBS accounts are also popular for this purpose. It may also be possible to buy a business with a business credit card if the price is right and your credit limits are large enough.

Most lenders require good credit, a down payment (or strong collateral), and will scrutinize financials carefully. 

You also may be able to use seller financing for some or all of the purchase price. Seller financing is an agreement between the buyer and the current owner to pay for the business over time. When structured properly, seller financing can benefit both parties. The seller may get a broader pool of buyers. The buyer may have time to ramp up revenues before getting a traditional loan. 

Examples of sources for business acquisition loans include:

How Nav Can Help

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Frequently Asked Questions

Is it smart to buy an existing business.

Buying an existing business can be a very smart move, as long as you do your due diligence to understand any weaknesses and problems the business may be facing. It can often be easier to improve an existing business that’s doing OK, compared to starting a new business from scratch. 

How do I take over an existing business?

If you’re serious about buying a business, take the time to thoroughly research your options, and to investigate the type of business you want to buy as well as looking at specific opportunities. Avoid getting too emotionally invested in a specific business early on; make sure you thoroughly research how financially viable it is. 

It’s also a mistake to gloss over financial data or to make a “handshake” deal. Buying a business is a big investment of your time and money: do it correctly. Work with a business broker and/or an attorney with experience in business acquisitions.

What are disadvantages of buying an existing business?

Cost can be one disadvantage of buying a business. If a business is successful, the owners will want to sell for an attractive price. That may require the buyer to dig deep and exhaust personal resources or take on a significant loan to purchase the business. 

Undisclosed problems are another potential pitfall. If the buyer isn’t careful they could end up with financial or legal problems the seller didn’t share. 

An existing business may be set in its ways and easily challenged by startups with more innovative products or services. 

A new owner may find it necessary to change operations, or staff. They may find it necessary to create new revenue streams to make the company more competitive. Employees may resent those changes, even if they are necessary.

Equipment may be nearing the end of its useful life, and require new equipment leases or equipment financing that add to operating costs. 

This article was originally written on October 25, 2023 and updated on April 21, 2024.

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Tiffany Verbeck

Tiffany Verbeck is a Digital Marketing Copywriter for Nav. She uses the skills she learned from her master’s degree in writing to provide guidance to small businesses trying to navigate the ins-and-outs of financing. Previously, she ran a writing business for three years, and her work has appeared on sites like Business Insider, VaroWorth, and Mission Lane.

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How to buy a business

Navigate the buying process with ease using these 8 essential steps..

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In this guide

8 steps for buying a business

Pros and cons of buying an existing small business, how to buy businesses by industry, bottom line, frequently asked questions.

Small business resources

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We compare the following business lenders

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Buying an existing business is a great way to become an entrepreneur and can eliminate some of the challenges of a startup, like securing funding and establishing a brand. If you’ve decided that purchasing a business is right for you, consider these eight steps to make the transition as smooth as possible.

From picking the right business for you to closing the deal, here are eight key steps to help you through the process.

• Decide what type of business you want to buy
• Decide where to buy your business
• Understand why the business is for sale
• Choose a business that fits your budget and goals
• Conduct your due diligence
• Calculate the value and cost of the business
• Finance your investment
• Close on your business deal

1. Decide what type of business you want to buy

Deciding on the type of business you want to buy should align with your personal interests, skills and long-term goals. Assess your strengths and weaknesses and consider how these will affect the business’ day-to-day operations and overall success. For instance, if you’re great with people, a customer-facing business like a retail store might be a good fit.

Different types of businesses put unique demands on your lifestyle as the business owner. Some require long hours on-site, such as restaurants, while online businesses can offer the flexibility of remote work. Understanding these demands helps ensure that your choice aligns with your life.

Most importantly, market demand and future potential should factor into your decision. Research industry trends, customer needs and potential market shifts to understand which types of businesses are likely to thrive.

2. Decide where to buy your business

There are multiple places to find businesses for sale, each with its advantages and limitations. Be sure to explore multiple avenues to find the best fit for you and understand all the available opportunities.

• Online marketplaces. Platforms like BizBuySell or BusinessesForSale.com list thousands of businesses for sale across various industries and locations.
• Business brokers. Professional brokers use their networks to help find businesses that match your criteria and can sometimes provide listings not publicly advertised.
• Local newspapers and trade publications. Some businesses list for sale in the classified sections of local newspapers or industry-specific publications.
• Networking. Attending industry conferences, joining relevant associations or even word-of-mouth can uncover businesses for sale not yet publicly listed.
• Social media and professional networks. LinkedIn and other social media platforms can be valuable resources for finding businesses for sale through posts or network connections.

The actual location of your business can significantly impact its overall success. You should consider factors such as market demands and competition, labor costs and government regulations and incentives when choosing the location.

Also, think about whether the business’s location aligns with your personal needs. Can you afford an hour-long commute, or do you need something closer? If your business operates online, do you have the space in your home to accommodate the business, or will you need office or warehouse space elsewhere?

3. Understand why the business is for sale

Understanding why a business is for sale can provide insights into potential problems outside of its finances or operations. For example, a business might be for sale for a negative reason, like new competition in the market, or a neutral one, like the owner’s retirement.

Knowing the reasons behind the sale can also impact how much the seller is willing to negotiate on price and other terms. An owner with health issues may be motivated to close quickly, while a struggling business may require more due diligence to assess its value and risks.

Ask direct questions about the reason for the sale during the initial discussions and verify the answers. When possible, speak with customers, suppliers and employees about the business’s health and the reasons for selling. And if the current owner tries to gloss over the business’s shortcomings, there could be deeper issues at play.

4. Choose a business that fits your budget and goals

Selecting a business that aligns with your financial goals doesn’t end with matching the purchase price to your budget. Consider the additional costs, such as training employees or upgrading equipment. Will you need to budget for the cost of equipment loans or other types of business loans ?

The business’s time requirements should fit your lifestyle and other commitments. A business that demands more time than you can give may lead to financial stress for both you and your investment. Assess how well your skills and experience match the business’s needs. A good fit can lead to a smoother transition and greater profit.

Also, consider the scalability or potential for future growth, if expansion is part of your professional goals. Even if you’d just like a stable income, evaluate whether the business can realistically meet your needs.

Questions to ask yourself when buying a business

When purchasing a business, asking yourself the right questions can help you make the right decision and ensure the business aligns with your goals and skills. Here are some to consider:

• How much time do I have to dedicate? Assess whether you’re looking for a full-time job, a side hustle or a passive investment.
• Does this business align with my expertise and abilities? Evaluate if your experience, education and skills match the business’s needs.
• Can the business meet my financial goals? Consider whether the business has the potential to provide the profit you want or need to succeed.
• What is the business’s potential growth? Research market conditions and competition to estimate potential revenue or expansion opportunities.
• What are the major challenges of the industry? Understanding the hurdles of specific businesses can help you assess if you’re equipped to handle them.
• How will I finance the purchase, and what are the financial risks? Ensure that business financing is available for the type of business you want and its associated risks.
• What types of business insurance will I need to carry? Which type of business you buy will determine what types of business insurance policies you’ll need or want to carry to protect your assets.

5. Conduct your due diligence

Conducting due diligence allows you to properly evaluate the business’ operational, financial and legal aspects. It helps you identify any potential risks that could affect the business’s value.

Due Diligence Checklist

• Business financials. Review at least three years of financial statements, tax returns and cash flow forecasts to assess the business’ financial health.
• Legal compliance. Verify that the business has all necessary licenses and permits and is in compliance with government regulations.
• Zoning laws. Ensure the business’s location is zoned appropriately for its current and intended operations.
• Contracts and leases. Examine all existing contracts and leases (including supplier, customer, and lease agreements) for terms, conditions, and any potential liabilities.
• Employment agreements. Review employment contracts, benefit plans, and any pending labor issues.
• Intellectual property rights. Confirm the ownership and status of any intellectual property, including patents, trademarks and copyrights.
• Environmental issues. Check for any environmental assessments or potential liabilities.
• Market and competition analysis. Understand the business’ market position, including an analysis of competitors, market trends and customer base.
• Debts and liabilities. Identify all debts, liens and liabilities, including contingent liabilities.
• Physical assets and equipment. Inspect the condition and value of physical assets, including real estate, equipment and inventory.

This checklist is only a starting point. Your due diligence will change based on the specific business and industry. Working with business professionals, such as accountants or lawyers, can provide you with additional insights.

6. Calculate the value and cost of the business

Calculating the value and cost of a business helps you understand whether a business’s sale price matches its worth. A good assessment can provide insights into the business’s current financial health and its future earnings potential.

A thorough valuation can also assist in negotiating the sale price and can identify the strengths, and weaknesses associated with the business. It is also important when securing financing, as lenders often require a detailed analysis of the business to assess the risk.

How to calculate the value of a business for sale

You can estimate a business’s value through a variety of factors, including its assets, liabilities, current earnings and projected earnings. Here are five ways to determine the value of your potential business.

• Book value of the business (asset value). Subtract its total liabilities from its total assets to get the business’ book value. However, this only represents the current value and doesn’t consider future revenue or earnings.
• Cash value analysis. Cash flow analysis compares incoming and outgoing cash, while discounted cash flow adjusts future earnings to their present value considering economic conditions. It’s best to employ a CPA or financial software to help with these calculations.
• Revenue multiplier. Multiply the business’ current revenue by a multiple “score” that represents its future potential. For example, a business with $100K in annual sales and a multiple of 4 would be worth $400K. The more potential you believe a business has, the higher the multiple.
• Earnings multiplier. This method, also known as a price-to-earnings ratio, is used if the business has shareholders. Take the current Price Per Share (PPS) and divide it by the Earnings Per Share (EPS). This gives you the net profits earned by the business per share in the market.
• Professional appraisal. A professional appraiser brings their industry expertise to assess a business’s value, and they can often provide a more reliable figure than your own calculations. Some lenders require a professional appraisal for financing.

7. Finance your investment

Choosing the right financing option to fund your investment depends on various factors, including your credit score, financial history and the perceived risk of the investment. Here are some main ways to finance buying a business:

• Personal finances. This method involves using your own funds to finance the business purchase, whether a nest egg or borrowing from your 401(k) .
• Family contributions. Sometimes, family members will assist with the acquisition costs, often under an agreement to repay the amount or for a share of the business.
• Bank loans. Securing a loan from a bank or financial institution often requires a detailed business plan and collateral.
• SBA Loans. Loans backed by the Small Business Administration typically offer favorable terms and lower interest rates.
• Seller Financing. The seller may agree to finance part or all of the purchase price, which you repay over time.
• Venture Capital. Also known as angel investing, this method seeks funds from investors in exchange for equity in the business.
• Crowdfunding. Raise capital through small contributions from a large number of people, usually via online platforms. Often, the organizer will offer an incentive, like receiving an early release of a product.

How to get a loan to buy a business

There are several steps involved in getting a loan to buy a business. To increase your chances of approval, learn about the loan application process and what lenders look for.

• Assess your finances. Review your personal credit score, outstanding debt and financial history, as lenders will use these to determine your eligibility.
• Develop a business plan. Prepare a detailed business plan that outlines the potential for growth, revenue projections and how you plan to manage the business.
• Determine the type of loan. Decide whether you qualify for a conventional bank loan, an SBA loan or another type of financing based on your financial standing.
• Shop around for lenders. Compare loan terms, interest rates and requirements from multiple lenders, including banks, credit unions and online lenders.
• Gather all required documentation. Collect all necessary documents, including financial statements, the business plan, personal financial information and any business valuation reports.
• Apply for the loan. Submit your loan application along with all required documentation to your chosen lender.
• Review the terms. Once approved, review the loan offer carefully and negotiate terms, if possible, to get the best deal.
• Close the loan. Complete any remaining requirements from the lender, sign the loan agreement and proceed with the business purchase.

8. Close on your business deal

Closing your business deal involves finalizing the agreement terms, making necessary payments and officially transferring the business into your name. This process involves the seller, the buyer and often legal and financial advisors. As the buyer, it’s important to be thorough during this stage to ensure everything is transferred correctly and as agreed upon.

During the closing process, there are several key documents you may be required to complete and sign, including:

• Bill of sale. Confirms the sale of the business’s assets and transfers ownership to the buyer from the seller.
• Purchase agreement. Outlines the terms and conditions of the sale, including the assets to be purchased, the purchase price and the closing date.
• Lease agreements. If the business leases a location or equipment, these agreements transfer the lease to the new owner.
• Patents and trademarks. This documentation transfers ownership of any intellectual property, including patents, trademarks, and copyrights.
• Vehicle documentation. If the business sale includes vehicles, the ownership documents are transferred to the new owner.
• Non-compete agreement. Sometimes called an exclusivity agreement, this prevents the seller from starting a new, competing business for a specified period.
• Employment agreements. These are contracts for key employees who will remain with the business post-sale.
• Closing statement. An itemized list of all the transactions and fees paid by both buyer and seller during the closing process.

When considering an existing business, weigh the benefits of an established operation against the potential drawbacks and constraints.

• Already established brand. Buying a business comes with an existing customer base and eliminates the high marketing costs of starting from scratch.
• Easier financing. You may secure better financing terms due to an existing business’s revenue, reputation and assets.
• Established supply chain. Seasoned businesses benefit from pre-existing vendor relationships and supply chains that offer critical support.
• Pre-trained employees. The presence of experienced employees during the transition can save on training costs and help maintain customer trust.
• Lack of freedom. Buying an existing business means taking on someone else’s vision. On the other hand, starting your own business may offer a stronger sense of ownership.
• Higher upfront costs. The sale price usually includes the cost of acquiring the customer base, brand and intellectual property, often making it more expensive upfront.
• Steep learning curve. It may take substantial time to understand the business’s existing operations, unlike the more gradual curve of starting a new enterprise.
• Unknown problems. Purchasing a business carries the risk of inheriting hidden problems, and even with due diligence, you may face unforeseen challenges, like competition issues or damaged equipment.
• Computer store
• Convenience store
• Ecommerce business
• Furniture store
• Grocery store
• Liquor store
• Manufacturing business
• Supermarket
• Vending business

By following these steps carefully and preparing for each phase of the process, you’re setting the stage for your future as an entrepreneur. If you’re ready to purchase your business, learn more about the top business acquisition loans to fund your venture.

Can you buy a business with no money?

Buying a business with no money is possible through strategies like seller financing, alternative financing, crowdfunding or bringing on partners. You’ll usually need to find motivated sellers or underperforming businesses with turnaround potential.

When is the right time to buy a business?

The best time to buy a business depends on various circumstances, including the business’ finances, market opportunities and its nature. Possibly the strongest time is when the business is growing but not yet peaked, so there is an equal balance between future profit and acquisition costs. However, how long a business will grow or when it will peak is difficult to predict.

Holly Jennings

Holly Jennings is an editor and updates writer at Finder, working with writers across all niches to deliver quality content to readers. She’s edited hundreds of financial articles ranging from credit cards to investments. With empathy at heart, she especially enjoys content that breaks down complex financial situations into easy-to-understand information. Prior to her role at Finder, she collaborated with dozens of small businesses to maximize the reach and impact of their blog posts, website copy and other content. In her spare time, she is an award-winning author for Penguin Random House, writing about virtual reality worlds, magical girls and lasers that go pew-pew. See full bio

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How to Buy a Business in 8 Steps (+ Due Diligence Checklist)

There are several paths to becoming a business owner. The most popular one is building a business from scratch. It is also one of the hardest routes to owning a business.

You have to come up with a product or service from scratch, conduct market research , find the right employees, attract customers, build cash flow, and so on.

If you don’t want to go through all this, an easier and less risky option is to buy an already existing business .

An existing business already has existing products or services, existing customers, employees who are knowledgeable about the company and its products, existing cash flow, and so on.

It’s good to note, however, that buying a business is not as simple as finding a business that’s on sale and paying the asking price. There are several things you have to keep in mind if you don’t want to end up making the wrong decision.

Below, let’s check out the 8 step process of buying an existing business.

Table Of Contents

How To Buy An Existing Business Checklist

Step 1: decide what type of business you want to buy.

If you go to BizBuySell and search for all businesses that are on sale, you’ll find thousands of businesses from a wide range of industries.

For instance, if you search for on-sale businesses in California, there are over 1,500 businesses that you can buy. The first three results show how varied the businesses are – the first business is in the tax preparation industry, the second in the food industry, and the third in the cannabis industry.

It is very unlikely that these three businesses across very different industries would all be suitable for you.

Therefore, before you begin searching for an existing business to buy, you have to start by thinking about the kind of business that you want to buy, one that would be suitable for your unique needs, characteristics and financial goals .

Some of the things you need to look at when deciding what type of business you should buy include…

1. Location

Most businesses operate within a specific location, and therefore, when buying a business, this is something you need to think about. Ideally, it is a good idea to look for a business that is within your locality .

If you are looking to buy a business in a different geographical location from where you live, this could require you to move, so it’s something you should be ready to do.

Apart from the convenience of being able to closely monitor your new business, the location of a business also affects other things such as taxes, labor costs, the cost of leasing rental premises, and so on .

All these have an impact on the business’s performance, so it is important to consider them before deciding to buy a business.

It’s good to note that if you’re looking to buy a business that operates online, location will not be such a huge factor to consider, since you can operate the business from anywhere.

2. Your Passion, Skills, Talent, And Experience

When buying a business, it is always a good idea to go for something that is well aligned with your passion, as well as your skills and experience . This is because these factors affect your ability to properly run the business and keep it profitable.

For instance, let’s say you have always worked as a marketing executive in a marketing agency, and have always dreamt of owning your own digital marketing agency.

If you go ahead and buy an existing digital marketing agency, you have enough skills and experience in the industry to successfully run the marketing agency you just bought.

Now, imagine that with your experience in the marketing industry, you go and instead buy a business that deals in mountain biking gear.

You have never ridden a mountain bike all your life, you have no idea which gear is popular among mountain bikers, you have no mountain biker in your network.

Without the experience, skills, and passion in the industry, it would be very difficult for you to keep the business profitable, even if the business was making money before you acquired it.

Note that this doesn’t mean that it is impossible to achieve success with a business in an industry you have no prior experience with. However, the more knowledgeable you are about the industry, the more likely you are to be successful .

3. Market Outlook

Just because an industry is performing well today, this doesn’t mean that it will do the same in future. And just because an industry is not doing well today, this doesn’t mean that it won’t do well in future.

Therefore, before making the decision to buy a certain type of business, take the time to do some market research and consider the long term forecast for the industry. Is there potential for growth within the industry?

Another important thing to think about is the size of the business you are interested in buying . Are you looking for a small business that you can run by yourself? Do you want a large company with dozens of employees and revenue that runs into the millions?

5. Lifestyle

Being a business owner is more than a job; it is a lifestyle. This is because running a business is a demanding venture that will have a huge impact on your lifestyle .

Before you decide to buy a business, therefore, you have to consider how it will affect your life, and if you are ready for such changes.

For example, if you are a solitary person who likes spending their time alone and doesn’t enjoy interacting with strangers in person, it would be advisable to buy a business that allows you to make money online , without the need to interact with customers in person.

Similarly, if you buy a business that will involve lots of travel, yet you do not like traveling, this could take a toll on your lifestyle, making it difficult for you to keep the business running successfully.

With this in mind, we recommend choosing a business that is well aligned with the kind of life you’d want to lead .

Finally, before you start looking for a business to buy, you have to consider how much you are willing to spend on purchasing the business .

You could find a well-performing business in an industry you are passionate about, a business that is well aligned with your lifestyle, and in a location that is convenient for you, but if it costs more than you can afford, you’ll have no other choice but to let it go.

You should keep in mind, however, that you don’t need to have all the money in cash in order to buy a business . You can still afford a business through other innovative financing options, such as seller-financing, debt financing, and so on.

Step 2: Search For Businesses That Are For Sale

Once you have determined the kind of business you want to buy, you can now start looking for businesses that are available for sale and that meet your criteria.

At this point, you want to identify as many businesses as possible that fall within what you are looking for, so you should look in as many places as possible. Some of the places and methods you can use to search for on-sale businesses include…

1. Online Platforms

The easiest way to find businesses that are for sale is to use the internet. There are several websites that list businesses that are for sale. The beauty of using online platforms is that they allow you to quickly identify thousands of businesses that you can buy .

Many of these platforms also allow you to filter available businesses by criteria such as location, industry, price, cash flow, gross revenue, how long the business has been in operation, and so on.

Another advantage of using online platforms is that they allow you to set up email alerts . This way, if a business that meets your search criteria is listed, you get notified. This is a lot easier than having to come back to the listings website to search for businesses every few days.

One of the best online platforms for finding businesses that are for sale is BizBuySell . With over 100,000 for sale businesses listed at any one time, you have a very high chance of finding a business that is perfect for you.

Other online platforms and websites where you can search for on-sale businesses include…

• BizQuest.com : Best for finding small businesses and local business brokers.
• BusinessBroker.net : Over 30,000 listings at a time, and offers finance and loan options.
• BusinessMart.com : Best for finding business using advanced search and filtering options.
• BusinessForSale.com : Over 70,000 listings from across the world.
• DealStream.com : Has a database offering over 40,000 businesses and investment options at a time.

2. Reach Out To Local Businesses

Very often, business owners that are selling their businesses don’t put up signs on their door advertising that the business is for sale, since this can easily push away employees and customers.

So, how do you tell that such a business is up for sale? By talking to actual business owners.

To use this method, start by identifying suitable local businesses in your preferred industry that you’d be interested in buying, then reach out to the owners and let them know that you are looking to buy a business in that industry .

If you are lucky, you’ll get in touch with a business owner who is looking to sell their business. Even if they are not selling, however, they probably know another business owner who would be interested in selling their business.

With this method, you’re basically tapping into the network of business owners within your locality and using it to identify businesses that could be looking for a buyer .

One thing to keep in mind when using this method is that you are not looking for an immediate yes or no answer. If the person you are talking to doesn’t know anyone who is selling their business, ask them to be on the lookout and notify you if they happen to hear about a business that is for sale.

3. Hire A Business Broker

Hiring a business broker is one of the most effective ways of finding a business that you can buy . Business brokers are always in contact with business owners looking to sell their business, and therefore, it is very easy for them to find a business that meets your needs.

It’s good to note that brokers will charge you a commission to help you find a suitable business . However, this commission is usually paid if you find a business you like. Working with a broker can also provide you with several other benefits, including…

• Screening the business for you : Any broker worth their salt will usually screen a business before recommending it to their clients. Many will check to make sure that things like the business’s financials and price are okay before recommending the business to you.
• Paperwork assistance : If you have no prior experience buying a business, a business broker can help you with the required paperwork and ensure that you are compliant with all necessary laws and regulations.
• Negotiation : A good broker also knows the ideal price range for different kinds of businesses and can help you negotiate a good deal.
• Help you avoid pitfalls : Good business brokers know what kinds of businesses you should avoid and the mistakes to watch out for when buying a business, and can help steer you from buying a business you’d later come to regret.

4. Watch Out For Advertisements

Business owners looking to sell their business will sometimes put up advertisements in local newspapers, industry journals, publications and newsletters, and even classifieds sites like Craigslist. By keeping an eye out for such ads, you might find a business that fits the bill of what you are looking for.

You can also take matters into your own hands by putting out your own ads letting business owners know that you are looking for a business to buy.

Someone who is looking to sell their business but doesn’t know how to find a buyer could spot your ad and reach out to you with just the right kind of opportunity you were looking for.

5. Talk To Professionals That Work With Business Owners

Another way to identify businesses that are up for sale is to talk to professionals that work with business owners, such as lawyers, insolvency guys, M&A firms, auditors , and so on.

These guys will often know if a business owner is looking to sell their business, and by asking them for leads, you can easily identify business buying opportunities that you’d not have known about otherwise.

Step 3: Shortlist The Companies You Would Want To Own

The aim of the previous step was to identify all businesses that fit the criteria of the kind of business you are looking for. However, all the businesses you identified in that step will not be suitable for your needs, and after all, you cannot buy them all.

What you need to do next is to take a more detailed look at the businesses you identified in step 2 and come up with a shortlist of 2 or 3 businesses that are best aligned with your goals, your budget, and your resources.

When shortlisting the most suitable businesses, here are some of the factors you need to look at.

When identifying businesses that fit your criteria in Step 2, you looked at the cost and your ability to afford them. Now, it’s time to take a second look at each of the businesses you identified and determine which ones are comfortably within your budget.

Here, you should look not just at the initial cost of purchasing the business, but also the working capital needed to keep the business running once you take over . You don’t want to buy a business and then run it to the ground simply because you spent all the money on the purchase and don’t have the money to keep the operations going.

As part of evaluating how much you’ll need to keep the business running, you have to think about what you intend to change about the business, and how that will affect operation costs .

For instance, if you intend to focus on new marketing channels to help you grow the business, confirm whether your budget allows you to do this, in addition to paying the purchase price.

2. Expected Return On Investment

Take a look at things like the products or services offered by each of the businesses you identified, their customer base, and their annual revenue to help you estimate how much returns you can expect once you take over the business. Generally, the higher the expected return from the business, the more suitable it is .

3. Think About The Required Time Investment

All the different businesses you identified will require different levels of time investment. For instance, if one of the businesses is in an industry you don’t have a lot of experience in, you’ll need to spend a lot of time learning about the industry and the market.

An online business in an industry you are experienced in, on the other hand, might not require such a huge time investment from you, especially if it is a business that you can easily automate.

What you need to do here, therefore, is to go through the list of businesses you identified and determine the kind of time investment you’ll need to put into each business, compared to the time that you can actually put in realistically . The less time you need to invest in order to make the business successful, the better.

4. Understand Why The Owner Is Selling

A lot of times, business owners sell their businesses for very valid reasons. They could be relocating to a different place, they might be looking to retire, or they might have undergone a lifestyle change, making it impossible for them to continue running the business.

All the above reasons have something to do with the owner, rather than the business, and therefore, you can easily take over the business and continue running it successfully.

Sometimes, however, people will put up their businesses for sale because there is something wrong with the business . This is a huge red flag, since it will affect your ability to earn returns from the business once you take it over.

Some of the negative reasons why someone could be selling their business include…

• Poor business concept
• Declining market
• Business debts
• A product or service that does not have any market
• Poor business location
• Negative brand reputation
• Outdated, costly equipment
• Excessive competition

If the owner is selling the business for some of these reasons, they’re just trying to dump it on some unsuspecting investor. Note, however, that the seller won’t tell you this is why they are selling, so you need to do your homework to identify the owner’s motivations for selling.

If you feel that the business owner is being untruthful about their reasons for selling the business, strike it off your list.

5. Steady Income Stream

Just because a business has been operational, this doesn’t necessarily mean that the business has been making any profit, or even sustaining itself.

Therefore, it is important to check whether the business has been providing enough cash flow to pay for its expenses, and whether it has been making any profit for the owner.

Go through each business in your list and strike off any business that has been in existence for a significant amount of time but has not been generating sufficient income to keep things running smoothly.

Such businesses could end up being a money pit for you without delivering any returns, even in the long run.

6. Potential For Improvement

Sometimes, a business that is up for sale might not be performing optimally. However, upon closer inspection, you realize that there are some opportunities you can potentially exploit to significantly improve its performance .

Such businesses are some of the best that you can buy. Due to the sub-optimal performance, you will be able to negotiate for a significantly low price. Once you take over the business, you can then exploit the opportunities you spotted and rake huge returns from the business.

When evaluating a business, always try to see if there’s anything that can be done to improve the business. If there is no potential for improvement, strike it off your list.

7. Competition

Finally, make an evaluation of the market each business is operating in and the level of competition it is facing . What percentage of market share does the business control? Who are its biggest competitors? What do the competitors excel in? Does the business have any edge over the competition?

Generally, the less the competition a business is facing, and the greater the advantage it has over the competition, the more suitable it is .

By the end of step 3, you should have narrowed down your list to about 2 or 3 businesses that present the best opportunity for you.

Step 4: Complete Your Due Diligence

Now that you have 2 or 3 businesses you are really interested in owning, it’s time to conduct proper due diligence into each of these companies. This allows you to determine whether the assumptions you have so far about the business are accurate, and whether the business presents a good opportunity for you.

To do this, you need in-depth access to the company’s information, so you’ll first need to sign a letter of intent .

The letter of intent is drafted after you have spoken to the business owner and expressed your interest in purchasing their business.

The letter of intent defines your proposed buying price (subject to valuation), the tentative list of assets and liabilities that you intend to purchase as part of the acquisition, and the terms and conditions that will govern the sale.

The letter of intent is a demonstration to the seller that you are serious about your interest in purchasing their business , and that if everything meets the conditions agreed upon, you’ll go ahead with the deal.

Once you’ve signed the letter of intent, the seller can now allow you to access any legal or financial information that you need in order to perform a thorough analysis of the business. It is advisable to go through these documents with the help of an accountant to help make sure everything is in order.

During the due diligence stage, some of the things you need to look at include…

1. Financial Statements

These give you a detailed look into the business’s finances. How much money is flowing into and out of the business every month? Is the business generating enough money to keep itself running, or is it spending more money than it is making? How do the company’s assets compare to its liabilities?

Checking the financial statements will allow you to determine the financial health of the company and decide whether it is a worthy purchase .

The financial statements will also help you identify any opportunities that can be exploited to grow the business . For instance, you might identify expenses that can be reduced to generate more profits, or revenue opportunities that the business is not taking full advantage of.

2. Sales Records

Even though the financial statements have a record of the sales, you should still go through the sales figures individually. If possible, check the monthly sales figures for the last three years or more.

When evaluating the sales, check which products generate the most sales, whether most of the sales are made in cash or credit, whether most of the sales come from a single client or multiple clients , and so on.

This will give you a good idea of current business activity and help you make more accurate projections of what to expect once you take over the business.

3. Business Structure

How is the business legally structured? Is it a sole proprietorship, a partnership, or a corporation? This information is important because it will affect things like taxes, as well as your liabilities once you take over the business.

4. Brand Recognition

Branding is a very important factor in business. When a lot of customers know about the business you are interested in purchasing, you can easily achieve results without having to invest so much into marketing. It is also easier to benefit from things like word of mouth marketing.

It’s good to note that brand recognition can sometimes be negative, which is something you want to avoid. You are better off trying to build a little known brand than trying to do damage control for a brand with a negative reputation .

You can evaluate the kind of reputation a business has by checking feedback from past customers on the company’s social profiles, BBB ratings, and other online reviews.

5. Business Operations

These are the processes that the business undertakes every day in order to deliver products and services to customers. How are products manufactured? How does the business facilitate sales? What distribution channels does it use?

The point of evaluating business operations is to help you determine whether you’ll be able to keep these operations up once you take over the business, and identify any opportunities to make the business more efficient once you acquire it.

6. Marketing Strategies

How does the business promote its products and services to customers? What kind of image does the business project to customers? Are these marketing strategies working?

Taking a look at the marketing strategies the business is applying and their effectiveness will help you determine if you can grow the business by improving how it markets itself.

7. Inventory

If the business deals with physical products or supplies, check the level of inventory that the business is holding at the moment.

Find out the condition of the inventory, where they are stored (and whether you’ll have access to the storage area following the purchase), the company’s inventory management processes , and whether you’ll get the inventory as part of the purchase.

8. Existing Contracts

Since the business is already in operation, there is a high chance that it already has some existing contracts with clients, partners, suppliers and vendors, and so on.

Go through these contracts and determine how they will affect business operations once you take over the business .

For instance, some contracts could prevent you from bringing in new vendors, which means you won’t be able to lower some expenses.

If the business has existing contracts with clients, on the other hand, this is a good sign, because it means you’ll have clients even after you take over the business.

9. Employee Details

A business is as good as the employees working for it. Therefore, before purchasing a business, take the time to dig into the existing team. How skilled and qualified are they? How productive are they? Are there employees who are redundant?

If the business has a good team in place, it will be easier for you to take over the business without any significant impact on business operations .

Similarly, if you find that the business has some redundant roles, you can reduce costs by letting go of the employees in these roles.

10. Location

In the shortlisting stage, you only looked at the general location in which the business is located and how that affects your ability to run the business. During the due diligence stage, you need to look at the specific location of the business and how it affects the performance of the business .

For instance, if you are interested in buying a restaurant business, look at the specific area where it is located and ask yourself questions like,

• “Is there enough foot traffic to sustain the business?”
• “Are there other restaurants around the area?” “
• “What kind of people frequent this area?”

In addition to helping you determine how the location affects revenue, you should also consider the costs that come with maintaining a business in that location .

For instance, if the business you want to buy is a manufacturing business that doesn’t rely on foot traffic, you can reduce expenses by moving the business to a cheaper location.

Does the business own any assets, such as buildings, property, equipment, furnishings, vehicles, and so on? Will these be sold together with the business, or does the owner intend to retain ownership of some of these?

Generally, purchasing a business together with its assets will be costlier, but it could still be beneficial, especially when these assets are crucial to business operations . However, take the time to evaluate the condition of some of these assets, such as equipment and furniture.

12. Liabilities

With the help of an accountant, go through the list of all liabilities owed by the business and determine how they affect the business .

For instance, if the business owner has used some of the business assets to secure loans, this is something you’ll want to know.

Similarly, if there are any unrecorded liabilities, such as out of court settlements that the business is paying off, or employee benefit claims, you’ll want to be aware of them, since they could be transferred over to you once you purchase the business.

13. Customer Patterns

If the business has been keeping track of customer data, go through this data to gain a better understanding about customer patterns.

Here, you want to answer questions like:

• “Do most sales come from existing customers or first time buyers?”
• “What is the customer churn rate?”
• “Which seasons attract the highest number of first time or repeat buyers?”
• “Which products are the most popular with customers?”

The more you understand about the business’ customers, the easier it will be for you to give them what they want and grow the business.

14. Seller-Customer Ties

Sometimes, you’ll find that there is some special tie between the business owner and some customers. In such situations, the exit of the business owner could result in the loss of such customers .

To avoid finding yourself in a situation where the business loses major customers following your purchase, try to identify any relationships between the seller and customers .

Who are the biggest customers? How long have they been customers of this business? Do they have some special agreements with the business? Do you have any reason to believe that these customers could leave once you take over the business?

Step 5: Brainstorm On What Marketing, Product, And Organizational Changes Could Increase Your Enterprise Value

While it is important to consider the past performance of a business before acquiring it, greater attention should be paid to its potential performance in future .

Now that you have done your due diligence and have a good idea of where the business you want to buy stands, both in terms of finances, legal and organizational structure, and business operations, it is time to brainstorm on ideas that you can use to grow the enterprise and increase its value.

The more ideas you can come up with on how to grow the business once you own it, the more suitable that business is, and the higher chances you have of achieving success after you buy the business.

Below are some marketing, product and organizational changes that you can make to grow the value of the business once you own it.

1. Create Additional Income Streams

If you have noticed some opportunities for earning the business new income streams that the current owner has not been taking advantage of, implementing them can be a great way to grow the business following the acquisition.

For instance, let’s say the business you want to buy is an online sports store. During the due diligence stage, you noticed that the business’s only source of revenue is selling sporting equipment.

However, based on your experience in the industry, you feel that the company is sitting on an opportunity to make money selling digital workout programs that your customers can do using your sporting equipment.

By implementing such new income streams, you can grow the company’s revenue without any significant increase in recurring expenses, leading to increased profitability .

2. Get Rid Of Unprofitable Products And Services

Sometimes, a company could be generating good revenue, but then a huge chunk of this revenue goes to producing and maintaining products and services that are not profitable.

By getting rid of such products, you can quickly increase the company’s profitability, while at the same time freeing up your employees to work on more productive tasks that contribute to the company’s bottom line.

Steve Jobs provides a great example of how this works. In 1996, Apple was producing dozens of products, but the company was on the brink of bankruptcy, with over $1 billion in losses in 1996.

When Steve Jobs came back to the company in 1997, he realized that the company was supporting too many products that were not making any profit.

When Jobs took over as the new CEO , he got rid of 70% of Apple’s existing products at the time, and only retained four of the company’s most profitable products . By the end of 1998, Apple had made over $300 million in profits.

Just like Jobs, if you notice that a business is spending resources producing and maintaining unprofitable products and services, you can increase the company’s profitability by simply getting rid of these products and services.

3. Improve Product Quality

Another easy way to grow a business after acquisition is to improve the quality of its products and services.

For instance, if you are buying a restaurant, and you think that the reason it has not been maximizing its revenue is because the food was average, you can hire a skilled chef after acquisition to improve the quality of the food, which will lead to more clients patronizing the restaurant.

4. Invest In Better Marketing

After doing your due diligence, you might have noticed that the business has great products at a great price point, but is still not making enough sales. In such a situation, the problem could be the marketing strategy.

Once you take over the business, you can increase the company’s revenue by investing in better, more effective marketing channels , such as Facebook marketing or webinar marketing .

5. Review The Current Pricing Structure

A business’s pricing strategy has a huge impact on its ability to make profits . While raising prices immediately after acquiring a business can be a risky move, it can still make a huge impact on the company’s profits, especially if the price increase is accompanied by an increase in quality.

6. Increase Operational Efficiency

Very often, businesses are unable to achieve peak performance not because they don’t have the right resources, but because they are not using these resources in the most efficient manner.

For instance, unnecessary red tape and departments that operate in siloes can easily lead to increased delivery times and loss of productivity.

If you identified such inefficiencies during the due diligence stage, you can make a significant impact on the organization’s bottom line by reducing the inefficiencies .

Some of the things that you could do to improve operational efficiency include getting rid of policies and workplace procedures that introduce bottlenecks, breaking down siloes between teams and departments, and ensuring that all teams are aligned with the needs of the business.

7. Reduce Expenses

Another low hanging fruit for anyone looking to improve a company’s bottom line following an acquisition is reduction of expenses. By reducing business expenses, you can achieve an immediate increase in profitability without implementing any other strategy.

Some of the things you can do to reduce expenses include shifting to low cost production processes, finding cheaper vendors and suppliers or negotiating for discounts, letting go of redundant employees, moving the business to new premises with lower rent costs, digitizing processes to reduce paper and stationery costs, and so on.

You can easily identify excessive expenses that present the opportunity for reduction during the due diligence stage by looking at documents like the cash flow statement .

8. Take Advantage Of Technology

Adopting new technology is another very effective way of increasing the value of an enterprise after acquiring it and making an impact on the bottom line.

For instance, by taking advantage of artificial intelligence software and tools , you can automate various business processes and increase productivity without the need to increase your staff.

Aside from increasing productivity, adoption of new technology after you take over the business can also help you increase the quality of your products or services and give you a competitive edge over the competition.

Step 6: Evaluate The Price Of The Business

Having done your due diligence on the business, and with a clear idea of the changes you’ll make to improve the business and grow its value, it’s now time to evaluate the current value of the business, which will help you determine a reasonable price for the business.

In most cases, the seller will often try to get as much as possible for the business , and will sometimes use unconventional valuation methods that give them the greatest advantage. This is why it is very important to conduct your own valuation.

You can evaluate the price of the business by yourself or hire a professional to do it for you. Whatever option you opt for, below are some of the most common methods used to determine the price of a business that is on sale.

1. Using Multipliers

This is a simple way of evaluating the price of a business, where you take a certain business value, such as after tax profits, seller discretionary earnings (SDE) , or monthly gross sales, and apply a predetermined multiplier to this value .

For instance, let’s say you are using monthly gross sales as the basis of your valuation. The business you want to purchase registered average monthly gross sales of $100,000 over the last 12 months, and the industry multiplier for this type of business is x3.

In this case, the price of the business would be:

$100,000 x 3 = $300,000

While using multipliers is often the simplest way of determining the price of a business, it has one major weakness – multipliers are subjective .

Multipliers will often vary depending on factors like the industry the business is operating in, the level of competition in the industry, how diversified the business is, post-closing expenditure, how well-established the business is, how closely related the business is to the owner, whether the business owns any intellectual property, and so on.

With all these, deciding which multiplier to use can be confusing, and there’s a chance that the seller will prefer using a different multiplier that gives them the greatest advantage.

That said, using multipliers can still give you a quick estimate of what you should pay for the business .

2. Assets Approach

This is one of the most accurate ways of evaluating the value of a business. With this method, you determine the price of the business by subtracting its liabilities from its assets, then multiplying the difference by a predetermined number , usually one or two.

You can easily determine the difference between assets and liabilities by checking the company’s balance sheet.

The assets to consider when using this method include any property owned by the business, equipment, furniture, fixtures, leasehold improvements, unsold inventory, supplies, accounts receivables, trademarks, patents, and so on.

Liabilities include tall unpaid debts, bad investments, liens, uncollected taxes, lawsuits and judgments, and anything else that can potentially take money away from the business.

Asset based pricing evaluation is the best approach when you are purchasing a business that is capital intensive, as well as those that have not started making profit .

3. Discounted Cash Flow

This method allows you to estimate the current value of a business by looking at its projected cash flows in future .

In other words, the DCF method tries to determine the current value of a business based on the return on investment you will receive from the business in future, adjusted for the time value of money.

The DCF method assumes that the value of a dollar today is higher than the value of the same dollar tomorrow , because today’s dollar can be invested to yield more money tomorrow.

When using this method to value a business, you need to calculate the projected cash flows from the business for a certain period of time, then use a discounted rate to calculate the present value of those earnings .

While the DCF method is a great way to evaluate the appropriate price of a business based on your expected returns, it has one major weakness. The accuracy of your valuation depends on the accuracy of your predictions . If you come up with inaccurate cash flow projections, you’ll end up with an inaccurate valuation.

When evaluating the price of a business , it is always advisable to work with a professional who is well conversant with valuing businesses , otherwise you can easily end up paying more than the business is worth.

Step 7: Secure The Required Funding To Finance The Purchase

After valuing the business, you now know how much money you need in order to complete the purchase. If the seller is in agreement with your valuation and has agreed on the amount you are offering, it’s now time to put together the money you need to acquire the business.

It’s good to note that buying a business can be a costly affair, so you need to have given some thought to your source of funding even before you start looking for businesses to buy.

Fortunately, you have several options when it comes to raising funds to finance a business acquisition. Let’s check out some of them below.

1. Personal Funds

This is the simplest way of funding a business purchase. Here, you are basically using your own money to cover the cost of purchasing the business .

The problem with this financing option is that you need to have a lot of money saved up, which often makes it a not viable option, especially when you want to acquire a large business.

However, y ou can easily use personal funds to finance the purchase of a small business that has a relatively low price tag.

2. Debt Financing

This is one of the most common ways of financing the purchase of a business. With debt financing, you are purchasing the business with money borrowed from a bank or other lending institution.

The beauty of debt financing is that you can then use proceeds from the business to clear the loan over the agreed period of time.

What makes debt financing such an attractive option for financing the purchase of an existing business is the fact that the existing business provides you with tangible proof of the ability of the business to pay back the loan .

By providing the lender with documents like cash flow statements, the company’s tax returns, financial histories, valuations of the company’s equipment and inventory, employee records, and so on, you give lenders the confidence that they are not funding something that could end up being an expensive gamble.

If you decide to use debt financing, some of your options include…

• Traditional bank loans : This involves approaching a bank for a loan. The bank gives you money that has to be repaid plus interest within a certain time, usually ranging from 1 to 5 years. Bank loans work best when you are purchasing a business with substantial assets. You also need to have an exceptional credit score.
• Online loans : This involves financing the business acquisition using funds borrowed from online lenders. They are similar to bank loans, but they usually have lower qualification requirements compared to traditional bank loans. However, these loans often charge higher interest since they are usually unsecured. Some examples of good online lenders that you can borrow from include Fundera , Lendio , Fundbox , Funding Circle , BlueVine , and OnDeck .
• SBA Loans : This is one of the best options for borrowing money to purchase a business. SBA loans are guaranteed by the U.S Small Business Administration , which makes SBA loans easily accessible and very affordable, with very low interest rates.

3. Seller Financing

This is a unique way of financing the acquisition of a business by borrowing money from the seller.

In simpler terms, you pay the seller an initial sum of money, take control of the business, then continue paying them over time until the whole purchase amount has been cleared . In most cases, you pay off the seller using money generated from the business.

It’s good to note that finding a seller who’s open to this option can be very difficult , since most sellers want to get their money and hand over the business entirely. However, there is no harm in asking, you might come across a seller who is comfortable with this option.

4. Asset Based Financing

Also known as a leveraged buy-out, this is where you use the assets owned by the business you are buying as collateral to secure a loan, and then use this loan to fund the acquisition of the business .

Some of the business assets that you can use to secure funding include the company’s property, equipment and machinery, inventory, and unpaid invoices.

It’s good to note that with this kind of financing, you won’t be able to raise the whole amount required to purchase the business. Therefore, this option is typically used with another financing option, such as use of personal funds or seller financing.

5. Find A Partner

If you are unable to raise the funds to purchase the business on your own, another suitable option is to find a partner to help you purchase the business.

With this option, you have two options. The first one is to find a co-owner . In this case, you own the business together, and each one of you will be involved in the day to day running of the business.

If you opt for the co-owner route, it is advisable to find someone who has some skill set or experience that is beneficial to the business .

If you don’t have someone who’d be interested in partnering with you in mind, ask the business owner to give you a list of any other people who had expressed interest in purchasing the business but couldn’t afford the purchase price.

You can then approach these people and propose a partnership deal. Remember to always prepare a partnership agreement with the help of your lawyer before bringing on board a partner.

The second option is to find a venture capitalist or an angel investor . In this case, the investor is not involved in the day to day running of the business. Instead, they only give you the money and get a share of the profits until they recoup their investment plus interest.

6. Selling Stock To Employees

Another innovative way to finance the purchase of a business is to sell stock to the company’s employees.

With this route, you pay a percentage of the purchase price, while the employees raise the remaining percentage , which gives them some ownership of the company.

If you opt for this route, it is advisable to sell non-voting stock. This way, you get to retain total control over how the business is run. The employees only get a share of the business profits in the form of dividends.

7. Decline Receivables Or Assume Liabilities

You can also lower the initial purchase price of the business by declining the company’s receivables or assuming its liabilities.

When you decline the receivables, any money owed to the business before you took over will be paid to the seller . This means that you can deduct this amount from the purchase price.

When you assume the business’ liabilities, you are agreeing to pay off the debts that the business owed before you acquired it .

Note that while this will reduce the initial purchase price, you’ll still have to spend money to cover the debts. The only difference is that you will not be required to spend this money immediately, and can therefore pay off the debts using money generated by the company after you take it over.

Step 8: Close The Deal With The Right Documents

If everything is in order, and you have secured the funds you need to finance the purchase, it’s now time to do the final thing in the process – closing the deal and taking ownership of the business.

Closing the deal is a complicated process that sometimes involves various legal and financial traps, so you should always go into this step with the guidance of your lawyer.

Your lawyer will ensure that you meet all your contractual rights and obligations, and help you scrutinize all the necessary documents.

Below is a list of the documents that need to be present before you can finalize the deal, pay the seller, and officially take ownership of the business.

1. Confidentiality Agreement

During the sale of a business, a lot of confidential information is exchanged – details about business assets, debts, and finances, details about how the business runs its operations, details about you (the buyer) and how you intend to finance the purchase, and so on.

All these are very sensitive details that both you and the seller might want to keep away from the public – whether the deal goes through or not. To prevent such details from leaking to the public, it is a good idea to always have a confidentiality agreement.

2. Bill Of Sale

This is a very important document that proves that the sale occurred and that the business, as well as its assets have been transferred from the seller to the buyer.

3. Adjusted Purchase Price

This document gives the final purchase price of the business , and takes into account the cost of everything that contributed to the final purchase price – including the cost of things like assets, inventory, goodwill, and so on.

4. Acquisition Agreement

This is a legal document that covers all the terms that govern the purchase . It defines all the details of everything that the seller and the buyer have agreed upon, including the price of the acquisition , the assets and liabilities that are to be transferred as part of the purchase, and the time frame within which the acquisition needs to be completed .

The acquisition agreement also anticipates and describes what needs to be done in case things do not go as planned – for instance, if the buyer discovers that the seller misrepresented some information. The aim of this is to protect you (the buyer) and ensure you get what you are paying for.

5. Asset Purchase Agreement

If you are assuming ownership of the business’s assets as part of the purchase, you will need an asset purchase agreement. This document describes, in detail, the exact assets that you are purchasing, and those that you are not purchasing .

The information in the asset purchase agreement is usually covered by the IRS form 8594 , which you must complete before acquiring a business.

The asset purchase agreement typically covers the following:

• Inventory : A list and value of all inventory currently held by the business.
• Plant and machinery : a list and value of the plant and machinery owned by the business, as well as the lease or purchase agreements for these assets.
• Goodwill : This gives the value of intangible assets like customer base, brand and reputation, and intellectual property.
• Creditors/debtors : Unless you have agreed to decline receivables or assume liabilities, the seller will be responsible for paying creditors and collecting debtor payments until the transfer is officially completed.
• Employees : This describes whether the employees will be automatically transferred with the purchase of the business. This is usually governed by the TUPE regulations , and usually applies when the business is being transferred as a ‘going concern.’
• Contracts : Any current contracts will be listed here. You might want to review the contracts and protect yourself from potential liabilities by adding some clauses to these contracts.
• Assignment deeds : In the event that you are taking over lease or hire purchase contracts, you have to get the consent of the lessor or the hire purchase company before the contracts are transferred to you.
• Property transfer documents : If you are acquiring the business premises as part of the transfer, you’ll need to fill and sign the formal transfer documents.
• Landlord consents : In situations where the business has leased the business premises, you’ll need to get the consent of the landlord to have the lease transferred to you. As part of getting the landlord’s consent, you might be required to provide some personal guarantee.
• Vehicle transfer documents: If the business owns any vehicles that you are purchasing as part of the business acquisition, you’ll need to get the proper forms and have the ownership of the vehicles transferred with the local DMV.

6. Intellectual Property Transfer Documents

If the business you are purchasing owns any copyrights, trademarks, and patents, make sure that these are transferred to you before you take over the business.

7. Non-Compete Agreement

Imagine a situation where someone sells their business to you, then sets up a similar business next door. By doing so, they take away the customer base, as well as any goodwill they had built in the business they just sold to you.

To avoid such situations, it is always recommended that you ask the seller to sign a non-compete agreement.

The non-compete agreement restricts the seller from setting up a business, or from being employed or consulting for a business that would be a competitor to your business within a given radius from your business premises.

A good non-compete agreement will also have a clause to restrict the seller from engaging in similar business with the customers of the business for a given time frame following the purchase.

The non-compete agreement should also restrict the seller from encouraging the employees of the business to quit from their positions in your business and take up employment in a competing business.

8. Employment/Consultation Agreement

In the event that you intend to have the seller remain in the business, either as an employee or a consultant, you’ll need to create this document to define the terms of this agreement.

9. Bulk Sale Laws

Bulk sale laws are laws that were created with the aim of protecting creditors of a business by giving them a notice whenever a company that owes them is selling most or all of its assets . This way, business owners cannot sell their businesses with the aim of escaping their liabilities to creditors.

Before closing the deal, you’ll need to notify the local tax office about your intention to purchase the business.

If all the above documents are in order, you can now go ahead to make the payment to the seller and assume control of the business.

Quick Due Diligence List For Buying A Business

Collecting as much information as you can about a business before you decide to acquire it, which is also known as due diligence, is a very important part of the process of buying a business.

If you don’t do it right, you could potentially find yourself in various financial or legal problems shortly after taking ownership of a business.

To help you avoid finding yourself in such problems, here is a quick list of everything you need to look at when doing your due diligence before buying a business. You should go through everything in this list with the help of your lawyer and accountant.

1. Organization And Good Standing

Here, the aim is to determine the legal structure of the business and find out whether it is in good standing with state authorities .

Some of the documents and paperwork you need to look at here include:

• The articles of incorporation for the company, and any amendments that have been made since incorporation.
• All company bylaws, as well as amendments of the same
• Copies of the company’s minutes for the duration it has been in operation
• A list of shareholders showing how much shares each shareholder holds
• Certificate of good standing
• A list of all states and countries where the business is legally authorized to do business, as well as states and countries where the business does business, has employees, and holds or leases property.
• The company’s annual reports for the last 3 years

2. Financial Information

A company’s financial information plays a key role in helping you determine whether a business is worth buying, as well as how to value the business . When evaluating a company’s financials, some of the documents you need to look at include…

• The business’s audited financial statements for at least 3 years
• The company’s most recent unaudited statements
• Auditor’s reports, letters, and replies for at least 3 years
• Sales records for the last 3 years
• A schedule of accounts receivable and accounts payable
• The company’s capital budgets, projections, and strategic plans
• The company’s analyst reports
• The company’s credit report
• The company’s general ledger
• An analysis of the company’s gross margins, if available
• An analysis of the company’s expenses, both fixed and variable
• A schedule of the business’s advertising costs

3. Inventory, Equipment, And Other Assets

T he assets owned by a business you want to purchase will have a direct impact on the amount you are going to pay for the business , so it is important to know what they are, their actual value, and their condition, as well as whether you’ll actually need them once you take over the business.

Some of the documents to ask for here include…

• Copies of purchase documents on equipment owned by the business
• All leases on equipment not owned by the business
• A schedule of the business’ fixed assets and where they are located
• A schedule of all major capital equipment purchased or sold by the business in the last three years
• A schedule of all inventory held by the business
• All U.C.C filings

4. Real Estate

If the business owns some property, you need to know about the property, and whether it will be part of the transfer or not. If the business owns real estate, you’ll need to ask for the following documents…

• A schedule of all business locations maintained by the company
• Copies of all deeds, title policies, mortgages, leases, variances, surveys, and use permits

5. Intellectual Property

Where the business you are interested in holds some intellectual property rights, copyrights, and trademarks, you should ask to see the following documents…

• A schedule of copyrights
• A schedule of trade names and trademarks
• A schedule of all patents held, both domestic and foreign, as well as any pending patent applications
• Any “work for hire” agreements
• A description of how the business protects its know-how and trade secrets
• A description of all technical know-how held by the business
• Copies of consulting agreements the business has with third parties
• A list of all intellectual property claims or threatened by or against the business

6. Employees And Employee Benefits

When purchasing a business that employs staff, it is important to know the number of staff under employment and how much they get paid , especially if you intend to retain the employees after acquiring the business.

Here are the employee-related documents you’ll want to check as part of your due diligence…

• A detailed list of all staff, including their positions and roles, their salaries and benefits, how long they’ve been working for the company, and all salaries and benefits paid out for at least 3 years.
• All agreements between the business and its employees, including employment, consulting, non-competition, non-solicitation, and non-disclosure agreements.
• The company’s employee handbook and schedules of all employee policies
• Resumes of key employees
• Copies of any existing collective bargaining opportunities
• Copies of all stock purchase plans and stock options available to employees
• A description of existing employee health and welfare insurance policies and the benefits accorded under these policies
• A list and description of all labor disputes the business has faced within the last 3 years – whether settled or pending

7. Business Permits And Licenses

It is also important to know whether the business you want to purchase has all the permits and licenses it needs to operate, and that it is not in violation of any state or city laws. The permits required will depend on the nature of the business and the industry it operates in.

8. Environmental Regulations

Imagine buying a business, only to discover that it is facing fines and penalties because it has been illegally disposing of hazardous chemicals into a nearby river? To avoid such situations, you need to make sure that the business is in compliance with all environmental laws .

• Any available environmental audits for all properties leased or owned by the business
• A list of the business’s environmental licenses and permits
• A list of all hazardous substances the business uses in its operations, as well as how they are disposed
• Copies of all correspondence between the business and any environmental regulatory agency
• A list of all environmental disputes, investigations, or litigations the business has been involved in

9. Zoning Laws

Next, you need to check whether the business you intend to buy is in compliance with any zoning restrictions.

In some cities, you might find that certain businesses, such as bars, nightclubs, and manufacturing businesses, are not allowed in certain neighborhoods. You don’t want to buy a business that could end up being closed for violating zoning laws.

Has the business you are interested in buying been diligently filing its taxes, and is it compliant with all tax laws and regulations? Here, ask to see the following documents…

• All sales and income tax returns filed for the last 3 years
• All employment tax filings for the last 3 years
• All recent tax settlement documents
• Any tax liens

11. Contracts And Leases

It is important to find out all the contracts and leases held by a business before you acquire it. This way, you can determine whether to maintain the contracts and leases or whether to negotiate new ones, as well as how canceling any of these contracts will affect the sale .

When reviewing contracts and leases, you’ll need to look at the following:

• Contracts and agreements between the business and its vendors and suppliers
• Contracts and agreements between the business and its customers
• Any lease agreements for properties occupied by the business or equipment
• All installment sale agreements
• All loan or credit agreements to which the business is a party
• All non-competition and non-disclosure agreements the business has signed with other parties
• Any other contracts and agreements that apply to the business

12. Product And Service Lines

Ask for a list of all products and services currently offered by the business, as well as those that are under development. If there are any evaluations, studies, tests, surveys, or customer complaints regarding the products or services, get a copy of these as well.

13. Customer Information

Your due diligence would be complete without information about the company’s customers. When reviewing customer information, ask for the following…

• A list of the company’s biggest customers for the last 3 years
• Any existing supply or service contracts between the business and customers
• A description of any credit agreements between the business and its customers
• A list of all pending customer orders
• A list of all key customers lost over the last 3 years, and the reasons behind the loss
• A description of the business’ current marketing strategies
• A list and description of the business’s main competitors

14. Litigation

If you purchase a business that is facing legal disputes, you could easily end up assuming liability for these disputes.

To avoid this, you need to make sure that the business is under no legal threat . To do this, ask to see a list of all pending and threatened litigations, as well as documents relating to any settlements, consent decrees, or injunctions to which the business is a party.

15. Professionals

If the business has engaged any professionals over the last 3 years – such as consultants, external accountants, and law firms – ask for a list of these professionals, as well as their contact information.

16. Articles And Publicity

Finally, ask for copies of all of the business’s press releases, articles, or any other form of publicity that the business has been featured in over the last 3 years. This can help you evaluate the company’s brand and reputation.

Pros Of Buying A Business

Now that you are conversant with the step by step process of buying a business, is it better to buy an existing business or build your own business from scratch? Let’s go over some of the advantages of buying a business that is already in existence.

1. Market Tested Concept And Products

When starting a new business from scratch, you are taking a very big gamble. You don’t know whether your business concept will work, or whether there is a ready market for your products and services .

Things like creating a business plan and conducting market research will help you reduce the risk, but you’ll ultimately know whether there’s demand for your products once they hit the market.

With an existing business, the risk is less, because you can check how the business has been performing to determine whether the business concept is working, and whether there is demand for the products and services.

2. Reduced Startup Time

Getting a new business off the ground takes a significant amount of time and effort , because there are lots of things to be done.

You have to find office space or business premises, purchase equipment and inventory, find the right employees and train them, come up with management policies and processes, build relationships with vendors and suppliers, develop a distribution network, and so on.

With all these activities that need to be done, it could be a while before you actually open your doors to the public and start selling.

When buying an existing business, most of this work has been done for you . You can literally finalize the purchase today and open shop tomorrow.

However, this is not to say that there’ll be no work on your part. You also have to put in work to improve the business and take it where you want it to be.

3. Established Brand And Customer Base

Building a brand is no small task, especially if you are starting a business in a crowded industry. It could take a few years to get people to know about your brand and your products and services, and a few more to build a loyal customer base.

With an already existing business, the brand is already established, and the business already has an existing customer base , thus making things a lot easier for you.

4. Securing Business Funding Is Easier

Raising funds to start a new business is not an easy thing to do. This is because you are borrowing money against an idea that is only in your head.

This presents a huge risk for investors and lenders, because the only tangible thing is your business plan, and there is no guarantee that you will be able to successfully implement the business plan.

With an existing business, securing funding is a lot easier because you are not borrowing against projections that may never materialize. Lenders and investors can look at revenue figures, profit margins, and the company’s assets and lend you money against something tangible.

This is not to say that it is impossible for an existing business to fail. However, financing an existing business presents a lower level of risk to lenders and investors compared to financing a new venture.

Sometimes, the business you are buying could have copyrighted slogans, patents, trademarks, and other intellectual property.

Once you acquire the business, this intellectual property could be transferred over to you, and could give you a competitive edge that you would not have had by starting your business from scratch. Note, however, that you may be required to pay for this intellectual property as part of the purchase.

Cons Of Buying A Business

Despite having all the above advantages, buying an existing business is not all smooth sailing. Some of the drawbacks of buying an existing business include…

1. Higher Upfront Costs

With a new business, you can acquire various assets gradually as the company grows, which allows you to keep the cost of starting the business manageable. When buying an existing business, however, y ou’ll be expected to pay for these assets all at once .

In addition, when acquiring an existing business, y ou’ll also be paying for other intangible assets , such as the brand and reputation of the business, the customer base, intellectual property, business policies and procedures, income streams, and so on.

While all these are negotiable, having to pay for them at once can push the cost of acquiring an existing business way higher than the cost of starting a new business and growing it gradually.

2. Risk Of Unidentified Problems

Sometimes, business owners will decide to sell their business because there’s an issue with the business that could affect its long term success . However, many of them will try to hide this information from potential buyers.

While an intensive due diligence process can help you identify such red flags before you commit your money to buy the business, it is possible to miss an issue or two, or underestimate an issue that seems insignificant.

Once you have bought the business, there’s no going back. If you discover any red flags at this point, the only thing you can do is try as much as possible to rectify the issue, though this might not be possible in some cases.

For instance, if you just bought a business in a market that is declining, there’s not much you can do to revive the market.

3. Unfamiliarity With The Business

When you build a business from scratch, you’ll have an extensive knowledge of how that business works, how it makes its profits, and the inner workings and processes that make the business successful.

When you buy a business that was built by someone else, you don’t enjoy the privilege of such knowledge, even if you have experience in the industry . This means that you’ll have to go through a steep learning curve in order to continue running the business successfully.

Sometimes, someone who bought an existing business might be unable to discover the unique thing that made the business successful under the previous owner, and faces the risk of running the business into the ground.

4. Making The Business “Your Own” Can Be A Huge Challenge

When someone starts a business, they have a goal and vision for that business. When you buy the business, you’re essentially stepping into the founder’s vision.

Since you don’t have the same vision as the founder, you have to work on developing your own vision for the business, which calls for changes to the business.

For instance, you might want to introduce new products and services, or change the business model. However, instituting such changes to the business can be detrimental to its performance, and can sometimes lead to loss of customers or key employees .

Ready To Buy A Business And Start Your Entrepreneurial Journey?

If you want to become a business owner, but don’t want to go through the challenging process of building a business from scratch, you can start your entrepreneurial journey by choosing to buy an existing business instead.

While buying a business can be a complicated process that requires its own specialized knowledge, we’ve furnished you with all the required information and broken the process into 8 easy to follow steps.

Here’s a recap of the steps:

• Step 1: Decide what type of business you want to buy
• Step 2: Search for businesses that are for sale
• Step 3: Shortlist the companies you would want to own
• Step 4: Complete your due diligence
• Step 5: Brainstorm on what marketing, product, and organizational changes could increase your enterprise value
• Step 6: Evaluate the price of the business
• Step 7: Secure the required funding to finance the purchase
• Step 8: Close the deal with the right documents

While these steps break down buying a business into a simple process, buying a business is still an involved process that requires a lot of time investment and a lot of caution. We always recommend working with the right professionals to avoid any legal or financial problems down the road.

It is also advisable to keep in touch with the previous owner, because you might need their help or advice somewhere down the road.

All said and done, if you follow the process and recommendations shared in this guide, you’ll be able to successfully start your entrepreneurial journey without the pressure of building a business from the ground up.If you prefer starting your own business, rather than buying an existing business, check out our guides on how to start a blogging business , how to start a podcast , how to start a consulting business , and how to start an online store .

Was This Article Helpful?

Anastasia belyh.

Anastasia has been a professional blogger and researcher since 2014. She loves to perform in-depth software reviews to help software buyers make informed decisions when choosing project management software, CRM tools, website builders, and everything around growing a startup business.

Anastasia worked in management consulting and tech startups, so she has lots of experience in helping professionals choosing the right business software.

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How to Buy an Existing Business or Franchise Starting from scratch isn't the only way to get started. Buying an existing business can help you hit the ground running. Here's what you need to know to find a great deal.

When most people think of starting a business, they think of beginning from scratch--developing your own ideas and building the company from the ground up. But starting from scratch presents some distinct disadvantages, including the difficulty of building a customer base, marketing the new business, hiring employees and establishing cash flow...all without a track record or reputation to go on.

Buying an Existing Business

In most cases, buying an existing business is less risky than starting from scratch. When you buy a business, you take over an operation that's already generating cash flow and profits. You have an established customer base, reputation and employees who are familiar with all aspects of the business. And you don't have to reinvent the wheel--setting up new procedures, systems and policies--since a successful formula for running the business has already been put in place.

On the downside, buying a business is often more costly than starting from scratch. However, it's easier to get financing to buy an existing business than to start a new one. Bankers and investors generally feel more comfortable dealing with a business that already has a proven track record. In addition, buying a business may give you valuable legal rights, such as patents or copyrights, which can prove very profitable. Of course, there's no such thing as a sure thing--and buying an existing business is no exception. If you're not careful, you could get stuck with obsolete inventory, uncooperative employees or outdated distribution methods. To make sure you get the best deal when buying an existing business, be sure to follow these steps.

The Right Choice

Buying the perfect business starts with choosing the right type of business for you. The best place to start is by looking at an industry with which you're both familiar and which you understand. Think long and hard about the types of businesses you're interested in and which best match your skills and experience. Also consider the size of business you are looking for, in terms of employees, number of locations and sales. Next, pinpoint the geographical area where you want to own a business. Assess labor pool and costs of doing business in that area, including wages and taxes, to make sure they're acceptable to you. Once you've chosen a region and an industry to focus on, investigate every business in the area that meets your requirements. Start by looking in the local newspaper's classified section under "Business Opportunities" or "Businesses for Sale". You can also run your own "Want to Buy" ad describing what you are looking for. Remember, just because a business isn't listed doesn't mean it isn't for sale. Talk to business owners in the industry; many of them might not have their businesses up for sale but would consider selling if you made them an offer. Put your networking abilities and business contacts to use, and you're likely to hear of other businesses that might be good prospects.

Contacting a business broker is another way to find businesses for sale. Most brokers are hired by sellers to find buyers and help negotiate deals. If you hire a broker, he or she will charge you a commission--typically 5 to 10 percent of the purchase price. The assistance brokers can offer, especially for first-time buyers, is often worth the cost. However, if you are really trying to save money, consider hiring a broker only when you are near the final negotiating phase. Brokers can offer assistance in several ways.

• Prescreening businesses for you. Good brokers turn down many of the businesses they are asked to sell, whether because the seller won't provide full financial disclosures or because the business is overpriced. Going through a broker helps you avoid these bad risks.
• Helping you pinpoint your interest. A good broker starts by finding out about your skills and interests, then helps you select the right business for you. With the help of a broker, you may discover that an industry you had never considered is the ideal one for you.
• Negotiating. The negotiating process is really when brokers earn their keep. They help both parties stay focused on the ultimate goal and smooth over any problems that may arise.
• Assisting with paperwork. Brokers know the latest laws and regulations affecting everything from licenses and permits to financing and escrow. They also know the most efficient ways to cut through red tape, which can slash months off the purchase process. Working with a broker reduces the risk that you'll neglect some crucial form, fee or step in the process.

A Closer Look

Whether you use a broker or go it alone, you will definitely want to put together an "acquisition team"--your banker, accountant and attorney--to help you. These advisors are essential to what is called "due diligence", which means reviewing and verifying all the relevant information about the business you are considering. When due diligence is done, you will know just what you are buying and from whom. The preliminary analysis starts with some basic questions. Why is this business for sale? What is the general perception of the industry and the particular business, and what is the outlook for the future? Does--or can--the business control enough market share to stay profitable? Are raw materials needed in abundant supply? How have the company's product or service lines changed over time?

You also need to assess the company's reputation and the strength of its business relationships. Talk to existing customers, suppliers and vendors about their relationships with the business. Contact the Better Business Bureau, industry associations and licensing and credit-reporting agencies to make sure there are no complaints against the business.

If the business still looks promising after your preliminary analysis, your acquisition team should start examining the business's potential returns and its asking price. Whatever method you use to determine the fair market price of the business, your assessment of the business's value should take into account such issues as the business's financial health, its earnings history and its growth potential, as well as its intangible assets (for example, brand name and market position).

To get an idea of the company's anticipated returns and future financial needs, ask the business owner and/or accountants to show you projected financial statements. Balance sheets, income statements, cash flow statements, footnotes and tax returns for the past three years are all key indicators of a business's health. These documents will help you conduct a financial analysis that will spotlight any underlying problems and also provide a closer look at a wide range of less tangible information.

25 Things to Consider

Following is a checklist of items you should evaluate to verify the value of a business before making a decision to buy:

1. Inventory. Refers to all products and materials inventoried for resale or use in servicing a client. Important note: You or a qualified representative should be present during any examination of inventory. You should know the status of inventory, what's on hand at present, and what was on hand at the end of the last fiscal year and the one preceding that. You should also have the inventory appraised. After all, this is a hard asset and you need to know what dollar value to assign it. Also, check the inventory for salability. How old is it? What is its quality? What condition is it in? Keep in mind that you don't have to accept the value of this inventory: it is subject to negotiation. If you feel it is not in line with what you would like to sell, or if it is not compatible with your target market, then by all means bring those points up in negotiations.

2. Furniture, fixtures, equipment and building. This includes all products, office equipment and assets of the business. Get a list from the seller that includes the name and model number of each piece of equipment. Then determine its present condition, market value when purchased versus present market value, and whether the equipment was purchased or leased. Find out how much the seller has invested in leasehold improvements and maintenance in order to keep the facility in good condition. Determine what modifications you'll have to make to the building or layout in order for it to suit your needs.

3. Copies of all contracts and legal documents. Contracts would include all lease and purchase agreements, distribution agreements, subcontractor agreements, sales contracts, union contracts, employment agreements and any other instruments used to legally bind the business. Also, evaluate all other legal documents such as fictitious business name statements, articles of incorporation, registered trademarks, copyrights, patents, etc. If you're considering a business with valuable intellectual property, have an attorney evaluate it. In the case of a real-estate lease, you need to find out if it is transferable, how long it runs, its terms, and if the landlord needs to give his or her permission for assignment of the lease.

4. Incorporation. If the company is a corporation, check to see what state it's registered in and whether it's operating as a foreign corporation within its own state.

5. Tax returns for the past five years. Many small business owners make use of the business for personal needs. They may buy products they personally use and charge them to the business or take vacations using company funds, go to trade shows with their spouses, etc. You have to use your analytical skills and those of your accountant, to determine what the actual financial net worth of the company is.

6. Financial statements for the past five years. Evaluate these statements, including all books and financial records, and compare them to their tax returns. This is especially important for determining the earning power of the business. The sales and operating ratios should be examined with the help of an accountant familiar with the type of business you are considering. The operating ratios should also be compared against industry ratios which can be found in annual reports produced by Robert Morris & Associates as well as Dun & Bradstreet.

7. Sales records. Although sales will be logged in the financial statements, you should also evaluate the monthly sales records for the past 36 months or more. Break sales down by product categories if several products are involved, as well as by cash and credit sales. This is a valuable indicator of current business activity and provides some understanding of cycles that the business may go through. Compare the industry norms of seasonal patterns with what you see in the business. Also, obtain the sales figures of the 10 largest accounts for the past 12 months. If the seller doesn't want to release his or her largest accounts by name, it's fine to assign them a code. You're only interested in the sales pattern.

8. Complete list of liabilities. Consult an independent attorney and accountant to examine the list of liabilities to determine potential costs and legal ramifications. Find out if the owner has used assets such as capital equipment or accounts receivable as collateral to secure short-term loans, if there are liens by creditors against assets, lawsuits, or other claims. Your accountant should also check for unrecorded liabilities such as employee benefit claims, out-of-court settlements being paid off, etc.

9. All accounts receivable. Break them down by 30 days, 60 days, 90 days and beyond. Checking the age of receivables is important because the longer the period they are outstanding, the lower the value of the account. You should also make a list of the top 10 accounts and check their creditworthiness. If the clientele is creditworthy and the majority of the accounts are outstanding beyond 60 days, a stricter credit collections policy may speed up the collection of receivables.

10. All accounts payable. Like accounts receivable, accounts payable should be broken down by 30 days, 60 days, and 90 days. This is important in determining how well cash flows through the company. On payables more than 90 days old, you should check to see if any creditors have placed a lien on the company's assets.

11. Debt disclosure. This includes all outstanding notes, loans and any other debt to which the business has agreed. See, too, if there are any business investments on the books that may have taken place outside of the normal area. Look at the level of loans to customers as well.

12. Merchandise returns. Does the business have a high rate of returns? Has it gone up in the past year? If so, can you isolate the reasons for returns and correct the problem(s)?

13. Customer patterns. If this is the type of business that can track customers, you will want to know specific characteristics concerning current customers, such as: How many are first-time buyers? How many customers were lost over the past year? When are the peak buying seasons for current customers? What type of merchandise is the most popular?

14. Marketing strategies. How does the owner obtain customers? Does he or she offer discounts, advertise aggressively, or conduct public-relations campaigns? You should get copies of all sales literature to see the kind of image that is being projected by the business. When you look at the literature, pretend that you are a customer being solicited by the company. How does it make you feel? This can give you some idea of how the company is perceived by its market.

15. Advertising costs. Analyze advertising costs. It is often better for a business to postpone profit at year-end until the next year by spending a lot of money on advertising during the last month of the fiscal year.

16. Price checks. Evaluate current price lists and discount schedules for all products, the date of the last price increase, and the percentage of increase. You might even go back and look at the previous price increase to see what percentage it was and determine when you are likely to be able to raise prices. Here again, compare what you see in the business you are looking at, with standards in the industry.

17. Industry and market history. You should analyze the industry as well as the specific market segments of the business targets. You need to find out if sales in the industry, as well as in the market segment, have been growing, declining, or have remained stagnant. This is very important to determine future profit potential.

18. Location and market area. Evaluate the location of the business and the market area surrounding it. This is especially important to retailers, who draw the majority of their business from the primary trading area. You should conduct a thorough analysis of the business's location and the trading areas surrounding the location including economic outlook, demographics and competition. For service businesses, get a map of the area covered by the business. Find out, based on the locations of various accounts, if there are any special requirements for delivering the product, or any transportation difficulties encountered by the business in getting the product to market.

19. Reputation of the business. The image of the business in the eyes of customers and suppliers is extremely important. As we mentioned, the image of the business can be an asset, or a liability. Interview customers, suppliers and the bank, as well as the owners of other businesses in the area, to determine the reputation of the business.

20. Seller-customer ties. You must find out if any customers are related or have any special ties to the present owner of the business. How long has any such account been with the company? What percentage of the company's business is accounted for by this particular customer or set of customers? Will this customer continue to purchase from the company if the ownership changes?

21. Inflated salaries. Some salaries may be inflated or perhaps the current owner may have a relative on the payroll who isn't working for the company. All of these possibilities should be analyzed.

22. List of current employees and organizational chart. Current employees can be a valuable asset, especially key personnel. Evaluate the organizational chart to understand who is responsible to whom. You must also look at the management practices of the company and know the wages of all employees and their length of employment. Examine any management-employee contracts that exist aside from a union agreement, as well as details of employee benefit plans; profit-sharing; health, life and accident insurance; vacation policies; and any employee-related lawsuits against the company.

23. OSHA requirements. Find out if the facility meets all occupational safety and health requirements and whether it has been inspected. If you feel that the seller is "hedging" on this and you see some things you feel might not be safe on the premises, you can ask the Occupational Safety and Health Administration (OSHA) to help you with an inspection. As a prospective buyer of a business that may come under OSHA scrutiny, you need to be certain that you are not buying an unsafe business. Some sellers may perceive your asking for OSHA's help as a dirty trick. But you must realize that as a prospective, serious buyer, you need to protect your position.

24. Insurance. Establish what type of insurance coverage is held for the operation of the business and all of its properties as well as who the underwriter and local company representative is, and how much the premiums are. Some businesses are underinsured and operating under potentially disastrous situations in case of fire or a major catastrophe. If you come into an underinsured operation, you could be wiped out if a major loss occurs.

25. Product liability. Product liability insurance is of particular interest if you're purchasing a manufacturing company. Insurance coverage can change dramatically from year to year, and this can markedly affect the cash flow of a company.

Determining a Fair Price

No decision is more emotionally charged than deciding upon a price for an existing business. The owner has one idea of how much the business is worth, while the buyer will typically have another viewpoint. Each party is dealing from a different perspective and usually the one who is best prepared will have the most leverage when the process enters the negotiating stage.

Keep in mind that most sellers determine the price for their business arbitrarily or through a special formula that may apply to that industry only. Either way, there usually aren't very many solid facts upon which to base their decisions.

Price is a very hard element to pin down and, therefore, is for the buyer to assess. There are a few factors that will influence price, such as economic conditions. Usually, businesses sell for a higher price when the economy is expanding, and for a much lower price during recessions. Motivation also plays an important factor. How badly does the seller want out? If the seller has many personal financial problems, you may be able to buy the business at a discount rate by playing the waiting game. On the other hand, you should never let the seller know how badly you want to buy the business. This can affect the price you pay adversely.

Beyond these factors, you can determine the value of a business using several different methods discussed below.

Multipliers

Simply put, some owners gauge the value of their business by using a multiplier of either the monthly gross sales, monthly gross sales plus inventory, or after-tax profits. While the multiplier formula may seem complex and quite accurate to begin with, if you delve a little deeper and look at the components used to arrive at the stated value, there is actually very little to substantiate the arrived at price.

Most of the multipliers aren't based on fact. For example, individuals within a specific industry may claim that certain businesses sell at three times their annual gross sales, or two times their annual gross sales plus inventory. Depending on which formula the owner uses, the gross sales are multiplied by the appropriate number, and a price is generated.

For instance, if the business was earning $100,000 a year and the seller was using a formula in which the multiple of gross sales was 30 percent based on industry averages, then he or she would generate a price using the following equation:

100,000 x .30 = $30,000

Of course, you can check the monthly sales figure by looking at the income statement, but is the multiplier an accurate number? After all, it has been determined arbitrarily. There usually hasn't been a formal survey performed and verified by an outside source to arrive at these multipliers.

In addition, even if the multiplier was accurate, there is such a large spread between the low and high ends of the range that it really just serves as a ballpark figure. This is true whether a sales or profit multiplier is used. In the case of a profit multiplier, the figure generated becomes even more skewed because businesses rarely show a profit due to tax reasons. Therefore, the resulting value of the business is either very small or the owner has to use a different profit factor to arrive at a higher price.

Don't place too much faith in multipliers. If you run across a seller using the multiplier method, use the price only as an estimate and nothing more.

Book Values

This is a fairly accurate way to determine the price of a business, but you have to exercise caution using this method. To arrive at a price based on the book value, all you have to do is find out what the difference is between the assets and liabilities of a company to arrive at its net worth. This has usually been done already on the balance sheet. The net worth is then multiplied by one or two to arrive at the book value.

This might seem simple enough. To check the number, all you have to do is list the company's assets and liabilities. Determine their value, arrive at the net worth, and then multiply that by the appropriate number.

Assets usually include any unsold inventory, leasehold improvements, fixtures, equipment, real estate, accounts receivable, and supplies. Liabilities can be anything. They might even include the business itself. Usually, though, you want to list any unpaid debts, uncollected taxes, liens, judgments, lawsuits, bad investments--anything that will create a cash drain upon the business.

Now here is where it gets tricky. In the balance sheet, fixed assets are usually listed by their depreciated value, not their replacement value. Therefore, there really isn't a true cost associated with the fixed assets. That can create very inconsistent values. If the assets have been depreciated over the years to a level of zero, there isn't anything on which to base a book value.

Return on Investment

The most common means of judging any business is by its return on investment (ROI), or the amount of money the buyer will realize from the business in profit after debt service and taxes. However, don't confuse ROI with profit. They are not the same thing. ROI is the amount of the business. Profit is a yardstick by which the performance of the business is measured.

Typically, a small business should return anywhere between 15 and 30 percent on investment. This is the average net in after-tax dollars. Depreciation, which is a device of tax planning and cash flow, should not be counted in the net because it should be set aside to replace equipment. Many novice business owners will look at a financial statement and say, "There's $5,000 we can take off for depreciation." Well, there's a reason for a depreciation schedule. Eventually equipment does wear out and must be replaced, and it sometimes has to be replaced much sooner than you expect. This is especially true when considering a business with older equipment.

The wisdom of buying a business lies in its potential to earn money on the money you put into it. You determine the value of that business by evaluating how much money you are going to earn on your investment. The business should have the ability to pay for itself. If it can do this and give you a return on your cash investment of 15 percent or more, then you have a good business. This is what determines the price. If the seller is financing the purchase of the business, your operating statement should have a payment schedule that can be taken out of the income of the business to pay for it.

Does a 15-percent net for a business seem high? Everybody wants to know if a business makes two, three, or 10 times profit. They hear price-earning ratios tossed around, and forget that such ratios commonly refer to companies listed on the stock exchange. In small business, such ratios have limited value. A big business can earn 10 percent on its investment and be extremely healthy. The big supermarkets net two or three percent on their sales, but this small percentage represents enormous volume.

Small businesses are different. The small business should typically earn a bigger return because the risk of the enterprise is higher. The important thing for you, as a buyer of a small business, is to realize that regardless of industry practices for big business, it's the ROI that you need to worry about most. Is it realistic? If the price is realistic for the amount of money you have to invest, then you can consider it a viable business.

Capitalized Earnings

Valuing a business based on capitalized earnings is similar to the return-on-investment method of assessment, except normal earnings are used to estimate projected earnings, which are then divided by a standard capitalization rate. So what is a standard capitalization rate?

The capitalization rate is determined by learning what the risk of investment in the business would be in comparison to other investments such as government bonds or stock in other companies. For instance, if the rate of return on investment in government bonds is 18 percent, then the business should provide a return of 18 percent or better on the investment into it. To determine the value of a business based on capitalized earnings, use the following formula:

Projected Earnings x Capitalization Rate = Price

So, after analyzing the market, the competition, the demand for the product, and the organization of the business, you determine that projected earning could increase to $25,000 per year for the next three years. If your capitalization rate is 18 percent, then the value of the business would be:

$25,000 / .18 = $138,888

Generally, a good capitalization rate for buyouts will range between 20 to 40 percent. If the seller is asking much more than what you've determined the capitalized earnings to be, then you will have to try and negotiate a lower price.

Intangible Value

Some business owners try to sell goodwill as an asset. Normally, in everyday accounting procedures, most companies put down perhaps one dollar as the value of goodwill. There is no doubt that goodwill has value, particularly if the business has built up a regular trade and a strong base of accounts. But it is the financial value of the accounts, not their psychological value, that should be placed on any financial statements.

Goodwill as such is not an asset. You as a buyer would assess the business based on the return on investment. Certain rules of the game may change when you enter the fields of acquisition and merger. Suppose you buy out your competition, merge all your facilities, and double your volume. Now the labor and overhead factors are much lower. Thus, even if the seller was losing perhaps 5 percent a year, if you bring them into your company, which is making 15 percent a year, it might allow you to increase sales and end up making 20 percent.

The Art of the Deal

Deciding on a price, however, is just the first step in negotiating the sale. More important is how the deal is structured. David H. Troob, chairman of Geneva Companies, a national mergers and acquisitions services firm, suggests that you should be ready to pay 30 to 50 percent of the price in cash, and finance the remaining amount.

You can finance through a traditional lender, or sellers may agree to "hold a not," which means they accept payments over a period of time, just as a lender would. Many sellers like this method because it assures them of future income. Other sellers may agree to different terms--for example, accepting benefits such as a company car for a period of time after the deal is completed. These methods can cut down the amount of upfront cash you need; Troob advises, however, that you should always have an attorney review any arrangements for legality and liability issues.

An individual purchasing a business has two options for structuring the deal (assuming the transaction is not a merger). The first is asset acquisition, in which you purchase only those assets you want. On the plus side, asset acquisition protects you from unwanted legal liabilities since instead of buying the corporation (and all its legal risks), you are buying only its assets.

On the downside, an asset acquisition can be very expensive. The asset-by-asset purchasing process is complicated and also opens the possibility that the seller may raise the price of desirable assets to off-set losses from undesirable ones.

The other option is stock acquisition, in which you purchase stock. Among other things, this means you must be willing to purchase all the business assets--and assume all its liabilities.

The final purchase contract should be structured with the help of your acquisition team to reflect very precisely your understanding and intentions regarding the purchase from a financial, tax and legal standpoint. The contract must be all-inclusive and should allow you to rescind the deal if you find at any time that the owner intentionally misrepresented the company or failed to report essential information. It's also a good idea to include a no compete clause in the contract to ensure the seller doesn't open a competing operation down the street.

Remember, you have the option to walk away from a negotiation at any point in the process if you don't like the way things are going. "If you don't like the deal, don't buy," says Troob. "Just because you spent a month looking at something doesn't mean you have to buy it. You have no obligation."

Alternatives to Cash Short on cash? Try these alternatives for financing your purchase of an existing business:

• Use the seller's assets. As soon as you buy the business, you'll own the assets--so why not use them to get financing now? Make a list of all the assets you're buying (along with any attached liabilities), and use it to approach banks, finance companies and factors (companies that buy accounts receivable).
• Buy co-op. If you can't afford the business yourself, try going co-op--buying with someone else that is. To find a likely co-op buyer, ask the seller for a list of people who were interested in the business but didn't have enough money to buy. (Be sure to have your lawyer write up a partnership agreement, including a buyout clause, before entering into any partnership arrangement.)
• Use an Employee Stock Ownership Plan (ESOP). ESOPs offer you a way to get capital immediately by selling stock in the business to employees. If you sell only non-voting shares of stock, you still retain control. By offering to set up an ESOP plan, you may be able to get a business for as little as 10 percent of the purchase price.
• Lease with an option to buy. Some sellers will let you lease a business with an option to buy. You make a down payment, become a minority stockholder and operate the business is if it were your own.
• Assume liabilities or decline receivables. Reduce the sales price by either assuming the business's liabilities or having the seller keep the receivables.

Common Mistakes to Avoid

Don't be too anxious when you're looking to buy a business. As we've mentioned already, if you're too anxious, this can affect the price.

Tremendous mistakes are made by people who are anxious. Business consultants called in by anxious buyers can sometimes salvage the situation, but oftentimes consultants are not called until a deal has been closed. And once your signature goes on that dotted line, you're stuck with the purchase. So keep in mind that anxiety or impatience isn't going to help you buy a business. Take your time. Recognize that there's always time to reflect on the business that's for sale. No matter what a business broker, a business seller, or any other person may tell you, there's always time. Nine times out of 10, the business that's up for sale is going to be around for awhile. And if it's not, then it's the seller who is going to be the anxious one; and the seller's anxiety, of course, is something that can be manipulated to your advantage as buyer.

Some of the more common mistakes are:

• Buying on price. Buyers don't take into account ROI. If you're going to invest $20,000 in a business that returns a five-percent net, you're better off putting your money in stocks and commodities, the local S&L, or municipal bonds. Any type of intangible security is going to produce more than five percent.
• Cash shortage. Some buyers use all their cash for the down payment on the business, though cash management in the startup phase of any business, new or existing, is fundamental to short-term success. They fail to predict future cash flow and possible contingencies that might require more capital. Further, there has to be some revenue set aside for building the business via marketing and PR efforts. So, if you have $20,000 to invest, make sure you don't invest the entire amount. Keep some of the capital. Though figures vary from industry to industry, a common contingency is 10 percent. Additionally, you may want to set aside a sum that you regard as your working capital, which in a number of businesses is enough to cover about three months' worth of expenses.
• Buying all the receivables. It generally makes good sense to buy the receivables, except when they are 90 or 120 days old, or older. Too often buyers take on all the receivables, even those beyond 90 days. This can be very risky because the older the account, the more difficult it'll be to collect against. You can protect yourself by having the seller warrant the receivables; what's not collectible can be charged back against the purchase price of the business. For receivables beyond 90 days, give those to the owner, and see if he or she can collect.
• Failure to verify all data. Most business buyers accept all the information and data given to them by the seller at face value, without the verification of their own accountant (preferably a CPA, who can audit financial statements). Most sellers want to get their cash out of the business as soon as possible, and buyers frequently allow them to take all the quick assets such as receivables, cash, and equipment inventories, and sometimes bring in equipment. The seller talks the buyer into virtually anything, knowing that the buyer wants the business badly.
• Heavy payment schedules. Novice business owners often overestimate their revenue during the first year and take on unduly large payments to finance the buyout. Generally, however, revenue rarely pans out. During the first year of any operation, the owner experiences numerous non-recurring costs such as equipment failures, employee turnover, etc. For this reason, it makes sense to have a payment schedule that begins fairly light, then gets progressively heavier. This is something that can be negotiated with a seller and should not be difficult to arrange.
• Treating the seller unfairly. People think that, because they are buying a business, the seller is at their mercy. All too often, the buyer will be cold, rigid and hard-headed. Sellers with savvy will throw such people out and tell them not to come back. Just because you have some money and may be interested in purchasing the business, that doesn't meant that you aren't going to have to give a little in the process of negotiation.

Transition Time

The transition to new ownership is a big change for employees of a small business. To ensure a smooth transition, start the process before the deal is done. Make sure the owner feels good about what is going to happen to the business after he or she leaves. Spend some time talking to key employees, customers and suppliers before you take over; tell them about your plans and ideas for the business's future. Getting these key players involved and on your side makes running the business a lot easier.

Most sellers will help you in a transition period during which they train you in operating the business. This period can range from a few weeks to six months or longer. After the one-on-one training period, many sellers will agree to be available for phone consultation for another period of time. Make sure you and the seller agree on how this training will be handled, and write it into your contract.

If you buy the business lock, stock and barrel, simply putting your name on the door and running it as before, your transition is likely to be fairly smooth. On the other hand, if you buy only part of the business's assets, such as its client list or employees, then make a lot of changes in how things are done, you'll probably face a more difficult transition period.

Many new business owners have unrealistically high expectations that they can immediately make a business more profitable. Of course, you need a positive attitude to run a successful business, but if your attitude is "I'm better than you," you'll soon face resentment from the employees you've acquired.

Instead, look at the employees as valuable assets. Initially, they'll know far more about the business than you will; use that knowledge to get yourself up to speed, and treat them with respect and appreciation. Employees inevitably will feel worried about job security when a new owner takes over. That uncertainty is multiplied if you don't tell them what your plans are. Many new bosses are so eager to start running the show, they slash staff, change prices or make other radical changes without giving employees any warning. Involve the staff in your planning, and keep communication open so they know what is happening at all times. Taking on an existing business isn't always easy, but with a little patience, honesty and hard work, you'll soon be running things like a pro.

This how-to was excerpted from Start Your Own Business and Entrepreneur Magazine's Small Business Encyclopedia.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

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How to purchase an existing business

Ready to start your business? Plans start at $0 + filing fees.

by   Mariah Wojdacz

Read more...

Updated on: February 2, 2024 · 7 min read

• Good reasons to buy ...

But, there is a downside ...

Should you buy a franchise, tips for moving forward, you bought the business, now what.

Building your own business is hard work. That's why many entrepreneurs choose to buy an existing business rather than starting from scratch. But how can you avoid sinking all your resources into a business that is sure to fail? What should you look for? What should you avoid?

This article will help you evaluate the advantages and disadvantages of buying an existing business, as well as provide you with some tips that should help guide you as you make what is bound to be one of the most important decisions you will ever make.

G ood reasons to buy ...

There are several advantages to  buying an existing business as opposed to starting your own. Most obviously, you save time. Suppose you want to start a retail business. It may take months for you to build an adequate inventory. Opening your own restaurant means creating your own recipes and menus; building a manufacturing business from scratch can take years. But when you purchase an existing business , the "dirty work" has already been done.

If the business you want to buy offers a product or a service, you can evaluate the operating history and better understand the demonstrated market. Are people buying the product or service? What are they willing to pay? What type of advertising has been most effective? When you start your own business, it can take many years of trial and error to establish your market. Purchasing a business can alleviate this process.

Buying an existing business will allow you to evaluate its cash flow and operating expenses, giving you a better idea of how much investment capital you will need. When you start your own business, these numbers are much more difficult to estimate, and investors consider start-up businesses higher risk than existing ones with operating histories and proven track records.

Perhaps the biggest advantage to buying over starting a business is the existing business's potential. You may see growth opportunities the current owner doesn't, or maybe you have a superior business plan. Your enthusiasm and excitement for the business can revive it and help it to grow, and often relatively minor changes in advertising, personnel, or procedure can greatly improve profitability.

Of course, there are disadvantages to buying a business, and you must weigh them seriously against the advantages. For example, unless you plan to replace all of the existing staff, you will have employees working for you whom you did not hire and whom you do not know. They may be resistant to the changes that you make. You may find it difficult to motivate employees who have become complacent under the old management, or that there are personality conflicts between new and existing employees.

Evaluating the current operations of any business can be a daunting task, and when you consider buying, you must do this thoroughly and with diligence. Heath inspections, building inspections, financial analysis—the list goes on, and you must be prepared to do it all before you sign the dotted line. This can become costly, especially if you are comparison shopping.

Remember, the seller may try to downplay any business problems. He or she may not be honest about operating costs or profits, and there is the possibility that the "books are cooked." That is why you must have a capable financial expert explore all records thoroughly.

Additionally, make sure you understand the current customer base. Financial records indicate only the number of sales or clients, not the level of customer satisfaction. What if you inherit a dissatisfied customer base? Or, conversely, what if the customer base purchases the product or uses the service simply because they have a relationship with the current owner? This problem can present itself particularly if the business you purchase is a family business, a small-town business, or in many cases, both.

Then, there is the issue of lower potential for returns. Whenever you invest in anything, regardless of what it is, the general rule is less risk equals lower returns. Buying versus starting your own business is no different, and although every situation is unique, typically buying a business brings a lower return on your initial investment than starting one from scratch.

And last but not least, buying a business means you miss out on all the excitement that comes with starting a business of your own. Depending on your personality, you may want to create something unique, unlike anything the world has ever seen. When you purchase an existing business, you have to ask yourself if you are willing to take on something someone else has created. Will you be satisfied taking the reins? Or do you want to buy your own horse, build your own carriage, and be in control from the get-go?

Franchises offer their own set of advantages and disadvantages. When you buy a franchise, you are purchasing a recognized brand name without an existing customer base in the area. So, unless you purchase a franchise that is already up and running, you are dealing with a mixture of issues.

Buying a franchise can be a lot like starting your own business. You will likely have construction or, at least, remodeling costs. However, unlike starting your own business, you are not on your own. You will have a parent company to instruct you through the start-up process, and later to guide you in your operating procedures. But ask yourself: are you willing to take direction and to follow procedures you did not create? Oftentimes, entrepreneurs are entrepreneurs because they want to be independent and will resent not being in total control.

However, some business owners find franchises offer the best of both worlds - the independence of running your own business without jumping into the complete unknown. Frequently, the brand-name recognition and the lower wholesale purchasing costs associated with running a franchise appeal to new business owners. Just beware of multi-level marketing and pyramid-type franchises.

If you've already decided that purchasing a business is the right choice for you, you may still have questions. Namely, how do you proceed? Here are some suggestions to help you start on your path to profits and success.

• Consult a business broker. Business brokers, like real-estate agents, have expert knowledge of the buying and selling process. They also have real-world experience and can offer good advice. But beware! They typically get paid commission, so you need to find one you can trust.
• Check the credit history. The second edition of Small Business for Dummies recommends that you run a credit check for the person selling the business. Why? Non-payment of bills may indicate hidden problems with the business.
• Talk to the customers. This will give you a feel for the business itself.
• Talk to the owner. The more you chat with the current owner, the more information you are bound to get about the business and why they are choosing to sell.
• Talk to employees. This will help acquaint you with the culture of the company, the attitudes of employees, and ultimately with people who may soon be working for you.
• Evaluate, investigate, research, and explore. Look into every nook and cranny, figuratively and literally. The more you know about the business, the more educated your decision whether to buy or not will be. Most importantly, take your time.
• Negotiate the best deal possible. Ask the current owner to throw in equipment, office supplies, even company vehicles. If he or she is eager to sell, you may end up a great many extras you might otherwise have had to purchase separately.
• Make it legal. For your own protection, don't try to complete the sale without the help of your tax advisor and a legal advisor with experience in small-business transactions.

Make sure you disclose the transfer of ownership to all the business's creditors. If possible, try to arrange for an article to be published in the local paper. This will accomplish the two-fold task of making the transfer of ownership public and can serve as free advertising for the business itself. Inform employees of your business plan, but take time to implement major changes.

Last but not least, try to keep in touch with the prior owner. You never know when you might have a question or even need advice.

Buying a business is hard work, but with patience and good legal advice, the hard work should go hand in hand with satisfaction and success.

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How to Buy an Existing Business – Lessons From an Entrepreneur Who Just Did It

Posted july 3, 2024 by elon glucklich.

The entrepreneur’s road to business ownership can take several paths.

There are entrepreneurs who are obsessed with the idea of starting a company that they can build from the ground up.

And then there are entrepreneurs, like Joe St. John, who seize an opportunity whatever its form, including buying an existing business and making it their own. 

I recently asked Joe about his decision to buy a business instead of starting one. The retired army helicopter pilot from Florida dreamed of starting a business he could one day pass down to his children. But when a business partnership with an army buddy fell through, Joe turned to Plan B.

“Buying a business was just something my wife and I got to talking about,” Joe said. Their conversation led them to a restaurant that they used a loan to purchase in late 2023. “It worked out very well for us.”

With 12 million U.S. businesses expected to be sold over the next decade or so, there are plenty of opportunities to buy into ownership. But that doesn’t mean buying a business is as simple as paying the sale price and signing a contract. 

Key takeaways from this article

• Determine if buying an existing business fits your skills, interests, and long-term goals.
• Learn everything you can about the business, from its finances to how customers view it versus competitors.
• Carefully consider how you’ll finance the purchase, and create financial forecasts to project how the business will perform under your ownership.
• Seek out professional assistance, including free services, to help guide you through the purchase.

What to consider when buying an existing business

Without the right planning, a buyer could end up:

• Pouring money into a concept that’s out of sync with the market 
• Inheriting operational challenges they don’t have the skills to handle
• Overlooking red flags in the businesses’ finances

To help you manage these risks, we’ve distilled Joe’s buying experience into eight key steps. His dedicated approach to planning helped him breathe new life into a shuttered, Chicago-themed restaurant called Ski’s Hideaway in Vero Beach, Florida, reopening it as Joe’s All American Tap Cafe in February 2024.

Read More: How LivePlan helped Joe land a $225,000 SBA loan in just a few weeks.

1. Choose whether to buy a business or start one

So, do you buy a business or start one? The answer depends on factors like:

• How much money you have
• How fast you want to get started
• Where you can turn to for more funding

Buying a business can have significant upfront costs. In Joe’s case, buying a restaurant meant paying right away for all of the kitchen equipment, as well as monthly lease payments. Had he started from scratch, he may have been able to slowly add equipment over time.

But Joe wanted to get up and running quickly. He’d thought at first of tapping his skills as a helicopter pilot to start a scuba diving charter service for tourists along the Florida coast where he lives. But he also wanted to bring his wife, Jonna, and their two children on board.

“I’m wanting to leave something I can pass on to my kids,” he said, “something they can own.”

That made buying a business like a restaurant an appealing alternative. Joe also realized it would be much easier to get the bank loan he would need for a proven concept like a restaurant, versus a riskier new venture like a dive charter service.

2. Select a type of business to buy

You’ve decided to buy a business instead of starting one. Now it’s time to pick an industry to target.

It’s fairly common to see some types of businesses put up for sale, like restaurants, retail stores, laundromats and car washes. 

But just about any type of private enterprise can be bought or sold. A retiring accountant might decide to put their CPA practice up for sale. The owner of an eCommerce site could sell it to turn their attention to a new venture.

When thinking about what type of business to acquire, consider:

Your personal interests

What about owning a business excites you? Being successful requires hard work, so take the opportunity before signing a deal to reflect on why you want to do this.

Your skills and experience

What are you good at, and what is your track record? It’s certainly possible to succeed in an industry you don’t have experience with. You may just need to hire for the expertise you lack.

The needs in the market

Whether buying a business or starting one, market research is essential . For brick-and-mortar businesses like a restaurant, you must research local competitors and find out what gaps exist. For businesses with broader customer bases like online companies, learn about the short- and long-term outlook of that industry, as well as the opportunities and risks of jumping in.

Joe and Jonna knew they wanted to use their business to be a gathering place in the neighborhood, somewhere they could hold events and create a sense of belonging.

A bar and restaurant seemed to check those boxes — a high-demand industry that satisfied their personal interests, and put their customer service skills to use.

“The primary reason was trying to find something that had a high volume of customer interaction, that provided a service and a product that helped build community,” Joe said. 

3. Identify potential businesses to buy

Once you’ve picked the type of business to buy, it’s time to start your search. There are several ways to find businesses for sale:

• Tap into personal connections: Tell friends, neighbors, or anyone in your network about your plans and whether they know of any opportunities. Even if they don’t, they may be able to connect you with others who do.
• Search online marketplaces: Websites like BizBuySell and BizQuest offer extensive listings of businesses for sale across various industries.
• Contact a business broker: These professionals specialize in matching buyers with sellers and can often provide access to listings not publicly available. 
• Look around your community: If you see a “For Sale” sign in a storefront, that’s all the invitation you need to start up a conversation with the owner. Even for a business not actively on the market, an owner may be considering a sale. 

Joe and Jonna found success searching online.

“We started searching BizBuySell and seeing what type of properties were available that met all our criteria. We scouted a couple of locations and came across this place. So we started to inquire,” Joe said.

4. Learn about the business inside and out

Say you find a business for sale that you’re interested in running. It’s in the perfect location, with lots of foot traffic and plenty of parking. 

That’s enough to go through with the deal, right?

Not until you’ve learned about the business from the people who know it best: the owners of course, but also employees and customers who may have valuable insights.

The information you get through these conversations will help you:

• Assess the financial outlook of the businesses (more on that next)
• Understand what the owner did well, and what they could have done better 
• Learn about what customers liked and where opportunities may exist for you to add value

Joe and Jonna’s search led them to Ski’s Hideaway, a Chicago-themed restaurant. After finding the property online, they contacted the owners and set up a meeting to learn as much as they could about it.

After the meeting, the next step was to get to know the downtown Vero Beach area. Joe knew a strong local customer base would be key to their success, so he dedicated time to walking around the area, sizing up the local dining and scene, learning which establishments were popular and how much they charged. Noting the small and close-knit community, Joe felt more confident in his family-friendly theme and menu.

If you’re thinking of buying a digital business like a software company or eCommerce website, you can still follow these steps. The only difference is that the “neighborhood” you’re getting to know is online. Talk to the owner, and use email or social media to contact employees and customers for their insights about the business.

5. Leave no financial stone unturned

Every step we’ve discussed so far is important, but it’s especially crucial to review (and really understand) the business’s financial records. Without reviewing the assets you’re buying, you won’t know the true value of the business, and will have no way of knowing whether you’re paying a fair amount for it. If the seller isn’t able to give you a clear sense of the financial health and performance of their business, be very wary of moving forward.

To make an informed decision about the value of the business, you should have access to, at minimum, multiple years of its:

• Profit and loss statements: Shows the business’s revenues, costs, and expenses over a specific period.
• Balance sheets: Provides a snapshot of the business’s assets, liabilities, accounts receivable and payable.
• Cash flow statements: Illustrates how cash is moving in and out of the business over time.
• Tax returns: Offers insight into the business’s reported income, deductions, and estimated quarterly tax payments and deductions, helping verify the accuracy of other financial statements.
• Debt disclosures: Reveals any outstanding loans, lines of credit, or other financial obligations that you may be assuming with the purchase.

“We gathered all of the financial data from the previous owners,” Joe said. That meant collecting all the necessary documents from the Ski’s Hideaway owners, then hiring an accountant to review them.

It’s also important to remember that no two business purchases are exactly the same. Joe and Jonna’s purchase of Ski’s Hideaway covered all of their commercial kitchen equipment and cookware. But the sellers didn’t own the building, so Joe had to factor in the monthly lease expense when negotiating a sale price.

In other cases, buying a business might also mean buying the building, or paying for patents or other intellectual property. Hire a business attorney specializing in contracts to review any proposed sale terms.

Don’t just look behind, look ahead

So far, this section has examined the business’s past performance. But determining the true value of a purchase also requires looking ahead.

“We did projections and created a profit and loss statement for what our potential would be,” Joe says. He did this by:

• Creating a baseline for projected revenues and expenses using the financial data from Ski’s Hideaway
• Using his market research to determine a pricing strategy that would maximize margins while remaining competitive with other establishments.
• Forecasting projected sales , expenses, and cash flows for the business based on various good or bad scenarios.

These projections helped Joe develop a reasonable sense of how much capital he’d need to run the business profitably under his ownership.

With all of that information in hand, “We were able to make a deal,” Joe said.

If creating financial forecasts sounds intimidating, follow Joe’s example, and remember: Forecasts are just projections. They’re imperfect by definition.

An advisor or consultant can help you create a forecast, and a vast majority of American business owners live near a Small Business Development Center that provides free consulting services (more in that in the final section).

Read More: How LivePlan makes financial forecasting a breeze

6. Line up funding to buy the business

Unless you have substantial personal savings, you’ll likely need some help covering the cost of buying a business.

Joe knew he and Jonna would need outside funding to cover their purchase of Ski’s Hideaway’s kitchen equipment and other assets. They ended up applying in fall of 2023 for a Small Business Administration 7(a) loan , one of the most popular sources of small business funding due to its relatively low interest rates and long repayment windows.

Joe wrote a business plan as part of his loan application. In the financials section, he created financial forecasts to project how long it would take his business to start generating a profit, and whether he could afford to run the business while staying current on his loan repayments.

Just a month after submitting their application, the couple were approved for a $225,000 SBA loan to finance their purchase.

If an SBA loan isn’t right for your business, there are several common funding alternatives:

• Term loans: The conventional, lump sum loans that commercial banks and credit unions loan out to small businesses, including to finance acquisitions. These have variable interest rates and repayment terms depending on the applicant’s credit score.
• Investors: If getting a loan isn’t right for your situation, consider bringing in an investor. Selling equity in your company can be a good source of funding to help you cover a purchase. But some investors will provide friendlier terms than others, and, depending on the terms of your agreement, that investor may be entitled to a share of your profits. They may also try to influence how you run the business.
• Friends and family: Many successful business owners got started with some help from the people who cared about them most, whether through a loan from a friend or an investment from family.

It may be worth speaking to a financial advisor to help you determine which funding option is right for you.

7. Decide if the old brand stays or goes

Buying a business doesn’t mean it has to be run the same way as before.

Unless you’re buying a franchise business like a McDonald’s, or you sign a contract saying otherwise, becoming the owner gives you broad leeway to make whatever changes you see fit.

Joe knew that he wanted to buy a business and rebrand it with his own name, menu and decor.

But in other situations, it’s worth considering the upsides and risks of rebranding a business. 

Retaining the existing brand identity may be beneficial if the business has a loyal customer base. But if sales have been stagnant, or the existing concept doesn’t align with your skills or vision for the business — rebranding could be the answer.

Getting customer feedback and reviewing market trends provide some of the most valuable insights here. They can tell you whether they’re satisfied with what’s currently being offered, or if there’s a demand for something different.

8. Seek out assistance along the way

Accountants, consultants, attorneys, and organizations like the SBA can provide valuable guidance and prevent costly mistakes. Even though this section is listed last, seeking out these advisors should be an ongoing process throughout the journey.

As a military veteran, Joe St. John tapped into the Veterans Business Outreach Center (VBOC) , an SBA program that offers free support for veterans to start or grow businesses.

“They brought together a team of financial folks, industry experts, and provided basic entrepreneurial guidance, which was helpful.”

The SBA provides a variety of free and low-cost services to aspiring business owners. Consider reaching out to:

• Small Business Development Centers (SBDCs): These centers provide local, in-depth assistance on everything from business planning to financial analysis.
• SCORE: A network of volunteer business mentors offering free advice and workshops.
• Women’s Business Centers: Offers training, including guidance on loan management and business planning, to women entrepreneurs.

In addition to these organizations, consider engaging with:

• Business attorneys: They’ll help with reviewing contracts, leases, and other legal documents.
• Commercial real estate agents: If a business acquisition involves property, an agent can help navigate the real estate transaction.
• Business consultants or advisors: They can offer specialized expertise in areas such as business plan writing, creating financial forecasts, developing and monitoring key performance indicators, developing marketing strategies, and more.
• Mentors: Tap into organizations like your local Chamber of Commerce to build relationships with experienced business owners who can offer advice.

Start your journey to buying a business

Joe’s journey to transforming Ski’s Hideaway into Joe’s All American Tap Cafe shows the power of careful planning and thorough preparation.

If you decide to buy a business, follow the eight steps that Joe laid out.

From market research to financial forecasting and ongoing management, consider using LivePlan like Joe does to run his business. It will help you document each step of your journey, and it includes a one-page plan builder with a built-in AI Assistant to help generate ideas and draft sections of your plan, and step-by-step walkthroughs to build a full lender-ready business plan with ease.

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9 Steps to Buying an Existing Business

TABLE OF CONTENTS

Did you know that just 2 years after launch, nearly one-third of companies in the private sector have failed ? 

It’s no surprise then that some people decide to become entrepreneurs by purchasing a business with an already established brand, presence and customer base.

Once you’ve decided that’s the way to go, how do you pull the trigger? 

Whether you want to know how to buy your first business (or second or third), here’s what you need to know. We’ll walk you through the steps to go about buying an existing business you can continue to build as well as cover the pros and cons.

1. Know the ‘Whys’ and ‘Whats’ Behind Your Purchase 

One of the most common pieces of advice when trying to decide what to do in your career is to chase your passions. While not always feasible, buying into a business that matches your experiences and interests could be a great idea.

For example, if you’ve been working as a sous chef for years but have always had aspirations of running a cafe of your own, buying an existing business could be a great jump-start to the next chapter in your career.

A desire to run your own business combined with industry knowledge could be a great starting point for your entrepreneurial journey. Desire and industry expertise aren’t the only factors that should go into your evaluation, though. 

Be sure to also consider the following:

Is your dream business right down the street, an hour away or a 4-hour plane ride from where you call home? Or is it strictly an ecommerce store?

The location of your business doesn’t just impact who and how people will find you. It will matter to you personally in your everyday life.

Give this one careful thought. What are you most comfortable with? 

• Do you prefer a small business that’s quaint and likely to demand that you work in the business? 
• Or are you seeking something larger that may allow you to focus solely on the big picture but which comes with more people to manage? 

Not only will the sale prices greatly differ, but so could the level of stress depending on how you’re wired.

Once you become a new owner, you’re going to spend a lot of time working to build your business. Get a sense of the types of hours you’re willing to sacrifice to drive a business forward. This can help you decide the kind of existing business you should look to purchase.

2. Find a Business to Buy 

Years ago if you wanted to buy a business, you might look through newspaper ads or network with business owners in your community. While that’s still the case, today, the internet makes it easy for anyone to post a business for sale and buyers to find one to invest in. 

Websites you can turn to include the following:

• BusinessMart.com
• BusinssesforSale.com

It also may be wise, depending on your background, to work with a business broker. If you’re involved in a local professional organization, see if any of your contacts can refer one. Alternately, you could find one near you (or browse business listings) by visiting a site like BusinessBroker.net . 

While a broker most commonly works on behalf of the seller, plenty of brokers are available to work with commercial buyers. They’re able to help you determine the type of business you’d like to acquire, represent you in negotiations and handle any required paperwork.

Keep in mind, when working with a broker, you should always request a written statement that legally indicates they’re representing your side of the transaction in an effort to purchase an existing business.

3. Evaluate If the Business Meets Your Requirements

Knowing why you’d like to buy a business is one thing. Understanding the goals you have around the company once you’ve acquired it is another.

You’ll also need to know if your budget will allow the business purchase and if you’ll have enough funds to successfully run operations once you take over. You’ll need to estimate how much you’d want to change about the business, how it operates, what it provides and the type of employees you’d need to make the business profitable.

The biggest factor from a capital standpoint must be how much of a return you expect to see from your investment. No one wants to buy a business where they won’t benefit, so clearly making sure the numbers add up should be your primary concern once you’ve found a company that scratches your entrepreneurial itch.

Get the help of an accountant to assist with this. An accountant can thoroughly review the business’s financials and give you a proper sense as to whether or not the business will be able to meet or surpass the goals you have in mind.

Have your accountant review documents such as the following:

• Tax returns
• Balance sheets
• Sales records
• Cash-flow statements
• Accounts receivables
• Accounts payables
• Liabilities
• Debt disclosures
• Advertising costs

4. Consider the Time You’ll Need to Put In

Of course, budget isn’t the only resource you must account for. Your time is an asset that can’t be replenished. Where you spend it is where you should be driving the most value. 

If you aren’t an expert in the industry you’re looking into but are passionate about it, you’ll need to spend time getting to learn the nuances that surround the market, the motivations of the players and how you can take advantage of any gaps. 

It might behoove you to seek out business resources that could provide value to your new venture. Speak with a business advisor, such as a SCORE mentor, for instance. Or take relevant business courses, such as those offered through your local Small Business Development Center.

5. Investigate Why the Business Is for Sale

Oftentimes, a business is for sale for the simplest of reasons. It could be that the owner would like to retire or is simply looking for a new business opportunity themselves. 

Unfortunately, there could also be underlying reasons why an owner is looking to sell. During your research phase, be on the lookout for these signs:

• Business debts
• Poor concept 
• Inventory issues
• Bad location
• Outdated, costly equipment
• Negative brand reputation
• No market for the product or service
• Competition has far surpassed the business

Another great way to uncover some of the reasons a business may be for sale is by talking with neighboring businesses and residents who’ve likely built a rapport with the seller. Getting an honest opinion from people without any stake in the potential sale can provide a good perspective.

Once you’ve done your homework, building a relationship with the seller is perhaps the best way to understand all of their motivations, reasons or even needs to sell.

6. Gather and Analyze All the Details of the Purchase

Doing your due diligence is crucial when you’re buying an established business. Collect as much information about the business up for sale to decide whether it’s the right purchase for you. While you may be more than perfectly capable of tracking down, arranging and analyzing all the data points, this is a major business and life decision. 

In addition to an accountant, consider working with a lawyer to guarantee nothing is lost during this vital process. Another benefit to working with a legal professional is that a seller will likely request you sign a confidentiality agreement or nondisclosure agreement, so you can have your lawyer review that document for you. 

Here are several documents and factors you’ll need to consider when you’re considering buying a small business that’s already up and running:

Letter of Intent

Once you’ve agreed on a price point, the seller will likely issue a letter of intent. This indicates that the seller is indeed serious about selling the business and you’re free to proceed with your due diligence.

This letter will include all of the business assets and liabilities to be included in the transaction, the price proposal and the terms and conditions of the sale.

Licenses and Permits

Ensuring a business you’re thinking of purchasing has all the necessary licenses and permits to operate is essential. These licenses and permits allow the state and local governments to properly tax the business as well as make sure the business is legally capable of operating within a specific industry.

Not having proper licenses and permits can result in significant fines and/or legal action taken against the business.

Company Documents

If the business is registered as an LLC, the owner will need to prove that founding papers have been filed with the state. Similarly, a corporation will need to show articles of incorporation.

The business may also hold a certificate of good standing (also known as a certificate of status, a certificate of existence, or a certificate of fact), which would indicate it’s an entity that exists in a specific jurisdiction, has paid its appropriate dues and is authorized to conduct business in the state. A certificate of good standing provides evidence that a company has submitted all required reports and paid all required fees to the state.

Organizational Chart

Because this is a business that has been in operation for some time, the employees who you will be responsible for will presumably already have an operational approach to their work.

Not only do you want to get to know your employees as people, but you’ll also want to know company hierarchy, salary information, benefits, accrued vacation time and more.

Laws and Regulations

Zoning is the legislative process for dividing land into sections for different uses, specifically residential and commercial. These ordinances regulate the use of land and structures built upon it and are established to protect the health, safety and general wellbeing of the people living in or near a particular zone. 

For business purposes, office buildings, shopping centers, bars, hotels, vacant land and certain types of warehouses and apartments can be zoned as commercial.

Parking also can affect the type of commercial zoning that is permitted (each municipality will differ, but this has to do with the number of parking spaces available for residents compared to visitors). 

Additionally, there can also be rules regarding the proximity of certain types of businesses to others. Bars, for example, aren’t allowed to operate within a certain distance of existing schools or churches. Since zoning laws are typically controlled at the local level, check with your local city planning office to learn more about the zoning laws in your area and to make sure your new business is not at risk of being fined.

You’ll also want to make sure the company is complying with rules set in place by the Environmental Protection Agency and that it hasn’t been willfully or negligently harming the environment.

Be sure to ask about specific contracts the business may have with current clients. Regardless of whether these arrangements are beneficial or detrimental to the business, these are details you will absolutely want to know before your negotiations.

Also review contracts and leases specific to the building you’re acquiring, any equipment that will be included in the deal and any vendor agreements that are in place.

Asset Status

Given the amount of upfront capital you’ll be using to purchase the business, you’ll want to make sure that each asset you’re acquiring is as valuable as it can possibly be.

The four largest assets, by cost, that you’ll want to be critical of are these:

If the assets you’re acquiring don’t match your vision of the business, you could sell these items after your purchase. As you review the quality and condition of these supplies, ask yourself these questions.

• How sellable is this?
• What is this worth on the market?
• How quickly has this sold in the past?
• What’s it’s original selling price vs. the price in its current condition?
• Does it need repair?
• How useful is this for the company?
• How useful could this be to a competitor?
• Will this need upgrades?

Sales Agreement

A sales agreement will establish the final sale price along with everything you have agreed to purchase. Most commonly, this includes all customer data, tangible (inventory, equipment) and intangible (brand reputation, customer loyalty) assets and any intellectual property.

Before you sign the sales agreement, be sure to have your lawyer review it for outstanding details. With a process this involved, you’ll want to make sure that every T has been crossed and every I has been dotted. 

7. Determine What the Business Is Worth

In both the letter of intent and the sales agreement, there will be language clearly indicating that both you and the seller have agreed on a fair price for the business. There are a few ways to conduct a business valuation to ensure a reasonable price can be reached for both parties (e.g., profit multiplier method, discounted cash flow method ). If real estate is involved, the value of any commercial property must also be determined.

8. Get Funding to Buy the Business 

With the final price agreed to, the time to put up your capital has arrived. There are a few ways you could pay the costs involved in buying a small business. 

• Personal financing
• Seller financing
• Partnerships
• Business loans
• Angel investing and venture capital

Research each type of business fundin g carefully, and consider which type of arrangement would be best for you and the future of your business. Getting involved in a partnership, for example, could be advantageous but could also pose certain risks. You’ll want to make sure you get started on the right foot. 

9. Finalize the Purchase

You’re almost finished! You’ve agreed on a price and found the best way for you to fund the purchase. In addition the documents already mentioned, here are final details you’ll need to take care of when you’re closing the deal: 

• Bill of sale – This document will prove that the business has been sold, officially placing ownership of the company and all agreed-upon assets in your name.
• Purchase price – Once you’ve considered the final price of the company, including any standard, apportioned operating costs, such as inventory, rent, and other utilities, the final note will reflect the adjusted price.
• Vehicles – If you’re acquiring vehicles in your purchase, you’ll need to inform the Department of Motor Vehicles. Any documents that need to be completed must be finished at the time of sale.
• Copyrights, trademarks and patents – As you would for any lease or vehicle, you’ll need to make sure any necessary documentation and paperwork for these assets is completed and in your name by the time of the sale.
• Contractual agreements – Asking for a noncompete agreement is not only a good idea, it’s standard practice. This will protect you and your new business from potentially having to face the seller as a competitor within your industry. Additionally, if the seller has agreed or would like to stay on as an employee or consultant, you will need to file a consultation/employment agreement. Also, be sure any lease agreements are transferred over, or renegotiate terms.
• Tax authority notifications Just as with many other pieces of this process, you’ll need to inform your local tax and/or financial authority about the sale. These laws prevent business owners from avoiding any taxes assessed to their company after a sale.
• Asset acquisition statement You’ll need to list all of the assets you’ve purchased and the price at which they were sold on IRS Form 8594 .

Benefits of Buying an Existing Business

Inherited profits and cash flow.

If given the option between building something from nothing or continuing to build on an established business, chances are you’ll take the company that’s already off and running.

Sure, there’s a significant upfront cost to purchasing an existing business, but starting from the ground floor can be just as expensive. Having the luxury of a consistent cash flow isn’t something that should ever be overlooked.

Existing Customer Base and Reputation

Becoming known is perhaps one of the most overlooked factors in starting your own company. Establishing who you are and how you benefit your customer base takes time, effort and resources (both human and financial). 

With a business acquisition, you have the ability to bypass the initial brand building period and use your hopefully good reputation to continue building your company.

Employees Who Understand the Business

Even when you’re ready to hit the ground running after you’ve finished purchasing a business, it’s going to take time for you to fully understand and identify with the business. Having experienced employees gives you the breathing room you’ll need to get in sync with the business. 

While you’re ultimately responsible for their productivity, they have just as much incentive for passing on their insider knowledge. Use them to your advantage.

Set Procedures, Systems and Policies

Knowing what to do in any scenario is all about practice. By taking over an established business, you’re inheriting all of the hard work and due diligence of the previous owner. While you’ll need to review the established systems and procedures independently, the groundwork has already been laid out for you. 

If you’re looking for ways to improve these policies, make your employees aware that you’re open to suggestions on how operations and guidelines can be improved to benefit the business.

Established Intellectual Property

Holding copyrights and patents to specific products and processes can separate your business from the competition. Sometimes getting access to these intellectual properties is worth the cost of buying the business in the first place. 

Take inventory of these assets and get the most value as you possibly can.

Downsides to Buying an Existing Business

Higher upfront costs.

When you purchase an established company, the majority of your costs will be steered directly into buying out the interests of the current owner(s). While you may not have to deal with the costs of establishing a brand or furnishing your company, you’ll have to pay a premium for the hard work and intellectual property the seller has produced.

Aside from the tangible assets you’ll be acquiring, you’re also be receiving the following:

• Proven concept and/or products
• Tried and tested processes and policies
• Established customer base/data list
• Assets, equipment, copyrights and other intellectual properties

Learning Curve

Even if you’re a seasoned expert in your new company’s industry, there will be some growing pains. Naturally, you’ll need time to get up to speed on the overall state of the business’s finances, how your employees have been operating under the previous leadership and what obstacles there may be.

Unknown Risks

Regardless of how long you spend doing your research or asking questions, there will always be some kind of uncertainty in buying an existing business. Whether it’s a physical problem with your office that an inspector missed or an application method that wasn’t so proprietary after all, things are bound to be overlooked or oversold.

While it can be a challenge, do your homework and have an extra set of eyes with you every step of the way. By doubling down on your examination, you’ll limit your chances of being hit by a major oversight.

Knowing the positives and negatives of buying an existing business can help you determine whether purchasing an existing business is the right move for you. 

Is Buying a Small Business Right for You?

Buying an existing business can be a long, potentially exhausting process, but one that can lead to rewarding results. 

While it can be overwhelming at times, it’s worth the effort when you read positive reviews from your customers, see smiling and dedicated employees in your offices and get to associate your name with a business you’re proud of.

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The Only Checklist You’ll Need for Buying an Existing Business

You’ve heard it here before— buying an existing business is a much better option than trying to start something on your own and scale it up.

But it’s important to know what to do (and what NOT to do) when searching businesses and making an offer.

Keeping track of all the stuff you need to get done is a lot easier when you have a checklist you can reference.

Our checklist breaks everything down into simple steps to follow as you go. And you can download a printable version here .

1. Understand Your Goals for Buying a Business

You know it’s a good idea, but go deeper.

What’s your why?

Even with an established business, you’ll face challenges and roadblocks as you go. Not only will knowing your why help you push through them, but it can also help guide your future plans for the company.

You need to know:

• What kind of owner you envision yourself as (a hands-on owner, someone building the roadmap to hand over to an operator, someone who wants to systematize everything to franchise the whole thing, etc.).
• How you’ll know when the company hits its goals and achieves success.
• What kind of team you need to build the business.
• Why you think you’re suited to manage the company.

2. Determine What Kind of Business You Want to Buy

There’s no shortage of boring businesses that make for great choices as a business acquisition. We’ve even come up with a list of the most lucrative businesses to buy for you to get the creative juices flowing.

Start by thinking about your own job history, skills, and background.

What you know and bring to the table provides powerful direction to the type of business that’s best for you. You’ll be able to get more revenue out of a business that needs the skills in your zone of genius.

For example, an operational wiz with skills in developing processes, will provide a lot of value to a business that needs an organizational shape up.

While someone with a background in marketing can get more mileage out of a business where the biggest problem is getting the message out to potential customers.

We also recommend that you buy a business that fits our SOWS (stale, old, weak, simple) framework. 

These types of boring businesses are stable, simple to scale, and there’s always demand. They’re the perfect acquisition for first timers.

And don’t forget our golden rule of business buying. It’s a two-parter:

• Don’t lose money.
• Don’t buy a business that can bankrupt you.

It’s about so much more than finding something that interests you or the “hot thing” everyone’s promoting. Look beneath the surface to find the real hidden gems.

Sure, placing ATMs sounds easy, but for being a business all about money, it can actually take you years to make some of your own. Same with Amazon FBA and other commonly-promoted business models that face multiple problems.

3. Choose How You Will Finance Your Purchase

Contrary to popular belief, you don’t always need a lot of money to purchase someone’s business. You can get in the doors with $5,000 or less for plenty of boring businesses using seller financing.

Here’s a quick rundown of the best financing options for buying a business :

• Your own cash (savings, personal loan funds, credit)
• Business loans, including SBA loans
• Other people’s money (investors, crowdsourcing)
• Seller financing (using the owner like a bank and paying them back over time)

Your own cash is problematic because it puts all your eggs in one basket. And that’s if you have the money in the first place.

Business loans? Not as easy to get as you might think, and there will be a lot of paperwork and back and forth with the lending officer. It’s still a viable option if your other choices don’t work out, though.

Our favorite? Seller financing. You can work out your own deal terms here, such as limiting your down payment.

4. Find Businesses That Are for Sale (Including the Ones that Are Off-Market)

By now, you should already know what kind of business you’re interested in. Combine that with your funding sources, and you should have a narrowed-down list of industries to research.

A few hot spots to check for businesses on the market include:

These are just the places where an owner’s already looking to get out as soon as they can.

You can go deeper and cut out a lot of the competition by looking for off-market deals. You can use BizScout , a service we own, to find business opportunities that haven’t hit the market yet.

And if you’re still having trouble finding the perfect option, check out our guide to finding a business to buy .

5. Send a Letter of Intent to the Business Owner

Great, now you’ve found a business you want to buy. It’s time to start evaluating the business before you buy it .

Make contact with the seller and provide a letter of intent. This signals the seller that you’re a serious prospective buyer and opens the door for future sharing of pertinent info, like financial data.

This is a preliminary commitment to do business with another party and may or may not be binding. But it doesn’t mean you’re obligated to buy the company if you find a big red flag.

6. Run a Financial Health Check

Read through financial records, balance sheets, cashflow statements, and credit reports.

A few questions to ask here:

• Is the business making money?
• Are there concerning seasonal or cyclical issues with income?
• Are expenses way out of whack with earnings?
• Do tax returns match the actual financial statements?
• Are there any tax liens on the company?
• Are there pieces of aging equipment or other things that will require an overhaul?
• How much debt does the company carry?
• What are the profit margins?
• What business assets does the company own?
• Does the company also own any intellectual property?

7. Evaluate the Business’s Operations

If you still feel good about things after looking over the finances, move on to a deep dive into operations.

Review the existing business plan and organizational charts if the owner has them. Dig into how the company works on a nuts-and-bolts level. 

Look for any red flags you can’t live with in the business.

The business needs a huge team to process work, and you don’t love being a manager? Red flag.

People putting in 80-hour weeks, and you see no chance of that changing? Red flag.

If the business is a little out of date or the marketing sucks, you can fix those kinds of business operations issues. If they have a complex process in place to systematize, you can fix that, too.

This is also your chance to discuss keeping the owner on for a transition period to work out kinks. It’s also your opportunity to vet key employees for moving up to bigger roles.

8. Run a Competitive Analysis

You can’t feel fully confident when buying an existing business if you don’t know what else is out there. Take a look and answer these questions:

• What unique selling proposition are competitors leaning into?
• Does the business I want to buy have a potential competitive edge I can use?
• Where are the other companies falling short?
• Is it reasonable to think that with my strategic insight, we can improve our competitive standing in the market?

9. Get a Professional Appraisal for all Company Equipment and Assets

Don’t take the current owner’s word for it when it comes to any physical equipment.

Get an independent evaluation from an outside expert. This will really help you when it comes time to make an offer on the business so you get a fair price.

Pay an outside expert to do this. Yes, it will cost you some cash to value all of the tangible and intangible assets. But the peace of mind and negotiation advantage you’ll get are worth it. 

10. Check the Business’s Reputation and Relationships

In your list of things to work on once you take over, you might consider some easy wins, like improving the brand’s online presence.

To do this, check out current reviews, feedback, and relationships and ask things like:

• Does the business have an existing customer base?
• What are customers’ sentiments? Do they have positive reviews, mostly positive, mostly negative?
• What relationships does the company have with vendors, suppliers, and partners?
• Do they have any marketing efforts in play right now? If so, what kind and how are they doing?

11. Conduct Legal Due Diligence

Skipping the due diligence process is one of the best ways to totally f*ck up your new business .

You don’t want to step into any surprises once the deal goes through. Check things like:

• Current business licenses and permits.
• Any pending or past litigation.
• Insurance policies (and whether these fully cover all risks and liabilities).
• Existing contracts and legal documents with customers, vendors, and partners.

12. Negotiate the Deal

Now for the fun part: let’s make a deal!

Negotiating can be a challenge if you get pushback, but use all the data you found up to this point to back up your offer.

Don’t fear working through a few rounds of negotiation with the seller. You can use what you learn to come up with a purchase price and terms that work for both of you.

And don’t be discouraged if your deal falls through.

It’s very common for first time buyers to lose on their first go-round. The important part is that you have the ability to dust yourself of and go look for another (better) deal.

13. Close the Deal

Congrats! The ink is dry on the purchase agreement, and it’s time to start working in the business.

Don’t forget to do things like:

• Secure any funding if you took out a loan, including details on repayment dates.
• Transfer all licenses, software, and paperwork into your name.
• Choose an official start date and prepare employees for the transition.

14. Make the Business Your Own

You’re finally in charge. It’s time to optimize the business now. With your due diligence complete, you probably already have a full list of things to tackle. Check out our ideas for the best tools for buying and growing a business .

That could include:

• Upgrading all operations to the 21st century, like using software and automations.
• Leveling up marketing.
• Looking at growth opportunities.
• Tweaking customer service.
• Providing more training to employees.

Make the Right Moves and Buy Now

Now that you know the steps involved in buying a business and what to pay attention to in each one, you’re ready to step out there and start the process.

Knowing what you want and where you’ll shine in the company gives you an initial direction for an informed decision, but spend time researching companies for sale before drafting your first letter of intent.

If you make the right moves, you could find yourself in the owner’s shoes sooner than you expected!

One more thing. We designed this checklist as a quick reference for your first business purchase. If you feel like you need a deep dive, check out our guide to buying a business . And if you really want to drink from a firehose, check out our Small Biz Buying Course .

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Original text

Business plans aren't just for startups. Developing a business plan for an established business serves several purposes: It can help convince investors or lenders to finance your business, persuade a business buyer to purchase your business or entice partners or key employees to join your company. Most importantly, it serves as a roadmap guiding your business's growth and continued success throughout its following stages.

Writing a business plan is an opportunity to carefully think through every step to achieving your goals for your company. This is your chance to discover any weaknesses that may threaten your business, identify opportunities you may not have considered, and plan how to deal with challenges that are likely to arise.

This template includes instructions for each section of the business plan for your established business, followed by corresponding fillable worksheet/s.

Sections of this business plan include:

• Executive Summary
• Company Description
• Products and Services
• Marketing Plan
• Operational Plan
• Management & Organization
• Personal Financial Statement
• Financial History and Analysis
• Financial Plan

The last section in the instructions, “Refining Your Plan,” explains ways to modify your plan for specific purposes, such as getting a bank loan, or for specific industries, such as retail.

After you complete the worksheets, print them out, and you will have a working business plan for your established business. Then, contact a  SCORE mentor  to review and refine your plan.

Business Planning & Financial Statements Template Gallery Download SCORE’s templates to help you plan for a new business startup or grow your existing business.

Simple Steps to Write and Follow a Sustainable Business Plan that Ensures You Achieve Your Goals In this webinar, you will learn how to write a business plan to ensure you can go from business idea to business success.

You Created a Business Plan; Now What? So you have created your business plan. Now what?. In this webinar, you will learn the next step, how to execute your business plan.

Copyright © 2024 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

Business Plan for Existing Company

It should include a financial plan and high-level strategy with clearly assigned priorities, specific responsibilities, deadlines and milestones. 3 min read

A business plan for existing company should include a financial plan and high-level strategy with clearly assigned priorities, specific responsibilities, deadlines and milestones.

Business Plan for an Existing Business

Business plans are not only meant for new businesses. Having a business plan for an existing business offers several benefits. It increases the confidence of investors in your business, attracts new partners or employees to your company and makes your business look more attractive to the prospective buyer if you are selling your business. Above all, a business plan guides you through growth and success at different stages of your business.

Preparing a business plan in black and white gives you an opportunity to give a careful thought to each step required to achieve your business goals. You can discover any existing weaknesses and likely challenges you may encounter down the line. It also helps you identify untapped opportunities and capitalize on them.

A typical business plan includes the following sections:

• Description of the Company
• Mission and Objectives
• Products and Services Offered
• Market Demand and Trends
• Marketing and Sales Plan
• Operational Plan
• Management and Organization
• Financial Statement
• Financial Analysis
• Financial Plan

Sometimes, events like business acquisition, new product development or franchise purchase, may necessitate an existing business to create a business plan. Existing businesses generally use a business plan to outline their strategies, keep a tab on expenses, and benchmark the progress. Unlike in the case of a new business, creating a business plan for an existing business is simpler due to ready availability of operational information.

Benefits of Having a Business Plan for an Existing Business

Guide your growth : The success of a business depends upon a lot of factors, including persistent hard work, prevailing economic trends, market needs and location of your business. Having a business plan guides and influences your growth and helps you move towards defined business objectives in a proactive manner.

Manage your priorities : A business plan helps you focus on the order of your priorities and you can allocate resources where they are required the most. You can capitalize on your strength to perform those tasks first, which are most important in achieving your business objectives. In the meantime, you can simultaneously work towards tackling your weaknesses.

Assign responsibilities : Organizational responsibilities are developed and assigned on the basis of a business plan in order to achieve the set objectives.

Monitor business progress : A business plan sets the benchmark to measure progress towards achieving your goals. Without a plan, it becomes difficult to monitor whether you are managing the business in the right manner or whether the business is progressing in the right direction at a speed it ought to.

Plan for cash : Cash is the lifeline of any business. However, many businesses do not plan cash management well, although they are very particular about earning profits. Poor cash management can create bottlenecks in operations and damage your reputation among suppliers, vendors and creditors. A business plan includes a plan for efficient cash management, making way for smooth operations and functioning of the company.

How to Write a Business Plan for an Existing Business

• Create a cover page with your business name, address, and contact information.
• Write a general business description with company's mission.
• Write a legal business description that includes the type of business entity (sole proprietorship, Limited Liability Company, corporation, etc.), number of years you've been in the business, sales, profit and finance history, etc.
• Define the products and services of your business.
• Analyze your industry, target market, demand and competition.
• Prepare a marketing plan using your research and analysis.
• Identify your main competitors along with their products, strengths and weaknesses vis-à-vis yours.
• Define strategies for advertising and customer retention, along with associated costs and revenue generation.
• Describe the operations of your business including its location and equipment details.
• Identify the key personnel, and assign responsibilities and functions to them.
• Provide financial information like accounting method (whether cash or accrual basis), credit terms, payment collection methods, etc.
• Prepare financial statements like balance sheet, profit and loss statement and cash flow statement.
• Summarize your business plan.
• Generate a table of contents and appendices.

If you need help with a business plan for an existing company, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

Hire the top business lawyers and save up to 60% on legal fees

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• Sample of a Good Business Plan
• Details of a Business Plan
• LLC Business Plan Template
• Do I Need a Business Plan
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• Parts of Business Plan and Definition
• Business Plan Contents Page

More From Forbes

Should you buy an existing business.

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By Trent Lee , the recipient of the award as the No. 1 business broker in the country by the International Business Broker Association (IBBA).

When someone says they want to go into business for themselves, often the first things that come to mind are cash-strapped 80-hour workweeks and the high failure rate of starting a business from the ground up. But going into business for yourself doesn’t have to start this way. There are real benefits to allowing someone else to put in those startup hours and prove the concept and then stepping into their role.

In this article, we will explore the advantages and disadvantages of buying an existing business. These will vary depending on your skill set and the business you consider purchasing, and your success isn't guaranteed, but the failure rate of companies younger than five years is so high. You need to carefully weigh the pros and cons of buying an existing company.

1. It's A Proven Concept

One of the biggest challenges when starting a business is the unproven concept. How will the market react? How will you attract customers? And more importantly, can you do so predictably and profitably? Finding an established company with consistent revenue and profitability may be the easiest way to go into business for yourself.

2. Financing Is Often Easier

Traditional bank loans typically have underwriting criteria related to time in business and debt service ratios that by their very nature require historical revenue. It is often easier for a business to get financing when it has a proven track record. Couple traditional bank financing, which often includes working capital, with some portion of seller financing, and a bank could help you buy an existing business with as little as a 10% down payment.

3. You May Save Time And Money

Starting a brand-new business is often difficult from the standpoint of time and money. You need the time and money to perfect the product or service and establish a proven marketing and customer acquisition model. An existing business should have already tested all the different marketing channels and hopefully will have already found what works and what doesn’t. This can allow you to go into the business and increase what is already working.

4. Access To A Database Of Existing Customers

An established business will already have a database of customers, and as a new owner, you can turn your attention to establishing deeper relationships and further monetizing them. It's almost always cheaper to work with existing customers rather than acquiring new customers. At the same time, you can continue to advertise the business and grab new market share. 

5. Immediate Cash Flow

Unless you have significant capital, building a business from the ground up can take its toll. It’s one thing to come up with a novel business idea with some college buddies and start up a company from your dorm room. If you are in this situation, a startup can be a good option. But if you have financial responsibilities, such as a family to provide for, buying an existing business can give you the immediate cash flow you may need.

Part of the process of buying an existing business is doing your due diligence and your own financial forecasting and analysis. Determine what livable wages you need, and then make sure that the business has enough cash flow to support you and continue to fund operation, debt servicing and growth.

1. It May Be Hard To Know All The Facts

It's unfortunate, but not everyone is as honest as we want to give them credit for. For this reason, you need to really dig into the business's financials and ensure that the owner is being forthright and upfront about everything. If not, you run the risk of purchasing someone else’s problems. You may benefit from hiring professional help for this.

2. Potential For Old And Outdated Equipment

Often businesses are sold because the current owners either can’t or won’t put in the time, effort and money to continue improving and growing — this includes taking care of equipment. Part of your due diligence should be inspecting all equipment and machinery. Make sure things are in good working order and haven't been neglected.

3. The Existing Company Culture May Not Be The Best

Employees and company culture can often make or break a business. Make sure you assess current employees and the state of the culture so you know whether you'll need to take steps to improve.

4. Past Due Payroll Or Sales Taxes

In my experience, payroll and sales tax payments are often missed prior to and during changes in business ownership, and the new owner can get stuck with them. Make sure that you have clearance from your local tax jurisdiction to avoid any type of successor liability, even if the sale is an asset sale. Be sure that you are purchasing a business without any unknown liabilities. 

5. You May Lack Industry Experience And Expertise

To step in and not only continue to maintain business success, but also take it to the next level, you ideally want to have expertise and experience in the business niche. As a business broker, I get calls weekly from people wanting to buy a business — anything that makes money, they say. I don't recommend this approach. 

Buying an established and profitable business could be a secure and quick way to get into business for yourself, but you’ll have to weigh the pros and cons of each scenario and make the best decision for yourself and your future.

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• Small Business Ideas

100 Small Business Ideas for Anyone Who Wants to Run Their Own Business

• Aug 27, 2024

Starting your own small business can be an exciting and rewarding experience. Whether you're looking to supplement your income or become your own boss full-time, there are countless small business ideas you can explore. The key to success is finding the right idea that aligns with your skills, interests, and the market demand. With a little planning and determination, you can launch a business that not only sustains you but also fulfills your passions.

To help inspire you, here are 100 small business ideas divided into different categories, ranging from home-based businesses to online opportunities and creative ventures.

What Makes a Good Small Business Idea?

Before diving into specific business ideas, it’s important to understand the qualities that make for a good small business idea:

Low Setup Costs: Ideally, your business idea should be cost-effective to start with minimal upfront investment.

Leverages Existing Skills: A good business idea will utilize your existing skills and require little to no formal training.

Flexible and Scalable: Your business should be flexible, allowing you to grow and expand as demand increases.

Based on Market Demand: Your business should fulfill a specific need or solve a problem in the market.

Can Be Run From Home: Many great small businesses can be started from home with minimal inventory or equipment.

Let’s explore some of the best small business ideas to inspire your entrepreneurial journey.

Best Small Business Ideas

Handyman Services

Offer repair, maintenance, and installation services. Great for those skilled in multiple trades.

Woodworking

Craft custom furniture, decor, or household items from wood. Ideal for those who love working with their hands.

Online Dating Consultant

Help clients create attractive profiles, source matches, and provide dating advice. Perfect for those with strong communication skills.

Sewing and Alteration Specialist

Provide clothing alterations and custom sewing services. Ideal for those with a passion for fashion and textiles.

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Build and maintain websites for businesses or individuals. Requires knowledge of coding and web design.

Personal Trainer

Offer fitness training sessions tailored to clients' needs. Best for those with a passion for fitness and a certification in personal training.

Freelance Graphic Designer

Create visual content like logos, brochures, and social media graphics. Perfect for creatively inclined individuals with design skills.

Life/Career Coach

Provide guidance and support to help clients achieve personal or professional goals. Great for those with a strong sense of empathy and experience in coaching.

Resume Writer

Help job seekers craft compelling resumes and cover letters. Best for those with strong writing skills and knowledge of hiring practices.

Freelance Writer

Write content for blogs, websites, magazines, and other publications. Ideal for those who love writing and research.

Online Business Ideas

E-commerce Store Owner

Sell products online through your own store. Requires an understanding of marketing, customer service, and inventory management.

Dropshipping Business

Sell products without holding inventory. The supplier ships directly to the customer, making it low-risk.

Affiliate Marketing

Promote products from other companies and earn a commission on sales. Great for those with a blog, website, or large social media following.

Content Creator/Influencer

Create content for platforms like YouTube, Instagram, or TikTok, and monetize through ads, sponsorships, and products.

Print-on-Demand Business

Design custom products like t-shirts and mugs, which are printed and shipped by a third-party provider when orders are placed.

Freelance Transcriptionist

Transcribe audio or video content into written form. Ideal for fast typists with good listening skills.

Virtual Assistant

Provide administrative support to businesses remotely. Tasks might include scheduling, email management, and data entry.

Social Media Manager

Manage social media accounts for businesses, creating content and engaging with followers to grow their online presence.

Write blog posts on topics you're passionate about and monetize through ads, affiliate links, or selling products.

Online Course Creator

Create and sell online courses in areas where you have expertise. Platforms like Teachable or Udemy make it easy to get started.

Home-Based Business Ideas

Dog Walking

Offer dog walking services in your neighborhood. Great for animal lovers who enjoy spending time outdoors.

Cleaning Service

Provide cleaning services for homes or offices. Start small with basic supplies and grow from there.

Packing Services

Help people pack their belongings for moves. Focus on careful organization and handling.

Freelance Editor/Proofreader

Edit and proofread documents, books, or articles. Perfect for those with strong attention to detail and language skills.

Laundry Services

Offer washing, drying, and folding services for clients in your area. A good option for those who enjoy doing laundry and want a flexible schedule.

Baking Business

Bake cakes, cookies, or other treats from home and sell them at local markets or online.

Candle Making

Create and sell homemade candles, offering unique scents or designs. Ideal for those who enjoy crafting.

Jewelry Making

Design and sell custom or handmade jewelry. A great option for creative individuals with an eye for detail.

Freelance Photography

Offer photography services for events, portraits, or products. Requires a good camera and editing skills.

Copywriting

Write persuasive content for ads, websites, or brochures. Best for those with strong writing and marketing skills.

Easy Businesses to Start

Errand Service

Run errands for busy people, such as grocery shopping, picking up dry cleaning, or delivering items.

Pet Sitting

Take care of pets while their owners are away. Can include feeding, walking, and playing with the animals.

Personal Shopping

Help clients shop for clothing, gifts, or other items, either online or in-person.

Furniture Assembly

Offer furniture assembly services for people who buy items that require setup.

Mobile Car Wash

Provide car washing and detailing services at the customer's location.

Event Setup/Breakdown Service

Assist with setting up and breaking down events like weddings, parties, or corporate events.

Plant Care and Landscaping

Offer basic gardening, plant care, and lawn maintenance services.

Virtual Tutoring

Provide tutoring services online in subjects you excel at, such as math, science, or language arts.

Remote Data Entry

Enter and manage data for companies from the comfort of your home.

Virtual Tech Support

Offer technical support for people needing help with computers, software, or other devices.

Creative Small Business Ideas

DIY Craft Kits

Create kits for various crafts like knitting, painting, or pottery that customers can do at home.

Photography

Capture moments and sell your photos online or offer your services for events.

Event Planning

Organize events like weddings, parties, or corporate gatherings.

Handmade Jewelry

Design and sell unique jewelry pieces, offering custom designs to your clients.

Arrange and sell flowers for events or as gifts, either through a shop or online.

Interior Decorating

Offer decorating services for homes or offices, helping clients create beautiful, functional spaces.

Graphic Design Studio

Provide custom design services for branding, websites, and print materials.

Online Music Lessons

Teach instruments or voice lessons over video calls, helping students learn at their own pace.

Calligraphy Service

Create beautiful hand-lettered invitations, signs, or art pieces for clients.

Custom Artwork Business

Paint or draw custom pieces of art for clients, such as portraits or landscapes.

Business Ideas for Students

Offer tutoring services to fellow students or younger children in subjects you excel at.

Freelance Web Design

Build websites for small businesses or individuals, using your skills to create attractive, functional sites.

Resume Services

Help students and recent graduates craft resumes and cover letters that stand out.

Graphic Design

Create logos, posters, and other design materials for student organizations or local businesses.

Social Media Marketing

Manage social media accounts for small businesses, helping them grow their online presence.

Custom T-shirt Printing

Design and print custom t-shirts for events, organizations, or businesses.

Essay Editing

Offer editing services for essays, term papers, and college applications.

Personal Fitness Coaching

Provide fitness training and nutrition advice to peers looking to get in shape.

Student Photography Service

Offer photography services for student events like graduation, dances, or sports.

Study Material Seller

Create and sell study guides, notes, or flashcards to help other students succeed.

Food-Related Businesses

Meal Prep Service

Cook and deliver healthy, ready-to-eat meals for busy clients.

Start a mobile food business, offering a unique menu at events or in popular locations.

Home-Based Bakery

Bake and sell cakes, cookies, or bread from your home kitchen.

Catering Business

Provide food for events like weddings, parties, or corporate meetings.

Specialty Food Store

Open a shop that sells gourmet, organic, or ethnic foods that are hard to find elsewhere.

Health Food Vendor

Sell health-focused foods at markets or through an online store, catering to those with dietary restrictions.

Coffee Cart/Bike

Offer specialty coffee from a mobile cart or bike in busy areas or at events.

Pop-up Restaurant

Open a temporary restaurant in a unique location, offering a limited menu for a special experience.

Farmer's Market Stand

Sell homemade or locally sourced foods at farmer's markets.

Food Blogger/Vlogger

Share recipes, cooking tips, and food reviews through a blog or YouTube channel, monetizing through ads or sponsored content.

Service-Based Business Ideas

Property Management

Manage rental properties for landlords, handling tenant relations, maintenance, and payments.

Personal Concierge

Offer personal assistance services like scheduling, booking travel, or running errands for busy clients.

Home Staging

Prepare homes for sale by arranging

furniture and decor to make them more attractive to buyers.

Translation Services

Offer translation for documents, websites, or conversations between people of different languages.

Massage Therapy

Provide massage services for clients, either from home or by traveling to their location.

Car Detailing

Clean and detail cars, offering a premium service to vehicle owners.

Pet Grooming

Offer grooming services like washing, clipping, and brushing for pets.

Travel Planning/Consulting

Help clients plan their vacations or business trips, booking flights, hotels, and activities.

Mobile Notary Public

Travel to clients to notarize documents for legal or business purposes.

Home Inspection Services

Inspect homes for potential buyers, ensuring they are in good condition before purchase.

Health and Wellness Businesses

Yoga Instructor

Teach yoga classes to groups or individuals, either in person or online.

Personal Chef

Prepare meals for individuals or families, catering to their dietary needs and preferences.

Mental Health Counselor (Licensed)

Provide counseling services to clients dealing with mental health issues like anxiety or depression.

Holistic Health Coach

Offer advice on nutrition, exercise, and lifestyle changes to help clients achieve overall wellness.

Physical Therapy Assistance

Assist licensed physical therapists with patient care and rehabilitation exercises.

Dance Instructor

Teach dance classes to students of all ages, either in a studio or online.

Meditation Coach

Help clients reduce stress and increase mindfulness through guided meditation sessions.

Acupuncture Services

Offer acupuncture treatments to clients for pain relief and wellness.

Nutritional Counseling

Provide advice and guidance on healthy eating habits to help clients achieve their wellness goals.

Senior Care Companion

Offer companionship and assistance to elderly clients, helping them with daily activities and providing social interaction.

Technology-Based Businesses

App Development

Create mobile apps for businesses or individuals looking to solve a specific problem.

SEO Consultant

Help businesses improve their search engine rankings through on-page optimization and content strategy.

Cybersecurity Specialist

Offer cybersecurity services to help businesses protect their data and systems from cyber threats.

Tech Product Repair

Repair broken devices like smartphones, tablets, or computers.

VR/AR Experience Creation

Develop virtual reality or augmented reality experiences for entertainment, education, or marketing purposes.

Drone Photography/Videography

Use drones to capture aerial photos and videos for real estate, events, or marketing materials.

Software Development

Develop custom software solutions for businesses or individuals looking to improve their workflows.

Digital Marketing Agency

Offer digital marketing services like social media management, paid ads, or content creation for businesses.

Provide technical support to businesses or individuals needing help with their computers or networks.

Online Subscription Box Service

Final Thoughts

Starting your own small business is an exciting and rewarding endeavor. With countless ideas to choose from, the most important step is selecting the one that aligns with your passions, skills, and the market demand. Once you've identified your ideal business, be sure to plan carefully, set realistic goals, and always be prepared to adapt and grow. Remember, success comes from dedication, creativity, and hard work, so choose something you love and enjoy the journey!

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B.R. Cohn, Viansa, Kunde among latest bids for defunct Vintage Wine Estates assets

A top executive of the Copart auto salvage yard empire has doubled his bid for assets from the defunct Vintage Wine Estates portfolio, adding three notable Sonoma County wineries to the two from Napa Valley he said he wanted just a week ago.

A. Jayson “Jay” Adair’s Dallas-based Adair Winery Inc. on Wednesday submitted a new starting bid of $70 million for five estate wineries, according to Bankruptcy Court filings . The new offer adds B.R. Cohn, Kunde and Viansa in Sonoma Valley to the $35 million bid Aug. 23 for Clos Pegase and Girard in Napa Valley.

Santa Rosa-anchored Vintage Wine Estates on July 24 filed for Chapter 11 reorganization in Bankruptcy Court in Delaware, claiming $425 million in assets and $400 million in liabilities, chief among them $310 million in debts held by lender BMO. Vintage told the court it is looking for the “sale of all or substantially all” of its assets.

The Adair Winery bid was among four “stalking horse” bids, totaling $83.6 million, submitted Wednesday afternoon and approved by the court Thursday. Here are the three others:

— Ejnar Knudsen: $9.3 million for two estates with brands: Laetitia Vineyard and Winery in Central Coastal California’s San Luis Obispo County and Owen Roe in Washington’s Yakima County.

— Full-Glass Licensing LLC: $3.2 million for three brands: Cameron Hughes and Windsor Vineyards wines, and the Vinesse club. The bid also includes an undisclosed amount of wine in bottles.

— Delicato Vineyards LLC: 55 cents a gallon for 1.9 million gallons of unallocated bulk wine (in barrels or tanks). Currently, that works out to $1.06 million, but the final price will be determined after a full inventory, according to court documents.

Stalking-horse bids in Bankruptcy Court generally are initial offers that are chosen by the debtor and, if approved by the court, become the minimum bids for the forthcoming sale.

Adair himself and Copart have North Bay and local wine industry roots that go back to the early 1980s, when the company was started in Vallejo.

Former Vintage funder seeks to buy two of its wineries

Knudsen’s bid for the Laetitia and Owen Roe wineries is a family venture with his wife, Elizabeth, he told the Business Journal in an email. Ejnar Knudsen is managing partner of AGR Partners, which has offices in Davis between Sacramento and Solano County and in Chicago.

The firm said it has invested over $740 million in agricultural and food companies in the U.S., Canada, Australia and New Zealand since 2012. One of those was a $75 million minority equity investment in Vintage Wine Estates , a 2018 deal that included existing shareholders of Vintage.

Startup seeks to resurrect the third-party DTC model

Chicago-based Full-Glass Licensing is led by Louis Amoroso and Neha Kumar, court filings say. They started Full Glass Wine Co. in Los Angeles last year to acquire and manage brands and ventures related to direct-to-consumer wine, according to Forbes. In that time the company has picked up three prominent third-party clubs that had closed or filed for bankrtupcy: Winc , Bright Cellars and Wine Insiders .

Winc is a subscription-based wine service based in Los Angeles but had extensive ties with North Coast wineries for making its exclusive blends. It filed for bankruptcy in late 2022 and was purchased early last year. Pricing for the wines ranges from $13 to $50 a bottle.

Under Full Glass Wine, orders for Winc and the other clubs are fulfilled from three warehouses, in Vacaville and across the country.

Third round of bids

The bids Thursday are the third round of offers to be considered by the court for Vintage Wine Estates holdings. The portfolio includes over 30 wine, spirits and cider brands, a collection of luxury and “lifestyle” wines. The company owns and leases about 1,850 acres of vineyards and operates 11 wineries and nine tasting rooms. At the time of the filing, it employed more than 400 employees in 15 states.

The pace of the Vintage asset sales is set to pick up in the next few weeks. There’s a Sept. 4 hearing on the third round of bids, a Sept. 6 deadline for any other qualified bids, a Sept. 17 auction and a Sept. 24 hearing to consider the winning bids.

The first stalking-horse bids , approved Aug. 20, came from billionaire Bill Foley’s Santa Rosa-anchored Foley Family Wines Inc. and Playa Capital Ace Holdings LLC, led by Ace Cider founder Jeffrey House and backed by equity funder Playa Capital Partners of Southern California.

Foley, owner of Chalk Hill Estate, Chateau St. Jean and Silverado Vineyards, offered $15 million for five brands: Sonoma Coast Vineyards (and its Bodega Bay tasting room), Cosentino, Swanson, Bar Dog and Cherry Pie.

Playa Capital Ace Holdings bid $4 million in cash and assumed liabilities for assets of California Cider Company, the Sebastopol-based maker of Ace Cider.

Jeff Quackenbush covers wine, construction and real estate. Reach him at [email protected] or 707-521-4256.

Business Succession in Educational Institutions

Educational institutions face unique challenges in ensuring business continuity, as the departure of key personnel can have a profound impact on leadership, operations, and ultimately, the delivery of educational services. Identifying key positions at risk is crucial to maintaining business succession and continuity. A thorough risk analysis can pinpoint talent gaps, enabling proactive measures to mitigate potential disruptions. Building a strong leadership pipeline, preserving institutional knowledge, and developing a comprehensive succession planning framework are essential components of a successful business succession plan. As the complexities of succession planning unfold, a nuanced understanding of these critical components is vital to ensuring a seamless transition.

Table of Contents

Identifying Key Positions at Risk

Vulnerability often lurks in the shadows of an organization's key positions, where the departure of a critical employee can precipitate a crisis of leadership, operations, or both. In the context of educational institutions, identifying these positions at risk is vital to maintaining business succession and continuity. A thorough risk analysis is necessary to pinpoint sectors where talent gaps exist, thereby enabling proactive measures to mitigate potential disruptions.

Building a Strong Leadership Pipeline

Three essential components form the foundation of a robust leadership pipeline: a deliberate talent development strategy, a transparent succession planning process, and a culture that fosters leadership growth and opportunity. These elements are indispensable in identifying, nurturing, and preparing future leaders to assume key positions within the educational institution. A deliberate talent development strategy involves identifying and developing the skills and competencies required for future leadership roles. This is achieved by providing training, mentorship, and coaching opportunities that align with the institution's strategic objectives. Talent scouts within the organization play a significant part in identifying high-potential individuals who possess the necessary skills and Cultural Fit to assume leadership positions. A transparent succession planning process guarantees that these individuals are groomed and prepared to take on leadership positions when the need arises. By building a strong leadership pipeline, educational institutions can mitigate the risks associated with leadership succession and provide continuity and stability in their operations.

Preserving Institutional Knowledge and Memory

Institutional knowledge and memory, comprising the collective proficiency, experiences, and wisdom accumulated over time, constitute a vital component of an educational institution's intellectual capital. This collective knowledge is often tacit, residing in the minds of long-serving employees, and is at risk of being lost when they depart. To mitigate this risk, educational institutions must establish systems to capture, store, and disseminate this knowledge.

One approach is to create knowledge repositories, which can take the form of databases, wikis, or document management systems. These repositories can store a wide range of information, including policies, procedures, and optimal practices. Additionally, legacy archives can be established to preserve historical documents, records, and other materials that are of significance to the institution. By doing so, educational institutions can safeguard that their collective knowledge and memory are preserved, even as personnel change. This enables new employees to tap into the accumulated wisdom, reducing the risk of knowledge loss and promoting continuity and consistency in institutional operations.

Developing a Succession Planning Framework

In developing a succession planning framework, it is crucial to pinpoint critical positions within the organization that are pivotal to its continued success. This involves identifying key jobs that require strategic talent development and creating a leadership pipeline to facilitate smooth handovers. By establishing mentorship programs and cultivating future leaders, organizations can mitigate the risks associated with knowledge gaps and leadership vacuums.

Identify Key Positions

Within an organization, a vital step in developing a succession planning framework is to pinpoint key positions that are essential to its continued operation and long-term success. These positions are typically critical to the organization's ability to achieve its strategic objectives and may have a significant impact on its overall performance. To identify these key positions, a thorough Job Analysis is necessary. This involves a detailed examination of the roles, responsibilities, and competencies required for each position.

Through this process, organizations can develop accurate Position Descriptions that outline the essential duties, skills, and knowledge required for each role. This information is crucial in determining the key positions that require succession planning. By focusing on these critical roles, organizations can ensure that they have the necessary talent and expertise to maintain their competitive edge and achieve their long-term goals. By identifying key positions, organizations can develop targeted succession planning strategies that address potential talent gaps and mitigate the risk of leadership vacuum.

Develop Leadership Pipeline

Having identified key positions, organizations can now concentrate on developing a leadership pipeline by cultivating a robust talent management system that fosters growth, development, and retention of future leaders. This involves adopting a proactive approach to talent development, leveraging Talent Analytics to identify, assess, and develop high-potential individuals. By analyzing talent data, educational institutions can pinpoint skill gaps, forecast future talent needs, and create targeted development programs to address these gaps. Additionally, organizations should prioritize Leadership Agility, enabling leaders to adapt quickly to changing circumstances and navigate complex challenges. This can be achieved through tailored training programs, coaching, and experiential learning opportunities that simulate real-world scenarios. By developing a robust leadership pipeline, educational institutions can facilitate a seamless handover of leadership, mitigate the risks associated with talent loss, and sustain their competitive edge in the market. Ultimately, a well-planned leadership pipeline allows organizations to build a sustainable future, driven by capable and visionary leaders.

Establish Mentorship Programs

A well-structured mentorship program serves as a crucial component of a succession planning framework, providing a platform for knowledge transfer, skill development, and leadership acumen. By establishing a mentorship program, educational institutions can ensure the continuity of their mission and vision, even as key personnel transition out of their roles.

Key features of an effective mentorship program include:

• *Fostering a Mentor Mindset*: Encouraging experienced leaders to take on a mentorship role, sharing their expertise and guidance with future leaders.
• *Cross Training*: Providing opportunities for employees to develop new skills and gain exposure to different areas of the institution, preparing them for future leadership roles.
• *Regular Feedback and Coaching*: Scheduling regular check-ins between mentors and mentees, providing constructive feedback and coaching to support growth and development.
• *Clear Goals and Objectives*: Establishing clear goals and objectives for the mentorship program, ensuring alignment with the institution's overall succession planning framework.
• *Ongoing Evaluation and Improvement*: Continuously evaluating and refining the mentorship program, making adjustments as needed to ensure its effectiveness.

Effective Communication and Stakeholder Buy-in

Effective communication and stakeholder buy-in are vital components of a successful business succession plan. To achieve this, it is imperative to establish clear expectations early on, foster trust through transparency, and engage key stakeholders in the process. By doing so, organizations can guarantee a seamless handover and maintain the confidence of their stakeholders.

Clear Expectations Early

Establishing clear expectations early in the business succession process is crucial, as it sets the tone for a seamless handover and minimizes potential conflicts among stakeholders. This involves defining positions, responsibilities, and timelines to facilitate a smooth passage. Clear expectations also help to mitigate family dynamics that can often complicate the succession process.

Some key aspects to concentrate on when setting clear expectations include:

• Defining job clarity for each stakeholder, including family members and non-family employees
• Establishing a clear schedule for the handover process
• Identifying key performance indicators (KPIs) to measure progress
• Determining the decision-making authority and protocols
• Developing a contingency plan for unexpected events or setbacks

Build Trust With Transparency

How can leaders foster an environment of trust and collaboration among stakeholders in the business succession process? By adopting a transparent approach to communication, leaders can build trust and credibility, vital for a seamless handover. Openness is particularly vital during times of crisis, when swift and honest communication can mitigate the impact of a crisis response. In the context of business succession, transparency can be achieved through regular financial disclosure, providing stakeholders with a clear understanding of the institution's financial health and future prospects. This openness helps to establish a sense of security and stability, allowing stakeholders to feel confident in the institution's ability to navigate the handover successfully. Additionally, transparency encourages active participation and engagement, as stakeholders are more likely to contribute to the succession process when they feel informed and involved. By fostering an environment of trust and transparency, leaders can guarantee a collaborative and successful business succession.

Engage Key Stakeholders

By fostering an environment of transparency, leaders can identify and engage key stakeholders who will play a vital part in the business succession process, securing their active participation and buy-in are obtained through open and inclusive communication.

To facilitate effective engagement, leaders must conduct a thorough stakeholder analysis to identify the individuals and groups with a vested interest in the succession process. This analysis will inform the development of a tailored communication strategy that addresses the unique needs and concerns of each stakeholder group.

Some key considerations for stakeholder engagement include:

• Establishing clear channels for feedback and input
• Providing regular updates on the succession process
• Encouraging open dialogue and addressing concerns promptly
• Recognizing and valuing the contributions of key stakeholders
• Building trust through consistent and transparent communication

Managing the Transition Process Smoothly

A well-planned handover process is vital to maintaining business continuity, as it enables the outgoing leader to transfer knowledge, responsibilities, and relationships to the successor in a deliberate and systematic manner. This guarantees that the educational institution's operations remain uninterrupted, and the new leader can hit the ground running. To achieve a seamless shift, it is imperative to establish clear Handover Timelines, outlining the key milestones and deadlines for the handover process. This helps to prevent confusion, overlapping responsibilities, and verifies that critical tasks are completed on time. Additionally, Cultural Alignment is vital during the handover period, as it enables the outgoing leader and the successor to share a common understanding of the institution's values, vision, and mission. This alignment fosters a sense of continuity and stability, allowing the new leader to build on the existing legacy. By concentrating on these critical aspects, educational institutions can guarantee a smooth handover, minimizing disruptions and maintaining their academic excellence.

Evaluating and Refining the Succession Plan

As the handover process unfolds, it is equally important to periodically evaluate and refine the succession plan, certifying its continued relevance and effectiveness in addressing the evolving needs and goals of the educational institution. This process verifies that the plan remains aligned with the institution's strategic objectives and adapts to changing circumstances.

Evaluating and refining the succession plan involves several key steps:

• Conducting regular plan audits to identify aspects for improvement
• Tracking and analyzing succession metrics to measure plan effectiveness
• Gathering feedback from stakeholders, including employees, students, and alumni
• Updating the plan to reflect changes in leadership, organizational structure, or institutional priorities
• Maintaining that the plan remains flexible and responsive to emerging challenges and opportunities

Frequently Asked Questions

How long does a typical succession planning process take to complete?.

A typical succession planning process can take anywhere from 6-24 months to complete, depending on the complexity of the organization and the scope of the handover, requiring a timely shift and phased implementation to guarantee seamless continuity.

What Role Does Technology Play in Preserving Institutional Knowledge?

In preserving institutional knowledge, technology plays a crucial part through knowledge mapping, which visually represents skills, and digital archiving, which securely stores and retrieves valuable information, facilitating seamless transfer and minimizing knowledge loss.

Can Succession Planning Be Applied to Non-Academic Staff Positions?

Succession planning can indeed be applied to non-academic staff positions, leveraging staff development initiatives and talent pipelining strategies to guarantee continuity and minimize knowledge loss, thereby maintaining operational excellence.

How Do You Handle Resistance to Change From Existing Leadership?

When confronted with resistance to change from existing leadership, it is essential to secure Leadership Buy-in by engaging them in the transformation process, thereby facilitating a Culture Shift that fosters collaboration and minimizes opposition.

Are Succession Plans Only Necessary for Long-Tenured Leaders?

Succession plans are not solely reserved for long-tenured leaders; they are vital for any organization seeking to guarantee continuity and growth, as they foster a robust leadership pipeline and inject fresh perspectives, driving innovation and progress.

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News & Insights

Has the Chance to Buy ASML Stock Already Slipped Away?

August 29, 2024 — 01:46 am EDT

Written by James Fox for TipRanks  ->

The semiconductor equipment maker ASML Holding (ASML) has recovered slightly following its slump in July, when investors, worried about the company’s exposure to China and potential new export restrictions, pulled back from the Dutch company. While the stock is no longer at its July nadir, I don’t believe the opportunity has slipped away to buy ASML stock. Despite unfavorable valuation metrics, this company is a kingpin of the technology sector.

ASML’s Earnings Surprise

Let’s start by taking a closer look at ASML’s Q2 2024 earnings report , released on July 17. ASML, which essentially has a global monopoly on advanced lithography machines used to make semiconductors, painted a picture of resilience amid market uncertainties.

Net bookings impressed at €5.6 billion, with €2.5 billion attributed to their flagship extreme ultraviolet (EUV) technology, underscoring ASML’s dominance in advanced chip manufacturing equipment. Moreover, the company reported a better-than-expected gross margin of 51.5% and net income of €1.6 billion.

Despite these solid figures, ASML stock took a hit on July 17, dropping by as much as 12% and continuing to decline further in subsequent days.

This downturn was primarily driven by investor concerns over potential U.S. restrictions on advanced technology sales to China. This was compounded by the results, which showed that almost half of ASML’s revenue from the first half came from China. As such, further restrictions could impact both new equipment sales and service revenues from existing installations.

The company expects 2024 full-year sales to align with 2023 levels, with a stronger performance anticipated in the latter half of the year. However, it’s important to remember that geopolitics has a profound impact on the semiconductor industry and, consequently, ASML’s business performance.

A New Catalyst For ASML Stock

This improved outlook is partially due to a new catalyst. ASML’s high numerical aperture (NA) EUV machines represent the next step in chip manufacturing technology. NA is a measure of an optical system’s ability to capture fine detail, and as such, these EUV machines offer improved precision for crafting smaller and more complex chip structures.

Although these machines are incredibly expensive, with a price tag of around $380 million, and require significant investment in both money and time to become fully operational, ASML’s key customers are actively moving to adopt them.

That’s because new technologies increasingly require smaller and more intricate chip designs that only high NA EUV can produce efficiently. Chips with finer features are crucial for advancing computing power, energy efficiency, and overall performance. This is particularly important given the rise of artificial intelligence (AI), which has a demanding workload.

Interestingly, Intel (INTC) , which has fallen behind its peers in the chipmaking world in recent years, is leading the way in terms of orders. The company received its first unit in April 2024 and has placed orders for additional machines. Meanwhile, Samsung (GB:SMSN) plans to install its first machine by early 2025, aiming for 2027 production. Also, TSMC (TSM) , initially reluctant due to costs, has now decided to start ordering this year.

Looking forward, these machines will likely be central to the company’s ongoing success. They offer higher margins and reinforce ASML’s technological dominance over its peers, thanks to the extreme barriers to entry in the sector. The company has around 82.9% market share, making it a kingpin of the tech sector.

ASML’s Valuation Issue

While investing in companies with dominant market share may often feel like a shrewd move, it’s only worth it if the company’s valuation data remains attractive. And for some investors, ASML’s current forward price-to-earnings (P/E) of 42.2x is simply too expensive.

However, as always, we have to consider earnings growth. Analysts believe that ASML will grow earnings by 22.3% annually over the next three to five years. In turn, this leads to a price-to-earnings-to-growth ratio (PEG) of 1.86.

Typically, a PEG ratio above one doesn’t indicate that a stock is undervalued. However, ASML is a unique case, given its technological dominance, long-term earnings tailwinds, and its strong balance sheet . This can make it hard to value, but I personally believe the stock will push higher over the medium and long term.

Is ASML Stock a Buy?

ASML stock is a Strong Buy, according to analysts, with five unanimous Buys assigned in the past three months. The  average ASML stock price target  of $1,172.25 implies 31.99% upside potential.

See more ASML analyst ratings

The Bottom Line on ASML Stock

So, what’s the bottom line on ASML stock? Well, the stock is expensive, but the company’s high NA EUV machines are a crucial element in the technology sector, given their ability to produce smaller and more complex chip designs. Also, the barriers to entry in this specialized field reinforce ASML’s technological leadership. While the stock has seen a modest recovery since its July lows, I still believe it represents an attractive opportunity for investors.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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