Getting Financing To Buy A Business – Buying an existing business is a very different endeavor than starting your own business. Before finalizing a purchase, it’s important to carefully weigh all the pros and cons and know exactly the right questions to ask both yourself and the dealer.
Just like starting a new business from scratch, not taking the right first steps can lead to poor operations and even store closures. So, check out these questions to get you started on the right foot.
Getting Financing To Buy A Business
Before we get into the specific questions to ask when considering buying a business, let’s go over some of the key pros and cons. Many entrepreneurs are torn between starting out on their own and buying a business, so I hope this section clears things up.
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This is already a proven business model – probably the most powerful. Buying a company that has been successful for years means creating a model and customer base that makes future success more likely.
Easier to get started – again, a proven business model means you can get a lot out of the startup equation: business plan, market research, marketing, location planning, and more. Sometimes, having fewer options makes things a lot easier.
Branding – Branding is one of the most difficult, time-consuming and expensive aspects of running a business. It takes creativity, ingenuity and often years to build a brand. Buying an existing business means you don’t have to worry about that.
Funding is easier to access – banks and other lenders are more likely to offer loans to businesses with a proven track record. When buying an existing business, it is more practical to secure loans to improve additional locations or stores.
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You have an instant customer base – while some buyers may leave after the business moves to a new owner, the majority will likely stick around (nothing important has changed). Securing a solid customer base takes a lot of unknowns out of the equation.
It can be expensive – there is a high price tag for buying a successful and established business. All of the above benefits increase your success. You get what you pay for, and in this case, you pay a lot.
You may need to make big changes – even if you buy a successful business, there may be changes you want to make. They may be expensive, hostile to existing employees, or difficult to implement.
The company may be a complete fake – with proper research and diligence it is unlikely to scam you, but there is still a possibility that the company will be as successful as advertised.
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You lose your creativity – for example, it’s fun to buy a franchise, buy an existing business, make it your own, and add character.
Well, now on to the questions entrepreneurs should ask to start this process. Before talking to a dealer, you should check with yourself that you are making the right decision.
This is the most important. You should go through the list of pros and cons above and find out which option is best for you.
Once you’ve narrowed down your list and thought of a company to consider buying, ask yourself why you want to buy that company. Don’t get caught up and take any job that comes your way. Make sure you are passionate about it.
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This is another important one. You can rely on years of experience if you want, but it’s always helpful to get advice from those around you. Ask your friends and relatives for their opinions.
Once you’re confident in your motives and know exactly what you’re looking for, and you’ve found a viable opportunity, it’s time to ask the existing business owner a few questions.
While some of you are looking for businesses in need of renovation, many of you are looking to buy an established successful business. With that in mind, you should ask them why they are selling. They built a business, became successful and made huge profits. So what gives? This can help identify any red flags early in the process.
Of course you want to know how long the company has been in business and a bit of history. Talk to the current owner about how it got started, their role in running the business, and some of the hurdles they’ve had to overcome. Of course, buying an established and proven company is great, but it comes at a higher price.
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While any business owner knows that success takes a lot of hard work and determination, it’s important to have at least some work-life balance. Learn more about exactly what your role as an owner will look like. It also allows for better planning of recruitment and scheduling.
Even as a business owner, you still have to pay yourself. It’s important to set this expectation up front so you know if it’s feasible for your current personal financial needs.
While money is rarely fun to talk about, it’s certainly important when buying a business. To determine the effectiveness of the operation, it is necessary to examine the details a little.
You have to start from here. A dealer trying to sell a job at a fair price doesn’t allow you to look under the hood and see how profitable the transaction is.
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You want to make sure that all accounting records have been kept accurately and legally over the years. All tax returns, cash flow, balance sheet, payroll, deductions, etc. it comes together and doesn’t look suspicious. You don’t want to buy a company that secretly produces books.
If you’re not sure what the financial end of things looks like, don’t hesitate to recommend an audit from someone who isn’t involved on either side. If the owner doesn’t agree, that’s a definite red flag. An external audit is the most reliable way to get an accurate assessment of a company.
You want to know about all the liabilities and assets that may be involved in the transaction. In terms of debt, this includes mortgages, leased equipment, rent, etc. Assets may include owned equipment, existing inventory, paid brick and mortar locations, and some intangible assets such as brand recognition.
You may also want to cover some legal groundwork so you don’t get distracted right after handing over the keys.
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Most companies require permission. Some require more of them. Make sure you know exactly what you need and how to apply for them. The current owner should be able to walk you through everything.
Buying a larger company will likely keep at least some of your existing employees. It is important to know who is who in a leadership role and which employees you can trust.
You will likely need to finance the purchase of a small business, even a single location operation. Discuss this with the seller and find out what financing options are available. Most owners want the sale to be completed within a few years, but this varies from seller to seller.
Call us at KORONA POS to find out how your transactions work at the right point of sale. We work with new businesses and business owners all the time to build and prepare their inventory, sales reports, pricing, product orders and payments. Learn more by clicking below and scheduling a demo.
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Among other things, Michael writes about CORONA POS retail trends and tips. Its goal is to bring a more holistic approach to growth to small business owners. In his spare time, you can take him for a walk somewhere in the southwest. Connect with him on LinkedIn. Elise Moores Fast Capital 360 Reviewed by Managing Editor Mike Lucas Updated August 18, 2022
Getting a business loan or other financing and securing it with the best interest rates isn’t as difficult as you might think. It all starts with finding out which option is right for your small business.
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Before applying for a small business loan, doing your research and due diligence is critical and will help you decide which financing options are right for you—now and in the future.
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