A key advantage of buying a business rather than starting one from scratch is that an acquisition allows you to avoid the expenses and risks associated with a startup. But, how does one find the right business? There are numerous factors to consider when deciding to purchase a business. A buyer needs to look at the type of business, current industry trends, size, and overall personal fit.
Be prepared as the journey to purchase a business can be lengthy. However, this process can be expedited with preparation and thorough planning. Before you start your search to find a business, come up with a list of goals. This will result in less stress, less uncertainty, better negotiating, and a shorter timeline.
General Tips for Setting Goals
- Be Organized - Keep your information in one place, create a timeline and set parameters on your search.
- Be Flexible - It is likely that your parameters and taste will shift as the process takes place. Be willing to adjust the criteria you set out to match what you are seeing on the market.
- Be Patient - Searching for a business to buy can take some time. It is important not to rush the process or you may end up with a regrettable purchase.
- Be Aligned - Revisit your goals every so often to make sure you are on track. Never forgetting your ‘north star’ will help guide your actions and decisions.
Goals Prior to Finding A Business
Before you start your search, understand why you want to purchase a business. Just as you will want to know the reason the seller is selling, they will want to know why you are interested in buying.
There are tens of millions of small businesses in the U.S., each operating in a unique way Figure out what type of business you want, what characteristics do you favor?. Regardless, here are some general questions that will set the parameters of your search:
- How much are you willing to spend (What is the size of the business)? - Are you looking for a small company or one valued in the millions?
- Where will this business be located? - Do you plan on searching locally or nationwide?
- What industry does the business fall under? - Hospitality, Education, Manufacturing, etc.
- What are the day-to-day operations of the business? - Is there staff in place to handle various positions or will you need to fill these roles? (Sales, Research & Development, Customer Service, etc.)
- How established and profitable do you want the business to be? - Are you considering the purchase of a struggling business? One with high growth? Or, something in the middle?
Goals Once A Business Has Been Found
Properly sourcing a business to buy and actually closing on said business are equally difficult tasks. Both require a lot of time and effort but have different responsibilities. After going through the process of searching, vetting opportunities based on your criteria, speaking with sellers, and finally deciding that a particular business is worthy of the purchasing, your next goal is to consider the deal terms. Some common deal terms worth considering prior to committing to your purchase include:
- Structure of Purchase - Will the transaction be asset or stock-based?
- Price - What’s included in the price? What assets are included? Ex: property, goodwill, patents included?
- Financing - How do you plan on paying for the business? Seller financing, cash? How do you plan on raising the funds? Applying for a bank loan, finding investors or partners?
- Seller Involvement - Do you want to have the owner stay on as an employee indefinitely? Or will the seller simply stay to support the new owner during a set transitionary period?
- Contentions and Other Agreements - Will you include agreements such as non-compete or non-solicitation?
Setting goals can help any buyer make well informed and thought-out decisions. No one wants to purchase a business and end up with buyer’s remorse so ensure that you create a list of goals and keep the end goal in mind throughout the process.