Why Buy a Business?
- You don’t have to succumb to the insane idiosyncrasies of management who have no good reasons for their policies other than to control you.
- You decide the value of your time, not your boss.
- Your performance is recorded based on your customers, not upper management.
- You can surround yourself with people you want to work with.
- You are not held to a strict nine-five regiment. You decide the hours you want to put into your business.
So What Does Buying a Business Look Like?
While there are several strategies to consider upon deciding to pursue entrepreneurship, there are a few specific methods to consider when buying a business. The majority of business-buyers start with an online search. Some people already have an idea of a type of business, a particular industry or its location, and others don’t. However, once you have sourced a business you think you might want to buy, the steps are fairly consistent.
Some of the high-level steps in the business-buying process are as follows:
- Source a business that fits your criteria.
- Begin initial conversations with the seller.
- Use given financial information and overall company background to judge whether their business is the one for you.
- Discuss the terms and expectations surrounding the deal with the seller.
- Sign a non-binding Letter of Intent (LOI). Note: sometimes a Non-Disclosure Agreement (NDA) might also be required.
- Perform a final round of due diligence. It is advised you seek outside resources to help you (accountant, lawyer, advisor, etc...)
- Begin raising debt in form of a small business loan. The Small Business Administration (SBA) offers government-backed loans aimed at supporting small business entrepreneurs (generally about 30-50% of the purchase price).
- Some deals also include seller's debt as well. The exact terms should be discussed with the seller but it generally results in 20-25% of the business purchase price.
- Begin raising equity. Pool together capital from a group of investors to fill the remaining purchase price.
- Finalize and sign the Sales Agreement Document.
- Close the deal.
Although the process may seem intimidating at first glance, there are a plethora of resources - both human and technological - that you can use to leverage your search and capital-raising efforts.
In the coming few years, due mainly to the retirement of baby boomers, millions of quality businesses will be listed for sale and ultimately change hands. The opportunities to both control your career advancement and to create unbounded amounts of wealth for yourself are on the horizon. Exploring your options and entrepreneurship through acquisition is certainly an option worth considering.