What to Know About Buying an Established Business

Buying an Established Business guide
Posted by: Bruce Dugan Comments: 0

You need to know what to know about buying an established business before attempting to do so. Buying a struggling business can be a great way to get your foot in the door of business ownership. But it’s not without its challenges. You’ll need to be prepared to put in the hard work to turn things around and make the business successful. But if you’re up for the challenge, there are plenty of benefits to taking on a struggling business. Here’s what you need to know.

Learn About the Benefits

One of the biggest benefits of purchasing an existing business is that it comes with an established customer base. If the previous owner has been in business for any length of time, they likely have loyal customers who will continue patronizing the business once you take over. This can be a big help when it comes to keeping the lights on and making ends meet while you’re sorting out operations and configuring the business to run smoothly. You also have to set a strategy to determine how large you can — or want — to grow that business. A2Z partner Bruce T. Dugan delved into that topic in an article he wrote for Entrepreneur Magazine entitled “How to Grow Your Business Effectively“.

Another benefit of purchasing an existing business is that it usually comes with some level of name recognition. People in the community may already be familiar with the business, which can make marketing and advertising efforts easier and more effective. And because the business already has a history, it will be easier to get approved for loans and other types of financing.

Know What You’re Getting Into

Of course, even with all of these benefits, there are also some risks involved in purchasing a struggling business. That’s why it’s important to do your homework before making any decisions. Make sure you understand the financial situation of the business and what you’re getting yourself into. Due diligence is a must — and you should make any purchase subject to the final results of that due diligence research. You need to know what all their pending and existing contracts contain, as well as all the Accounts receivables and accounts payables. What are the employee benefits, and who among the staff intends to stay on after the purchase? How easily could any of them be replaced if they left? These and many other questions need to be asked and answered. It’s also important to talk to existing and previous employees, suppliers, and customers to get a better sense of what the business is really like.

What to Know About Buying an Established Business

Secure Financing Before You Buy

If you’re going to purchase an existing business, you’ll need to secure financing upfront. This can be done through traditional loans, angel investors, or venture capitalists. If you’re going the loan route, make sure you shop around and compare interest rates before making a decision. If it is an online or retail business. then you an easy and fast lending source is a merchant cash advance program. You’ll also want to think about how much debt you’re comfortable taking on and what kind of repayment terms you can handle.

If you’re looking to raise investment capital, you’ll likely need a set of investment materials developed — typically, an investor one-sheet, pitch deck, lean canvas, 5 force chart, and KPI (key performance indicator) chart).

Learn When It’s Time to Negotiate

When negotiating a price for an existing business, there are a few things you’ll want to keep in mind. First, don’t be afraid to walk away if the seller is steadfast on terms to which you’re unwilling to agree. Don’t even want it so badly that you’re willing to make a bad deal. Second, as stated earlier, make sure you have a solid understanding of the businesses’ financials, so you can establish a fair market valuation. And lastly, don’t be afraid to ask for extras like furniture, inventory, or equipment as part of the final sale price.

Note that a seasoned corproate attorney is recommended. But there job is not to make decisions for you, but rather to make assessments, then recommendations so that you can properly navigate the legal maze and make informaed decisions. If you want to be a business owner, you must be the decion-maker, so start with teh purchase. .

Briuce T. Dugam, parter A2Z Business Consulting.

Switch to a Corporation Designation

When you’re in the market to buy an existing business, one of the key decisions you’ll need to make is what legal structure to use for the purchase. If the business you’re interested in is organized as an LLC, you may be wondering if it makes sense to convert the LLC to a corporation, or vice versa.

There are a few things to consider when making this decision. First, LLCs offer flexibility in terms of ownership and management, which may be attractive if you’re looking to maintain control of the business, especially if it involved real estate.

However, corporations offer certain benefits that LLCs don’t, such as access to capital markets and greater stability. Ultimately, deciding whether to start a corporation instead of an LLC when buying an existing business comes down to the nature of the business (B2B vs B2C), location (physical, and/or online), and various tax considerations. For this decision, an accountant with good credentials is who you should be talking to in combination with your “business” attorney. If the attorney doesn’t have experience in business law, they can do more harm than good.

Use Process Mapping to Improve Operations

When you’re in the process of buying a business, process mapping can help you to identify and understand how the current operations are structured. This is a good option to consider to pinpoint opportunities for improvement and prioritize focus areas that may be worth investing in, both before and after completing the purchase.

Process mapping will enable you to create clear, visual representations of current processes and procedures, determine where problems are occurring within those processes, and then make adjustments in order to improve productivity and efficiency.

Acclimate to the Current Market

Every successful business knows how important it is to adapt its offerings to suit its target market. If your new company isn’t doing this, now is the time to start. Take a look at your products or services and ask yourself if they’re truly meeting customer needs. If not, don’t be reluctant to change. Also, keep an eye on your competition and find ways to set yourself apart from them. An article entitled How to build a cohesive brand is written for restaurant owners, but the strategies contained within can be used for any business.

Once you understand your target market and competition, work with a digital marketing agency to ensure that you have a professional, functional website and effective digital marketing strategies!

Purchasing a struggling business can be challenging but also very rewarding. There are many benefits to doing so, including coming with an established customer base, having some level of name recognition, and potentially being easier to finance than starting fresh. However, there are also risks involved, so it’s important to do your homework before making any decisions. With hard work and dedication and by taking steps like using process mapping to improve operations, you can turn that struggling business into a success story!

Image via Pexel

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