How Do You Find The Right Business to Buy With the Help of a Broker?
Buying a business is a tough decision, and finding the right one can be hectic. Understanding the whole process thoroughly and taking the help of professional business brokers at the right time can make buying the right business easy. Irrespective of the type of business you buy, following certain steps can enhance your chances of successfully operating a profitable venture once the deal is closed. In this blog, we’ll guide you through crucial steps to find the right business.
Table of Content:
- Deciding What Type of Business You Want to Buy
- Understand What Type of Buyer You Are
- Understand Ways to Become a Business Owner
- Business Analysis Before Buying
- Due Diligence: Ensuring a Wise Decision
- Conclusion
Deciding What Type of Business You Want to Buy
Start by narrowing down your passions, interests, skills, and experience. For first-time buyers, it is highly recommended to buy a small business with the help of an experienced business broker. Unlike what many believe, there are several opportunities for an owner when he/she chooses to buy a small business. Entrepreneurs use the acquisition to purchase their company using a combination of debt from banks and equity from investors and pursue the purchase so that they successfully retain a meaningful economic stake in the business. With such a stake, you have the opportunity for a significant financial reward. purchasing small yet high-quality businesses for a price that allows you and your investors to earn an excellent return on investment.
To truly grow your business, you need to carefully assess the skills and experience of your relevant industry, understand where your interest and passion lie, and even consider how the business ownership lifestyle aligns with your desired work-life balance and financial goals.
Understand What Type of Buyer You Are
- Buyers Who Buy a Business as a Livelihood
Many people want to buy a business with the expectation that it will provide a steady source of income. Typically, the business owners make a down payment of between 10% and 25% of the sale price, followed by seller financing for the remaining balance over several years.
After covering operational costs and loan payments, any remaining profit becomes the owner’s income. Essentially, you’re building an asset that generates ongoing income.
- Buyers Who Expand an Existing Business:
Established business owners sometimes acquire similar businesses for strategic growth. This approach allows them to:
- Increase market share and dominance: Expanding into new locations or acquiring a competitor can strengthen their position in the local market.
- Leverage existing knowledge: They already possess industry expertise, making it easier to value and operate the new business effectively.
- Create operational synergies: Combining resources and streamlining operations across businesses can lead to cost savings and improved efficiency.
- Investment for Passive Income and Growth:
Some business acquisitions are purely investment-driven. The goal is to find a well-established business with:
- Strong foundations: A solid business model, experienced management, and a loyal customer base are crucial for stability.
- Steady profits: Consistent profitability provides a reliable stream of passive income for the owner.
- Growth potential: An ideal business investment has the potential to increase in value over time, similar to real estate. This appreciation allows for a profitable sale at a later date.
Carefully consider your strengths, risk tolerance, and desired level of involvement to determine what kind of buyer you are and what success rate you can achieve through it.
Understand Ways to Become a Business Owner
There are mainly three ways through which you can acquire a business and become its owner. Starting a business from scratch, buying a franchise, and buying an existing business are the three ways; however, since we are talking about buying a business, we’ll discuss the latter two.
A lot of business owners get started in the business by buying a franchise. Some people easily handle the franchise, while others find the experience frustrating, disappointing, and even financially disheartening. Most people stay away from the franchise route because it is overpriced based on all the costs and fees, yet buying a franchise provides benefits as well.
Here are the pros and cons of owning a franchise.
Pros:
- Making the best use of name recognition. A well-run franchise uses its own money plus the advertising fees from franchises.
- Getting a training and operations manual from the franchisor, thereby laying out a precise plan for doing business.
- Available credit as a franchisor lets you pay the bulk of start-up costs over years.
- Territorial protection, as you might have exclusive rights to a franchised business within a defined geographical area.
Cons:
- Not all franchises are good to own.
- Relatively high cost
- Very little flexibility
- Long-term contracts
- It’s hard to exit the business if you are no longer interested.
- Buying an Existing Business
A lot of budding business owners go on this path, along with the help of Ontario Commercial Group’s business brokerage services. However, buying a business has its pros and cons, which are as follows:
Pros:
- You get a solid base to start
- An already established customer base
- Immediate cash flow
- Seller financing
- An existing location that’s protected by a favourable lease for several years.
- Expert assistance from brokers
- Collaborates with the supplier and vendor
- Reduced risk of business failure
Cons:
- Lack of obligation as you are owing someone elated
- Relatively high cost owing to goodwill
- Possibility of hidden problems
Business Analysis Before Buying
- Identify Businesses for Sale: Business brokers aid you in identifying how to find businesses that match your criteria.
- Financial Analysis: Reviewing the business’s financial statements to understand its profitability, debt levels, and overall financial health is a crucial step before buying a business. A helping hand from professionals such as business brokers, a team of lawyers, and accountants can help you tackle this part.
- Competitive Landscape: Analyze the competition in the target market. What are the strengths and weaknesses of your potential competitors? How can you compete with them with the business you are thinking of buying? And what are the ways to survive in the market?
Due Diligence: Ensuring a Wise Decision
- Consult with professionals: Hire a team of professionals that consists of an Ontario Business Broker professional, a lawyer, and an accountant to thoroughly examine the business’s legal and financial standing.
- Review Contracts and Leases: Carefully understand the terms of any existing contracts, leases, or franchise agreements.
- Talk to employees and customers: Get insights from the people who know the business best. Remember, employees and customers are the people who can make or break your business.
Conclusion
Buying the right business involves thorough research, clear goal-setting, and leveraging the expertise of a business broker. Understanding your buyer type, evaluating financials, and conducting comprehensive due diligence are crucial steps to ensuring a successful acquisition and long-term business success.
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