Search for Small Business Loan Sources and receive your matched lender list
AND received FOUR free Business eBooks worth $39.95!
Search for Small Business Loan Sources

 

 

As the economy continues to slowly improve, now may be a great time to consider buying an existing business. Like buying a home before the home market hits new highs, buying a business before the economy is at full speed may offer a unique growth opportunity.

Existing businesses even with thin cash flow are still better risks to a lender than a new venture with unproven valuation.

Of course, you should focus on buying a business you have a passion for and would enjoy owning and operating. But the number one element driving your decision should be this: can you add value to this business?  This should be evaluated by determining factors such as:

  1. Can you improve the product or service?
  2. Can your past experiences and talent add to the business’ performance?
  3. Can you lower costs?
  4. Can you add marketing expertise?

BusinessFinance.com can match you with a lender to buy an existing business, while sites like BusinessMart.com offer listings of businesses for sale.

If you are working with a broker, make sure they can offer a wide variety of opportunities. Brokers know the “lay of the land” in this particular selling environment and understand the multiples that businesses sell for. As a general rule, multiples for mature businesses are lower than multiples for fast-growing businesses.

Some of the best tools you can use in determining whether or not to buy a business are your own eyes and ears. Contact customers and employees and ask what they like (or don’t like) about the business and how it is currently operated. Use a third-party service provider if the owner will not let you to investigate on your own.

Once you have decided on a business you are keen to own, you must make sure you complete your due diligence. This is not the time to be complaisant. Make sure you ask for and receive the following:

  • Verifiable tax returns
  • Copies of bank deposits
  • Copies of current leases
  • Articles of Incorporation
  • Utility bills
  • Payroll records
  • Dun & Bradstreet credit report

Of course, other records may have to be obtained during the due diligence process, and your broker can help you greatly during this time.

In addition, make sure you scrutinize all outstanding contracts and liabilities because these are part of your purchase of the business.

Even though there are sources of financing for buying a business, you might want to inquire if the seller would consider financing part (or all) of the sale price. If so, make sure the terms are in line with, or better than, traditional financing in regards to down payment (the lower the better), interest rate, and term.

Having part (or all) of the financing held by the previous owner keeps their and your interests the same in regards to the success of the business going forward.

Remember, more often than not, a newly acquired business cannot be expected to be as vigorous at the start of your ownership as it was at the end of the seller’s. Be prepared for things like employee turnover, increased vendor prices, etc. But carry on, enjoy, and grow your new business!

Alan Davidson attended City University of New York with a major in Business Administration and Finance and entered Wall Street representing Drexel Burnham Lambert. Later in his finance career, he segued into the Automotive Financing industry and then the Equipment Leasing and Financing industry as a vendor focused Financing Executive. Currently, he represents Internet Brands, Inc. as a Sales & Marketing Executive for BusinessFinance.com.


Search for Small Business Loan Sources and receive your matched lender list
AND received FOUR free Business eBooks worth $39.95!
Search for Small Business Loan Sources