On the downside, buying a business is often more costly than starting from scratch. However, it's often easier to get financing to buy an existing business than to start a new one. Of course, there's no such thing as a sure thing—and buying an existing business is no exception.
On the downside, buying a business is often more costly than starting from scratch. However, it's often easier to get financing to buy an existing business than to start a new one. In addition, buying a business may give you valuable legal rights, such as patents or copyrights, which can prove very profitable.
Things to Consider Before Buying an Existing Business
- The Seller's Motive. The buyer should ask the seller of the existing business about actual reasons that compelled him to sell the business.
- The Sales Blueprint.
- Financial Mileage.
- Legal Agreements.
- Standing Liabilities.
- Business Framework.
- Business Alliances.
- Buyer's Interest.
There is an expectation there will be accounts receivable, accounts payable and cash balances on hand. The only money leaving the business would be through scheduled and disclosed payments or disbursements. As a result, there is no way for that cash at the bank to simply leave with the seller.
To find the value of your business, subtract liabilities from the assets. For example, if you have $100,000 in assets and $30,000 in liabilities, the value of your business is $70,000 ($100,000 – $30,000 = $70,000). With the asset-based method, you can find the book value of your business.
Very generally speaking, you should. That's because your folks have spent considerable time, money and effort in building up the family business, and they do have a certain degree of expectation that you take over and continue the family line of business.
BizBuySell suggests an average asking price of $200,000. But historical data shows some businesses that would suggest an asking price of $100,000 all the way up to nearly $500,000!
Things to Consider Before Buying an Existing Business
- The Seller's Motive. The buyer should ask the seller of the existing business about actual reasons that compelled him to sell the business.
- The Sales Blueprint.
- Financial Mileage.
- Legal Agreements.
- Standing Liabilities.
- Business Framework.
- Business Alliances.
- Buyer's Interest.
8 Negotiation Techniques When Buying and Selling Companies
- Remember: Price isn't everything.
- Make Concessions Strategic.
- Know your “walk-away” number.
- Know your opposition.
- Making the first offer isn't always a bad thing; it's often a good thing.
- Don't fear sunk costs.
- Shake hands, then second guess.
- Research, research, research.
Buying an Existing Business
When you buy a business, you take over an operation that's already generating cash flow and profits. You have an established customer base, reputation and employees who are familiar with all aspects of the business.Below are 10 questions you should ask yourself before buying a business.
- Why Do You Want to Buy This Business?
- How Will You Make Sure You Are Successful?
- How Much Capital Do I have Access to?
- How Much Is the Business Worth?
- Ask to Speak With the Current Owner.
- Ask to See the Business' Current Financial Statements.
Consider these disadvantages: The business might need major improvements to old plant and equipment. You often need to invest a large amount up front, and will also have to budget for professional fees for solicitors and accountants. The business may be poorly located or badly managed, with low staff morale.
12 Expert Tips for Selling a Business to a Competitor
- Get an Idea of Your Business's Value.
- Don't Let Emotions Get in the Way.
- Always Proceed With Caution.
- Try to Get the Most Out of the Deal.
- Due Diligence Takes Precedence.
- Know Who You're Working With.
- Make Sure You're Ready to Sell.
- Don't Be Afraid to Ask Questions.
Here are 7 sites you can visit to find successful businesses for sale.
- BizBuySell.Com. BizBuySell.com will give you the options to buy a business, sell a business, and get help with financing.
- BizQuest.Com.
- BusinessBroker.Net.
- DealStream.Com.
- BusinessesForSale.Com.
- LoopNet.Com.
- BusinessMart.Com.
If you're considering selling your small business, consider these seven steps to stay on the offensive.
- Determine the value of your company.
- Clean up your small business financials.
- Prepare your exit strategy in advance.
- Boost your sales.
- Find a business broker.
- Pre-qualify your buyers.
- Get business contracts in order.
Poor succession planning, lack of trusted advisers, family conflict, different visions between generations, lack of financial education for children are some of the major reasons why 70 percent of the family-owned businesses fail or are sold before they are passed on to the second generation and almost 90 percent don't
Here are four more tips for a smooth transition:
- The right valuation. While selling a business to a family member is not the same thing as selling to an outside buyer, in both cases the owner must determine the fair value price of the company.
- How to pay.
- Giving a gift.
- Get it in writing.
Ward presented the data on the first page of his book as follows: "Only 13% of successful family businesses last through three generations [emphasis added]. Less than two-thirds survive the second generation."
Poor succession planning, lack of trusted advisers, family conflict, different visions between generations, lack of financial education for children are some of the major reasons why 70 percent of the family-owned businesses fail or are sold before they are passed on to the second generation and almost 90 percent don't
As the name suggests, a family-owned corporation is a business owned primarily or exclusively by family members. As a business grows, it can be challenging to run the business using only family members, and publicly traded corporations can remove significant control from the family members who founded the business.
A succession plan will establish an orderly transfer of the management and ownership of the business to new managers and owners to avoid liquidation of the business, as well considering tax treatment and other anticipated expenses and allows incorporation of the family's nontax objectives.
Family business succession is the process of transitioning the management and the ownership of the business to the next generation of family members. The transition may also include family assets as part of the process.
