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How to buy a business- the 10 general steps to a successful business buying or selling deal
When going into a business buying or selling deal , there are typically 10 general steps or processes that are involved. These ten processes or steps are quite deceiving , as each of these steps are all very intricate ,quite complex , and very confusing to any inexperienced person. To the experienced person or well informed person, these ten steps can still be very complex and stressful , but ultimately a lot less time consuming and a hundred times more probable to succeed.
Follow these ten general steps to a successful business buying deal-
1- Acquire a professional team of referred advisers-
Before anyone considers doing anything in regards to buying or selling a business, it is highly advisable to procure a highly professional team of legal advisers, accountants, tax adviser, and a business broker. Even if you plan on acquiring a business privately or selling a business privately, you should always go the extra mile and consult frequently with your entire advisory panel every step of the business deal. They will help guide you in the proper directions, answer important questions, clarify things that need to be clarified, review all legal documents, review all financials, and ultimately safeguard the business deal as much as possible for both the buyer and seller.
2- What type of business to buy-
Deciding on what type of business to buy is usually the hardest question to answer because people all to often dream about doing what they love for a business , when realistically your goal is to find a diamond in the rough , a business that needs some new life breathed into it. Emotions always run high when deciding on what type of business to buy as people take this decision all to personal and seem to always forget the bigger picture, MONEY! A business buyer should have a good idea in mind of what type of business they would like to buy, but they should also keep in mind how big of a business do they want to buy ,how many employees do they want to operate, do they want to run multiple locations, how large of a business do they want to manage and run on a daily basis, etc, etc. When buying a business, you more than likely end up buying a business that you know absolutely nothing about and typically never would have imagined owning and operating . If this is the case(and it usually is) , always make sure you keep vital employees on board and also try to negotiate a deal where the owner stays on somehow as a type of personal business consultant for some amount of time. This will ultimately safeguard your success with the new business purchase while going a great personal relationship with the prior and knowledgeable business owner.
3- Finding a Business To Buy-
When it comes to finding a business to buy, there are numerous avenues you can take. You can research local newspapers, ads, business brokers listings, research websites online, investment bankers, industry sources, industry suppliers, business owners,etc,etc. Think outside the box when it comes to finding a business for sale, sometimes just networking with the proper people will land you the best deal ever.
4- Due Diligence & research process of business
This is one of the most crucial steps in a business buying or selling venture. Conducting thorough, and I mean thorough research and due diligence processes, is the only way to gauge and value a business. These complex and very complicated processes of research, data collecting, and data crunching are all criteria which should never be taken lightly and should always be double and tripled checked by your “advisory panel”. Some of the crucial information and records you would ultimately want access to would be years of financial, statements, profit and loss statements, tax documents & records, pending & past lawsuits, detailed lists of all assets, detailed lists of clients & suppliers, research on all pertaining competition, internal employee relations & benefits documents, copyrights info, stock & investor documents, trademark info, patents info, all pertaining local & federal regulations & standards documents , possible environmental liabilities, past-present-future developments location close to physical business location which could possibly effect future success of business, etc, etc . The list goes on and on, your main goal is to research and uncover any past ,present, and possible future outcomes which can ultimately effect the prospective business from succeeding in the future. You are kind of like a detective, you want to find out any and all reasons why the business owner is selling their business, in retrospect, the business seller should also do research on the prospective business buyer.
Throughout the buying or selling a business process, there are usually different stages to a complete and thorough due diligence process and evaluation.
5- Business valuation- valuing the prospective business
During any business buying or selling venture , there is a process called valuing a business or business valuation, this is the process of approximately appraising or estimating the value of a business in its entirety and in a very specific manner. This is obviously another crucial key factor in any business buying or selling business deal and it is highly suggest that both the buyer and seller conduct their own due diligence and business valuation processes.
The business valuation process typically includes general rules of thumb and set business valuation formulas used to project and calculate accurate approximations currently and in the near future, all based on specific assumptions and criteria. The actual business valuation is comprised and calculated based off of your preliminary due diligence research processes , data , and reports. SO as you can see, properly conducting your due diligence and research processes thoroughly comes full circle in the business valuation. Keeping this in mind, the other party of the prospective deal is more than likely doing their own due diligence and seeking their own business valuation as well. The business valuation is never the actual price the business will be bought or sold for , but more so used as a gauge for both parties as a type of bargaining or leveraging tool.
So ultimately you need to conduct a thorough due diligence process in order to get an accurate business valuation, which in turn, will lead to a much more profitable business venture for both parties.
Stay tuned for part – The final 5 processes when buying or selling a business…
Learn how to buy and sell businesses with next to no money down and how to creatively finance a business buying or selling deal so that both parties win!!!
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