Don’t fool yourself into thinking that your attorney or CPA can make these decisions for you, although it is extremely important to find quality advice from professionals that specialize in business. It is incumbent upon you to take the time to learn what is involved and how to successfully navigate your way to your dream. Think of it this way: if you’re going to invest your savings to buy a business; shouldn’t you first invest the time to learn how to buy the right one?
It’s been proven over and over again that well-informed, properly prepared buyers acquire good businesses; the rest get sold lemons!
This is one decision you must get right the first time!
Organize Your Finances
You will definitely be required to produce a personal financial statement at some point. Get the details together right away. List all of your assets and liabilities and outline your net worth. Check your credit rating and rectify any erroneous information. You can obtain a free copy at www.freecreditreport.com.
Make Sure Your Family Is On Board
If you have a spouse/partner, be certain that you discuss this project together. It’s no use going down the road with this if your spouse is not on board. You both have to see the dream. Business ownership is a time-consuming commitment. The hours are long. You need their support. Keep them informed. Answer their questions. Get their input. Remember, even though this may be your business, they’re in it too.
Determine Your Investment Level
Determine with absolute certainty how much of your own cash you are prepared to invest. Forget any relatives who may have promised that they’ll “back you.” When the time comes to lay down the money, chances are they won’t be around.
Don’t bother looking at businesses that are unaffordable. Over 90% of small business purchases involve seller financing. Generally, this is 30% to 50% of the purchase price. If you have $100,000 to invest, don’t look at businesses that will sell for $2,000,000. It’s OK to dream, but be realistic.
Also, take the time to sit down with an SBA specialist to research all avenues for your financing. They provide all types of loans for entrepreneurs financing a business purchase. See www.sba.gov for further information.
Intermediaries - Do You Need One?
I am a firm believer in using a business broker to help you throughout the process. Keep in mind that the seller nearly always pays brokers and so their role from an advice point of view may be limited or even tainted. However, a good broker can, and will:
- provide you with access to a vast database of businesses for sale
- walk you through the valuation process
- provide you with comparable business valuations
- keep the deal moving along when obstacles are encountered
- be the bearer of bad news to the seller when necessary
- ensure all pertinent documents are assembled for the closing
Your Six Steps to Success
Commit to a deadline for buying a business (not just “looking” for one).
- Set aside time every day to work on this project.
- Organize your finances.
- Work on determining what type of business will thrive from your strengths and not suffer from your weaknesses.
- Seek professional advice from a qualified accountant and attorney.
- Unless you have a wealth of experience buying businesses, then educate yourself about this process. Learn as much as you can. When it comes to investing in your future, you can never know too much!
