Buying into a Business: Everything You Need to Know
Buying into a business can be an exciting and rewarding experience. In many cases, buying into a business can be a lot less risky than starting up your own.3 min read
Buying into a business can be an exciting and rewarding experience. In many cases, buying into a business can be a lot less risky than starting up your own. The business is already operating and can provide many benefits, including established:
- Cash flow
- Customer base
- Employees familiar with the business
How to Buy Into a Business
To ensure that you buy into the right business, the first step is choosing the right business type for your needs. To start, you will want to look at the industries you have some familiarity with and have an idea of what you are looking for. You will likewise want to choose a business that will match well with your skill set and knowledge. You will also want to be sure to choose a business that is the right size and is in a preferable geographic location with a strong labor pool and customer base.
When looking for a business to buy, you can look under your newspaper's classified section and look for listings for "business opportunities" and "businesses for sale." If you are looking for something specific, consider posting an ad as a "want to buy." You can also consider talking to business owners that are in the industry you are interested in, even if their company is currently not for sale. They may want to listen to your offer, or may at least be able to point you in the direction of some possible prospects.
Another option is to hire a broker. A broker will connect buyers with sellers, as well as help with price negotiation in exchange for 5 to 10 percent of the final purchase price. You might consider waiting until you are close to a final negotiation to hire a broker if you would like to save some money. Brokers can provide a variety of types of assistance when it comes to purchasing a business. A broker can:
- Prescreen businesses for you by helping assess good and bad risks and filtering through businesses to find ones that will meet your needs.
- Pinpoint your interests, knowledge, and skills to help choose businesses that will be the best fit for you.
- Help you to negotiate the best price to make sure both parties achieve their goals, but also address any problems that might arise.
- Assist you in completing all of the proper paperwork. Brokers will know the regulations and laws for everything from licensing, to permits, to financing and escrow. A broker will know how to reduce the amount of red tape to ensure that the deal goes through as quickly as possible.
Taking a Closer Look
Whether you employ a broker to help you close your deal or decide to handle it yourself, you will need to put together a team. Including a banker, an accountant, and an attorney to help you take a closer look at the company, will ensure that you are making a sound investment. This team will be the group that will work together to perform your due diligence before you buy into the company. During your due diligence, you will answer some of the basic questions you will need to know about the business.
You will find out:
- Why was the business put up for sale?
- What is the current perception of the business and what is its outlook for the future?
- Is the business profitable?
- Are the raw materials needed in high supply?
- How have the company's products and services changed over time?
- What type of reputation does the business have with customers and suppliers?
Once you have performed your due diligence, you will know exactly what you are buying and who you have been buying it from.
If you need help with buying into a business, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.