The smell of brewing coffee and the idle chatter of customers as they sip their carefully crafted lattes and browse on their computers. The owner looks on as she wipes down the counter and watches a customer browse the bookshelves for a murder mystery novel. Her dream of owning her own business finally coming to fruition.
The adage that business owners are the backbone of the American economy will long be a part of our society and drives the dream of business ownership. But before a buyer can even begin fantasizing about running their dream bookshop that serves artisan lattes or expanding their business to a second or even third location, there are a list of factors to consider. Buying an established business, regardless of whether a buyer is new or experienced in purchasing a business, can be a daunting task. The first consideration for a buyer would be picking the right business to purchase. In order to do that, Buyers need to think about what kind of business they want to purchase and consider retaining the help of a business broker and attorney.
Finding a Business Broker
Not all sellers have a huge “For Sale” sign in the window of their business, for the most part sellers are using business brokers to place ads or contact potential buyers. Buyers typically do not use business brokers, unless they are planning to purchase in a niche market. But having a business broker could be helpful to you because brokers can help you zero in on a particular set of businesses that you might be interested in purchasing. Business brokers are like real estate brokers, in which they help move along the purchase process as they provide advice, guidance, and other resources to help you understand the transaction.
Picking a business broker is like interviewing a new job candidate. You should look into the business broker’s experience, training, rates, and areas of expertise. If the broker has an online presence, you should do some research on the broker’s professional websites. If you are considering a business transaction that involves the purchase of real estate, the business broker must have a real estate license. You should also consider looking for brokers who are accredited with either the Accredited Business Intermediary (ABI) with the American Business Brokers Association or the Certified Business Intermediary (CBI), which is given by the International Business Brokers Association and certifies that the business broker has met the highest standards of professional development. Generally, sellers usually pay the business broker’s fees, but you should be aware of any potential fees that you would be responsible for when retaining your own business broker.
Choosing the right business to buy
An established business has a lot of advantages versus building a business from the ground up. Purchasing an established business helps you avoid the start-up costs usually associated with building a brand-new business, such as estimating the potential revenue and expenses of a new business. Not to say that you will not have to do the same with an established business, but performing due diligence will give you a base as to the economic well-being of the business they are purchasing. Due diligence allows you to see where a business stands, and you can hone in on potential issues that would inhibit growth within a business. An established business will also have existing vendors, customer base, employees, inventory and equipment, and brand identity, all of which helps you avoid the headache of building these relationships from the ground up.
When buying a restaurant, a buyer needs to think about more than what kinds of foods they would serve. One of the biggest factors to consider is what kind of capital you are willing to expend to purchase the business. This does not mean solely the purchase price, although you need to have an idea about how much you are willing to spend on purchasing, but also investment capital into the business. Some businesses need more investment than others, whether that means updating equipment or refurbishing office furniture, it is important for you to think about what kind of investment you want to put into the business. Other factors you must consider when choosing a business to purchase includes location, how the business fits into your long-term goals, considering your personal interests, and your experience in a business. In the end, it’s up to you to choose what factors matter the most to you and thinking about these factors helps you build a business model that fits you. Having an established plan helps you focus your long-term goals, but also be realistic about what kinds of businesses you should consider purchasing.
Working with a Business Broker
Once you choose a business broker, the you will need to be upfront about what kind of business you want to purchase and what kind of capital you are willing to expend to purchase the business. This saves time for both you and the broker because the broker has a clear idea about the price range you are willing to stay in. By putting together a business plan to present to the broker, you can give the broker a better idea about the kind of business you want to buy. You may be more interested in a business that is in a great location, but needs a bit of work, and you are willing to buy the property at a discount because of the capital investment needed to re-establish the business. On the other hand, you may want to purchase well-established business at a premium. If you are looking to purchase in a niche industry, a business broker can prescreen businesses for you to find the right fit for you.
Business brokers can perform many duties, including assisting buyers in obtaining financing, introducing prospective buyers to businesses, facilitating meetings between buyers and sellers, and assisting with negotiations between buyers and sellers. Business brokers also price the business with a professional valuation and facilitate due diligence investigations. For the most part, the business broker will act as a buffer between buyers and sellers and help resolve differences between buyers and sellers during the transactions, especially when the stakes (or tensions) are high.