Thinking of Buying a Business?
Thinking of Buying a Business?
Here's Your Essential Guide.
So, you're considering skipping the startup grind and purchasing a business instead?
Smart move!
👉 Did you know that acquiring an existing business has a 70% success rate, compared to only 20% for startups?
Let's dive into how to make it happen.
Why Buy a Business?
The stats don't lie: buying an established business significantly reduces the risk of starting a business from scratch.
Think about it—you get immediate cash flow, built-in brand recognition (which can take years to build), an existing customer base, and proven systems and staff.
Why work 80 hours a week, struggling to get a business off the ground, when you can take a shortcut?
Step 1: Get Clear on Your Goals
Define what success looks like for you.
What's your budget?
How hands-on do you want to be?
What industry are you passionate about?
Are you looking for fast growth or steady cash flow?
👉 Remember, almost 50% of businesses fail due to poor planning.
Step 2: Understand Business Valuation
Business valuation can be tricky. Oftentimes it is more art than science, where you are balancing risk vs opportunity.
There are three ways business value is estimated:
Asset Value
Market Value
Income Value
Asset value is used when a business has declining revenue. It is the fair market value of the tangible assets of the business. Aka. Liquidation Value.
Market value is used for stable or slow-growing businesses. You compare your business to similar businesses that have already sold and apply the same multipliers to see what a likely sale price would be for you.
Income value is for rapidly growing businesses. Like Market value, you apply a multiplier, but the multiplier is applied to a discounted future cash flow—think tech startups.
Don't go through it alone!
Work with an experienced advisor.
Step 3: Due Diligence is Key
This is where you roll up your sleeves and dig deep. Thoroughly review financials, legal & compliance, operations, and market & competition.
❗️ A whopping 20% of business sales fall through during due diligence, so be meticulous.
Here is a quick hit-list of items you will need for your Due Diligence:
Trailing 12-month Profit and Loss Statement (updated each month you are working on the deal)
Trailing 12-month Balance Sheet (updated each month you are working on the deal)
Last 3-5 Calendar Year Profit and Loss Statements
Last 3-5 Calendar Year Balance Sheets
Last 3-5 Business Tax Returns
Operational Documentation
Lease Agreement or Deed
Customer/Client List
Employee List
Vendor List
Asset List
Step 4: Structure the Deal
Most deals are either asset sales or stock sales.
Negotiation points include purchase price, down payment vs. seller financing, non-compete clauses, and training & transition periods. Get a good lawyer to help you navigate this.
Step 5: Plan for a Smooth Transition
A smooth transition is crucial for long-term success. Your 90-day post-close plan should include clear communication, relationship-building, process evaluations, and time with the previous owner.
Final Thoughts
Buying a business can fast-track your entrepreneurial dreams, but it requires careful planning and execution. Ask the right questions, surround yourself with trusted advisors, and approach the process with both strategy and patience. Let us help you.
Ready to explore where to go from here? Let’s talk. Your next chapter could be closer than you think.
All the best,
RightExit Team
(844)506-EXIT [3948]
