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Buying A Business - A Process You should Learn Thoroughly

Updated on September 17, 2014

If you plan to invest into buying a business, you are sure to undergo a complicated process, particularly if you are a first-timer. There are variety of factors to consider and when you arrive at a stage, when you are about to sign a deal, how would you know what type of issues to settle? The checklist of factors to take into account may appear overwhelming, but as soon as you get an idea about what to look for, it can be remarkably easier to find the way through the ins and outs of the world of business and make a correct investment.

Buying a business is commonly termed as a “(buying) process”. There are a considerable number of steps in this process. With so much at stake, you are bound to prepare yourself perfectly, make yourself educated for this journey and go ahead through proper course of events so as to ensure that you go on taking the right decisions during the entire process.

Industry statistics say that 90% of people who start searching to buy a business never end up in a transaction. A major reason for this miserable statistics perhaps is that most of these people just don’t understand how much is involved.

Part of the complexity is – most are buying for the first time. When they are forced to make crucial decisions one by one, they are overwhelmed and perturbed, and so, abandon the venture soon. If you don’t want to fall in this category, you will have to change your approach – “There is always to do it better – find it!” as said once by Thomas Alva Edison.

It can be an Endless Search

Don’t take it for granted that it will finish soon. It can be an endless process. On an average, buyers do it for 18 months and then leave it. However, in any given situation, it can be finished within six months. If you are doing it for full time, you will need to be disciplined regarding your searching efforts. If you have set a goal of buying a business for this year, engage yourself for at least ten hours of every week dedicated to this task.

Start from the Right Point

It has been estimated that 700 out of 1000 people who search for buying a business do it through the internet. If you take a look at websites selling businesses, you will be surprised by the incredible number of businesses available. Actually there are hundreds of thousands of businesses out there for sale. Therefore it’s quite easy that the task can become an unending search rather than a buying process.

Rather than keeping on browsing through the endless lists of businesses available for sale and trying to think upon which, if any, would be right for you, you should first figure out what kind of business is correct for you and then start searching accordingly.

Take a look at yourself as a critic. Understand your strengths, weaknesses, choices and dislikes. Don’t try to take the bearing of somebody you are not. Most people don’t understand what can suit them, but that’s okay. If this is your dilemma, it is best sometimes to rule out all the businesses you don’t desire.

Further, think about your funds and focus entirely upon those that can be really apt for investment. With just these two criteria, you can dig out your choices of the enormous crust of search results.

Get Educated About the Process

Unless you have a vast experience of buying businesses, it is difficult for you to acquire the required information and knowledge to make a decision. You will be facing a wave of decisions all through this process. Having knowledge and information can bring a change into your mentality to enable you to buy the right business rather than a wrong one.

Don’t live in a fool’s paradise that your CPA or attorney can take the right decision for you, albeit it is utterly necessary to hire high quality professionals who specialize in business transactions of the kind and size of the one you are considering. It is obligatory for you to take the time to understand what is involved and how to find your way successfully to your dream. Think – if you will be investing your savings to buy a business, isn’t it necessary that you first invest time to learn about buying the right one?

It has been established again and again that buyers properly prepared with knowledge and information acquire excellent businesses, others kept selling lemons!

Remember that this is a decision that you should take right the first time!

Organize Your Funds

At some or the other stage you will surely need to produce a financial statement. So, collect the details at once. Enlist all your liabilities and assets, and summarize your net worth. Find out your credit rating and correct flawed details if any.

Think Practically About Your Investment Level

While considering about your investment ability, don’t rely upon relatives or friends that promised to support you. Think about the investment level practically and decide upon how much cash “you” can invest.

Don’t take trouble to consider businesses that are unaffordable. More than 80% of buying of small businesses involve financing by sellers. In general, this is 3/10th to half of the purchase cost. If you are sure that you own $100,000 that you can invest, don’t consider businesses selling for $200,000. To dream is alright, but practicality will save you.

Mediators – Are they Important?

Yes, they are! A good broker will:

  • Provide you a huge database of businesses for sale
  • Take you through the evaluation process
  • Prevent the process from coming to a halt if obstacles appear
  • See to it that all required documents are brought together for the closing
  • Talk on your behalf about your problems to the seller

If you commit yourself that you will buy a business within a certain period and won’t just keep looking for one, work every day for a designated time on the project, keep learning as much as you can, organize your funds, decide exactly what kind of business is right for you and get professional consultation, you will be successful in buying the right business which will thrive from your strengths and won’t fail due to your weaknesses.

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    • dhimanreena profile image

      Reena Dhiman 2 years ago

      I would like to congratulate you on writing such an extensive guide, which clearly details different steps of buying a business.

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