How To Buy A Business At Great Value

When most people think of starting a business, they think of beginning from scratch. That process involves developing your own ideas and building the company from the ground up. Starting from scratch presents some distinct disadvantages, including the difficulty of building a customer base, marketing the new business, hiring employees and establishing cash flow…..all without a track record or reputation to go on.

If you have some cash that you’re willing to invest, buying a business at a great value is always an option. Most people are often times thinking of starting their own businesses and they overlook how beneficial it can to be purchase another successful business.

Here’s a guide on how to buy a business at great value:

1. Go Right To The Source

If you see a business listed for sale, it’s probably not a great deal. There are a lot of places to find businesses on the market. To get the best deals in anything…whether it’s a house, a boat, a car, or whatever else is to buy it before it gets taken to the market.

When a realtor gets the call on a house that’s absolutely rock bottom and the seller is really motivated, they’re going to call their friends first. They’re not going to put it publicly for sale on the listing services because it takes time and effort to do. Find people who are involved in the process of buying and selling businesses. Let them tell you what rumors they’re hearing through their sources and that is a good way to find potential businesses to make offers on.

2. Buying A Business Through A Broker

Brokers facilitate the buying and selling of e-commerce businesses. Perhaps the seller doesn’t have the time or the necessary experience to deal with potential buyers. As a result of this, he/she hires a broker to market the sale of the business and to manage prospective buyers.

The best part about using a broker is that they are extremely experienced. Brokers can also give you a lot of insightful information about the sellers that can help you value the business. Brokers will always price the business much higher than it should be. The reason for this is that they take a cut and they almost always convince the seller that they can get them top dollar. Brokers are a great place to buy businesses from especially if listings have been up for a while because you can often win with low ball offers.

3. Check The Inventory

Inventory is referring to all the products and goods that one business has. Often times, you’ll be surprised to find out how much people value their inventory at. If you’re looking to buy a business at a great value, you can potentially try acquiring a business without the inventory. By doing this, you’re taking over an established working organization with employees and a brand without paying for inventory at a high price.

Many sellers will include inventory in the sale of the business and use that as a tool to hike up the value of the company. Smart buyers will always isolate each part of the business and understand how much it’s costing them. From there, they can make more calculated decisions on the best way to acquire a company.

4. Have All Furniture, Fixtures, Equipment And Building Checked 

As I mentioned in the last section, there are many things that are included normally in the pricing of a business. Another popular thing is known as physical assets such as furniture, fixtures, equipment and other types of things. If you have your own furniture and equipment, you can always exclude these items from the sale price.

However, if you do want to buy the fixtures, equipment and furnitures from the existing seller, you must check the condition of all the items. Get receipts to see how much they paid, when they bought it and how well it’s working/running today. Often times, sellers will This includes all products, office equipment and assets of the business at the value during the time of purchase. However, over time the value drops significantly.

5. Think Outside The Box

One of the best ways to buy a business at a great value is to really see what the seller wants. Does the seller have any emotional attachment in the business? Is there anyway you can lower the value of the sale price significantly by keeping the seller somehow involved in the business? These are all great questions to ask yourself when making an offer.

If someone is looking to sell a business because they’re looking for a cash payout to use for something else, then money is going to be king. However, often times people also sell businesses because they want to retire or work less. In these types of unique situations, you can offer them a part-time job for giving you a discount or let them keep some equity while staying involved with basic things.

6. Verify Financial Statements For The Past Five Years

Evaluate the financial statements of the business you are purchasing very carefully, including all books and financial records while comparing them to their tax returns. This is especially important for determining the earning power of the business. If you are not experienced with this, hire an accountant or some sort of expert to guide you through this process.

For you to buy a business at a great value, you must know the numbers inside and out. After that, you have to value what the business is worth to you and how quickly you can recoup your initial investment. If you buy a business for $100,000 and you can get all your money back in 12 months, is that a great purchase? In my eyes, absolutely! However, if it takes longer than 2.5 years, I wouldn’t be as interested. Figuring out metrics like this makes it easy for you to know what you’re willing to pay.

Conclusion

Acquiring a business is hard when you don’t know what you’re doing. There are a lot of things you need to consider before acquiring a business especially if you want to buy one for a great price. In this post, I shared with you a guide on how to buy a business at great value.