Are you considering purchasing a business but unsure of where to start? Buying a business means acquiring an existing one, taking a stake in it or purchasing a whole business. There are many more ways to own an existing business but understanding the industry, the reason for selling, and the strategy to pick up the business is essential. We’ll walk you through the key considerations, from valuation methods to managing a smooth transition, helping you make an informed decision
Here’s what you are going to learn
- How can you find a business that is being sold?
- Why is the business being sold?
- What type of business are you looking to purchase?
- What does the business valuation look like?
- How will you manage the transition?
- What is your plan for growing the business post-acquisition?
How can you find businesses that are being sold?
You can easily find businesses on online platforms, offline events and even in some cases direct outreach can give a good result. There are popular online platforms like BizBuySell, BusinessesForSale.com, and BusinessBroker.net, offline can be Business Broker and Networking Events and direct outreach when you have a specific industry in mind. There are opportunities on every side where you see but important is what you are passionate about because you can make pennies to millions if make an effort in the right direction.
Why is the business being sold?
Investigating the seller’s motivations can be a key to a successful purchase or can help you to consider the better option because it’s not necessary for someone’s loss may impact your decision, but knowing how their business is going can help to understand unit economics on that strategy.
Identifying potential red flags on why the business is struggling can be declining market or operational issues, but not limited to these, so check out how you can improve the business presence, performance, and revenue with your expertise and give you the leverage to lower the risk of pitfall and setback.
What type of business are you looking to buy?
Explore the industry (franchise, online, retail, etc.).
The preferences and types of businesses you want to buy are many, like franchises, online, and retail, but you must know what the pros and cons are.
- Franchise: The business has provided its full assistance in the set-up of the full equipment, team, and training. Many types of franchise models are provided and can vary according to the business from which you are purchasing it.
But the most popular 3 are:
- Business Format Model: Using the proven format (how they operate) of that business they work on and generate revenue. The business training and support to franchises owned by entrepreneurs to increase operation efficiency and sales revenue. But mostly the entrepreneur has put effort into pushing the business.
- Product Distribution Model: In this model, the entrepreneur owns a franchise of businesses to distribute their product; the revenue depends on the distribution and sale of the product. In this, the business provides products to the distributor. But after that whole product sales under the entrepreneur from supply to completing the demand of the market.
- Management Model: In this franchise model, you own the whole business franchise, where you get everything from equipment, staff, and office; the only thing you must do is manage the staff and day-to-day operations.
2. Online: In this system, you buy products and sell them, or you are a manufacturer who directly sells on the platforms. It’s e-commerce, basically where you sell the product virtually and the buyer buys your listed product on the platforms. Some of the popular ones are Amazon, Shopify (of course you know), etc. Whether some of the platforms offer packaging services but some are only available for showcasing the product, all other work (packing, delivery) should be done by you. So, it’s crucial to know what platform you are using.
3. Retail: In this system, you sell products of many companies in your store or shop; there are margins on that product that generate revenue. Understanding your own expertise and interests in this is crucial because it might exhaust you to solving the problem and understanding the demand. In the field, putting energy into increasing sales, managing staff, understanding the market, and staying ahead of competitors is important.
What does the business valuation look like?
Understanding valuation methods is crucial because what business is worth and from where the value is coming are the things you might be interested in, like how much the asset is worth because it was in use before them, whether you can sustain the cash flow coming right now, or whether the value is matching the current market condition. Here valuation you should know.
- Asset-Based: In this method, the business valuation is based on the physical assets like equipment, inventory, or property values, which are considered by subtracting them from liabilities and debts. It’s also relevant for those businesses that are on their break-even
- Earnings-Based: In this method, the business valuation is based on profits that the business creates from the revenue or the cash flow that comes from selling their product or services. It is most relevant to big enterprises or service-based businesses that have sustainable cash flow.
- Market Value: In this method, the business valuation is based on market rates and comparisons in the ongoing market to evaluate the current business value. It is most relevant to retail and real estate businesses.
Why you should hire a professional business appraiser
A business appraiser provides an “opinion for the value of the business” with their point of view; to measure its worth, they consider various factors such as assets, liabilities, revenue, and market conditions. They put all their expertise into delivering an objective valuation that can be considered when you are making any decision in several scenarios, including sales, acquisitions, and strategic planning.
Key responsibilities that they provide
- Valuation Assessment: Doing an overall buying exercise in which they do all market research, asset value analysis, and current business analysis.
- Detailed Reporting: Based on valuation assessment, they provide detailed reporting to consider every factor for better decision-making.
- Consultation: They provide deep clarification based on data for any confusion that might arise in your mind.
How will you manage the transition?
Creating a plan with the current owner gives you an understanding of the process of how things work and the insight of the staff, supplier, and customer behaviour.
5 things to ask when you are doing a catch-up with the business seller.
- How can we ensure a smooth transition?
- How they maintain customer and employee relationships
- Get institutional knowledge to leverage
- How to avoid operational disruptions
- Clarification on post-sale support engaging with key staff, suppliers, and customers
What is your plan for growing the business post-acquisition?
Setting short-term and long-term growth strategies can be your plan to grow the business with a flow-on operation, process, and sales basis. Give your new team a scent of how the business is going to work in the upcoming days and years. Engaging with the team, vendor, and customer to know problems and take their suggestions for improvement can be helpful in your strategy. To implement operational changes with innovation, it is necessary to take suggestions because this gives an idea of what should be done and what is not.
Conclusion
Purchasing a business involves careful evaluation of its type, reasons for sale, and valuation methods. Engaging professionals for appraisals and legal advice, along with a solid transition and growth plan, is essential for ensuring a smooth acquisition and long-term success.
