Why Buying a Business Might Be Your Best Move Yet

Starting a business from scratch can be risky since you’re building everything from the ground up with no guarantee that customers will show up. Because of this, entrepreneurs and business owners prefer to buy a company instead of starting from zero. When you’re purchasing a business, you’re stepping into something that already has customers, proven revenue, systems, trained employees, and a track record. This reduces the risk as compared to starting a new business from the start.

What This Guide Will Help You Do

Understanding the steps to buying a business is crucial for success specially if you’re buying a business for the first time or looking to expand your business. This blog breaks down the essential steps to buying a business into ten clear, actionable steps. We’ve consulted with industry experts and business brokers to give you the insider knowledge you need when buying a business and help you avoid costly mistakes. Let’s dive in.

Step 1: Figure Out What You’re Really Looking For (First of the Key Steps to Buying a Business)

What Type of Business Fits Your Lifestyle?

The first step is the most important step, and you really need to be honest with yourself. This is because if you don’t get this right, the business will eventually collapse. At this stage, ask yourself if you want a business that operates itself or want to commit yourself to working daily? It is important that you figure out what you’re passionate about. After that you figure out whether you’re considering how to buy an existing business or even exploring how to buy an existing franchise, think about your skills, interests, and lifestyle goals. Purchasing a business that doesn’t align with your lifestyle can create issues in the long-run.

How Much Can You Actually Afford?

This isn’t just about the purchase price when buying a business. You’ll also require working capital, legal fees, and a financial cushion when following the steps to buying a business properly. A good rule of thumb is to have at least six months of operating expenses kept other than your down payment.  

Step 2: Get Your Finances in Order

Check Your Credit and Savings

Moneylenders often look at your bank credit, so make sure to fix any errors before going to them. A proactive approach would be to spend a few months improving it before you start making offers. You also need to consider the amount for a down payment. Business acquisition usually requires 10-20% downpayments for their businesses.

Explore Funding Options (SBA Loans, Investors, and More)

As a businessman or an entrepreneur, you can go for multiple funding options such as SBA loans, bank loans, seller financing, and private investors. Small Business Administration (SBA) loans are specifically designed for purchasing a business as they have better terms as compared to conventional loan systems. You can explore each option and decide what works for you situation when you buy a company.

Step 3: Start Your Search the Smart Way (Critical Steps to Buying a Business)

Where to Find Businesses for Sale

One can find businesses by visiting online marketplaces, business-for-sale websites, working with a broker like Flip Any Business, and even LinkedIn to find businesses that are up for sale. Working with a broker is especially helpful because they can match you with businesses that fit your criteria. They often have access to vetted listings that aren’t publicly available and advertised.

Red Flags to Watch Out

Ever happened that you look at a deal and it feels like it’s too good to be true? We think it probably is. Sellers who don’t share their basic financial information, are always rushing the process, or are unable to explain where they’re earning from are clearly red flags, and you need to avoid them. Smart steps to buying a business include knowing when to walk away.

Step 4: Review the Financials Like a Pro

Understanding Profit and Loss Statements

The profit and loss statement shows revenue, expenses, and profit of a company over time. You don’t need to be an expert, just look at the last three years to see the profit and loss trend of that company. Check whether the revenue is growing or shrinking, and are expenses under control or not. The main point of understanding profit and loss statements is to ensure consistency when purchasing a business.

What “Cash Flow” Really Means for You

Understanding cash flow is one of the most important steps to buying a business. Sometimes a company might look profitable on paper but its cash flow is negative. Cash flow tells you how much money is left after expenses. As a business owner you would want a business that has positive cash flow.

Step 5: Do Your Homework (Due Diligence)

What You Need to Investigate Before You Commit

Due diligence means verifying whatever the seller claims so it is your chance to investigate when purchasing a business. You can investigate about seller’s financials, contracts, leases, licenses, literally everything about the business. Skipping this step is one of the biggest mistakes you can make as a buyer when purchasing a business.

Questions to Ask Before Buying a Business

Some necessary questions to ask before buying a business can include:

• Why is the owner selling?
• What are the biggest risks?
• What does a typical workweek look like?
• What happens if key customers leave?

These questions to ask before buying a business reveal a lot about what you’re really purchasing and getting yourself into.

Step 6: Get the Right Team on Your Side

Why You Need a Broker, Lawyer, and Accountant

Following the proper steps to buying a business means having the right team in place. Buying a business involves complex contracts, tax implications, and negotiations. As discussed earlier in this blog, business broker helps you find the right opportunity and guides you through the steps to buying a business. A lawyer reviews contracts and protects your interests. An accountant analyzes all financials and comes up with a deal to minimize taxes. These professionals help you with reducing the risk of buying a wrong company.

How Flip Any Business Can Guide You Through the Process

At Flip Any Business, we specialize in connecting buyers with the right opportunities and supporting them through every stage of purchasing a business. We’ve helped hundreds of people successfully buy a company, and we simplify the process for you.

Step 7: Make an Offer That Makes Sense

How to Determine a Fair Price

Most businesses sell for a multiple of their earnings, typically between 2-4 times the seller’s discretionary earnings (SDE). Industry, growth potential, and how hands-on the business requires all affect this multiple. Your broker and accountant can help you determine what’s fair when you buy a company based on comparable sales.

Negotiation Tips That Actually Work

When you plan on buying a business, don’t start with your highest option. You should negotiate with a reasonable start. Rely on data and be respectful but firm. You can add your terms in agreement like non-compete agreements, if the seller isn’t agreeing on your demanded price.

Step 8: Finalize Your Financing

Securing Your Loan or Investment

Once your offer is accepted, you’ll formally apply for financing. This involves submitting business financials, your personal financial information, and a business plan explaining how you’ll run the operation. Be prepared for this stage of purchasing a business to take several weeks.

What Lenders Want to See

Lenders want to know you can repay the loan when you buy a company. They’ll look at the business’s cash flow, your experience and credit history, and your down payment. The stronger your package, the better your terms. Broker and accountant can make the process a lot smoother.

Step 9: Close the Deal (The Legal Stuff)

What Happens During Closing

Closing is when money and ownership officially change hands in the business acquisition. You’ll sign a pile of documents, including the purchase agreement, promissory notes, non-compete agreements, and transfer documents. Make sure you understand every document before signing when buying a business.

Documents You’ll Sign and Why They Matter

The asset purchase agreement details exactly what you’re buying. The bill of sale transfers ownership. Promissory notes outline your payment obligations. Non-compete clauses prevent the seller from opening a competing business down the street. It is your lawyer’s responsibility to review everything to ensure your interests are protected throughout the process of purchasing a business.

Step 10: Plan Your Transition 

Taking Over Operations Smoothly

One of the final steps to buying a business is the transition of taking over the operations. It is a very critical period when you buy a company. A good transition plan includes taking training from the seller, introductions to staff and customers, and transparent communication. It is important that as a new business owner you take notes, ask questions as much as you can, and try not to change everything at once.

Setting Yourself Up for Success as the New Owner

Once you’re done buying a business, your next step should be focusing on learning, building relationships, and keeping the company stable. After working on these and really understanding the company, make improvements in the company that are openly communicated with employees, customers, and track your numbers closely. Hopefully, when you take these steps, your company will move towards long-term success.

You’re Ready to Take the Leap

Buying a business is complex, and it requires effort and capital, but it is one of the most rewarding decisions you can make as a business owner. We assure you that these steps to buying a business will take you towards success, and they’ll help you with the process. Understanding how to buy an existing business has a significant advantage over those starting from scratch.

How Flip Any Business Can Help You Every Step of the Way

At Flip Any Business, we’ve made it our mission to simplify business acquisition. From finding the perfect opportunity to closing the deal and beyond, we’re here to guide you through every phase of purchasing a business. Ready to explore what’s available? Let’s talk about making your business ownership dreams a reality.

Frequently Asked Questions (FAQs)