Thinking of turning your dream of starting a business into reality? You're in good company. According to a Yahoo Inc. poll, two-thirds of Americans have entrepreneurial aspirations for reasons including the ability to do what they love and so they can be their own boss.
Realizing the dream of starting a business, though, can be challenging without the right know-how. Most small business buyers have never purchased a business before, and it can be difficult to know where to start. Going into business for yourself will undoubtedly require large amounts of commitment and drive to overcome fear of the unknown, but keeping four critical factors in mind can help ensure success when investing time and money into a small business.
Use Online Resources
The easiest way to learn about your options is to research what's available on an online business marketplace. Newspaper classifieds include a limited amount of the businesses for sale in one immediate area, while an online marketplace is more expansive. This kind of site offers a database full of available businesses in any area, which means that you can search locally or anywhere in the country if you are considering a change in location.
Online marketplaces also offer a number of a number of tools buyers can use to find the perfect business. A "valuation report" can provide estimates of fair selling and buying prices for a business, based on comparable businesses and chosen geographic area, gross income and cash flow ranges. For example, if someone were thinking of buying a bagel shop, they'd be able to run a report on the average costs of buying that particular kind of establishment in a given area. In addition, site users can access a "buyer's workbook" full of documents with useful tips to make sure they perform all the right steps throughout the purchasing process.
Alternatively, buyers seeking the help of a business broker instead of selling independently can search through a database of thousands of brokers.
Be Savvy in Dealing with Sellers
Once you've located a business that interests you, contact the business owner or the representing broker – whoever placed the ad. Make sure the ad has answered your biggest questions about the business, such as initial asking price, rent costs, length of lease, number of employees and past performance. When asking about price, it is most important to focus on how much cash the seller requires for a down payment. You'll naturally be curious about the asking price and how much money you can potentially make – which is certainly important - but determining the down payment amount first is the key in knowing whether or not you can or want to continue the buying process.
Make a list of any questions not answered, and be sure to get all the information you need from the seller. For example, it is a good idea to ask the reason why the business is being sold. Also, be sure to ask the seller to provide documentation for any numbers provided.
If the business seems like a good fit after receiving the answers, ask to view the business firsthand. If possible, visit the business without identifying yourself as a potential buyer to make sure you are satisfied with its appearance and location.
Don't be afraid to negotiate. Businesses generally sell for up to 25 percent of the seller's initial asking price, so there's no need to settle for numbers presented to you at the start without question.
Follow Through with Due Diligence
Once you've thoroughly communicated with a seller and all the information checks out, it can be tempting to want to speed up the process and sign a contract as quickly as possible. While the prospect of finally owning a business is exciting, there is still a need to work out contingencies. This process is known as "due diligence."
Although the numbers might sound good to you, it would be a good idea to bring in outside professionals to validate them. A lawyer can assist with all the necessary paperwork and notice any discrepancies in the information that you might have overlooked. An accountant can review the figures the seller has provided and make sure they make sense.
Don't be alarmed by any minor discrepancies – they can usually be resolved. Outside professionals will be likely to advise you to shy away from the deal unless everything seems perfect. Advising to buy a business puts a great deal of responsibility on them, which they probably won't want. As long as you get them to check out the numbers and paperwork and everything still feels right, it is safe to go ahead with the deal.
Before signing, though, it is wise to have the seller agree to advise you at no charge for a certain amount of time (30 days in person and perhaps another 30 days over the phone is a fair amount). This will ensure that the previous owner will teach you what you need to know to run the business. If you require additional consultation, you might need to offer the seller a fee for his or her time and advice.
Embrace Lifestyle Change
Now that you've got the business, how do you make it work?
First-time small business owners will likely find the job unlike anything they've ever done. Running a small business is rarely – if ever – a nine-to-five commitment. Responsibilities are likely to extend to nights and weekends. At the same time, small business owners often discover a new sense of freedom and purpose. They won't have to deal with a boss, their schedules – while less predictable – can be more flexible and a great sense of pride can come from seeing the business through to greatness.
Understanding and expecting the changes, perks and challenges buying a business will present can have a significant impact on its performance. It's impossible to be prepared for everything, but going into a venture having adequately thought out the process – including making use of valuable online tools and being proactive in dealing with sellers – can be the key in turning your new business into a dream come true.
Next Step: Get the Guide to Buying a Small Business
This free, 100-page digital book provides step-by-step instructions for buyers.