Buying an established business from a multi-vendor marketplace is a big decision. Millions of firms retire early and plan to sell off their business. This number skyrockets with each passing year.
A business for sale makes it very easy for entrepreneurs to forego all those pain points that usually any new business owner would go through. The journey of buying a business for sale can also prove to be tiresome.
However, you may find that not all listed companies have portrayed accurate information. Some may be valued incorrectly or shown wrong financials, reviews, legal terms, operational conduct, agreeing on the selling value, etc.
The issues are widespread, but the saying goes right: “every business that does not fail will eventually change hands”. This means that selling a business may not be by choice always. The founder would not have further clarity to leverage, or it might be the death or some disability or multiple founders not getting along and many other reasons.
Statistics state that over 90% of the entrepreneurs who start searching for a business for sale end up going empty-handed. The reasons could be that they have never bought a company before, do not have the proper knowledge of the industry, or are unaware of the crucial checks before purchase, or it can even be due to biased advice.
As we wish that you are not one of those who leave the transaction mid-way, we shall discuss some intelligent buying tips to buy a business for sale.
1. Choosing the right niche
The first step to buying a business for sale is determining what kind of business the buyer wants. The buyer needs to list his needs, passion, skill sets, interest areas, and experience they hold in various domains. A happy state is buying a small business that splices with what you already know, wants, or like.
For Instance, someone from a tech background may like to purchase business-making software’s for tech companies. Or maybe you are interested in buying a business from a known person in your network as you have seen them grow and trust their processes. But again, do not narrow down your choices here. Always investigate the size of the business, entity type, number of employees, the company’s structure and process, and its geographic location. Solo preneurs generally follow this trend to buy businesses in densely populated areas.
2. Choosing the right multi-vendor marketplace
Post deciding the niche and looking into various aspects of the business to buy, choosing the right marketplace is crucial. Using our favorite search engine Google will not be enough!
One can go through the classified ads in newspapers or craigslist ads, through networking with your contacts, use digital platforms that show all listings, visit different meetups and conferences, and lastly, get in touch with the brokers.
While searching for listings, keeping certain things in mind, such as the location, disclosing the negotiating price, bringing awareness of the due diligence process or the loan process in the bank, paperwork with the seller, etc. A business broker or a consultant can help you evaluate all the possible options to identify the right business for you. Think of all the worst-case scenarios and discuss them with a person connected in this industry before leaping.
Also, know the reason for the sale. The buyer should focus on the reasons such as Founder issues, capital issues or location problems, inability to reach the competition due to lack of right mentors and advisors, family problems, financial matters, operations handling issues, inventory management issues, and many more.
The buyer must know the existing business’s challenges, failures, and future opportunities for sale. Another safe and reliable approach can be to ask people from the same industry or neighborhood as they would always give unbiased opinions.
3. Calculating the Value of the business
After finalizing the right business, it’s time to calculate the business valuation. The buyer needs to know how much the company is worth and whether it comes to a near figure of what the seller is stating. In this process, the buyer will come across many sellers who may overprice the business.
In this scenario, either the buyer can do it themselves or take help from a professional for the preliminary screening. The buyer or the professional must prioritize the profitability by looking at its P&L statement, revenues, cash flow, accounts receivables, working capital, and expenses.
Business evaluation is generally done through the EBITDA process. As each type of business is handled differently, every company has a different method to calculate its business value.
4. Negotiating the Price
Once the above step is completed, where the buyer knows the business’s value, it’s time to move forward with the business acquisition process.
“During a negotiation, it would be wise not to take anything personally. If you leave personalities out of it, you will be able to see opportunities more objectively.”
The negotiation price can be either close to the seller’s offer or maybe a realistic figure from the valuation amount. Discussing with the seller about the loopholes or futuristic opportunities can bring a good insight into the negotiation process. The buyer must decide if they want to purchase the assets, understand any hidden costs, or required big-time investment, stock sale, future threats etc.
Then comes giving the Letter of Intent (LOI) which mentions the business structure and terms and conditions. Letter of Intent is generally a non-binding process confirming to the seller your readiness to commit to moving forward in the buying process.
5. The Due Diligence process
Thus it is a critical step in the buyer’s journey. As soon as the buyer and the seller sign the LOI, the buyer can have more comprehensive access to the business details. The buyer will get access to the financial and legal information needed to close the deal. Certain documents need to be reviewed before the discount is closed, such as incorporation certificates, licenses, patents, ITRs, income statements, balance sheets, asset purchase bills, business debts, supplier contracts, property rents (if any), employee information, marketing collaterals, social media handles and legal record.
To Sum up!
Remember that the market is constantly flooded with ample buyers. Research says that there are generally 15 buyers for every business that is on sale online. Though the above steps seem time taking and scary, do not forget to enjoy the process of buying the right company. Canada’s multi-vendor marketplace can help reduce your hassles and make your initial entrepreneurial journey easy by showing appropriate listings.
Read more: How to Run a Successful Business Online