The business-for-sale marketplace can seem daunting for first-time buyers. With so many factors to consider, from valuation and financing to due diligence and negotiations, it’s crucial to have a solid roadmap before diving in. This guide will outline the critical steps for beginners purchasing an established business.
Understanding the Business For Sale Marketplace
Before getting into the process of buying a business, it’s helpful to understand the landscape. The company-for-sale marketplace includes companies listed for sale by the owner directly, through a business broker, or on multiple listing platforms. Listings range from small “mom-and-pop” shops to larger companies with multiple locations and significant revenues.
The pool of potential buyers includes individual entrepreneurs, existing business owners looking to expand, private equity firms, and more. The marketplace is highly competitive, so buyers must understand their financing options, work with experienced advisors, and move quickly when a promising opportunity arises.
Step 1: Get Clear on Your Goals
First, define what you want to accomplish by buying an established business. Some key questions to ask yourself include:
- Why are you interested in purchasing a business rather than starting your own?
- What industry or niche interests you?
- Are you seeking a hands-on small business or a more scalable, turnkey operation?
- What is your target revenue range?
- Do you want a brick-and-mortar location or primarily online/service-based?
- What is your time horizon for ownership?
Clear goals will help focus your search and evaluate if a potential business is the right fit. Be honest about your experience level, skills, and lifestyle preferences.
Step 2: Determine Your Financing Options
Having the capital not just to purchase but also to operate the business is critical. Some financing options to consider include:
Personal Savings & Investments
Tapping into your reserves allows more control but may limit your options.
Bank & SBA Loans
Financing through a lender provides leverage but requires good credit and collateral. SBA-backed loans can offer favourable terms.
Rollovers & Self-Directed IRAs
Using funds from a 401K or IRA provides tax-advantaged financing.
Private Investors & Partners
Bringing on equity partners spreads risk and provides expertise.
Some sellers may be willing to finance a portion.
Assessing financing early allows you to move forward when you find the right opportunity confidently.
Step 3: Build Your Advisory Team
A robust advisory team provides the experience and skills that first-time buyers need to gain. Be sure to partner with
- A business broker: They have access to off-market listings and can represent your interests.
- An attorney Reviews contracts and paperwork to protect your interests.
- An accountant: Assesses past financial records and identifies tax implications.
- A commercial lender: Pre-approval from a lender shows sellers you can execute and expedite financing.
Don’t go it alone. Leverage the expertise of professionals.
Step 4: Identify & Assess Opportunities
You’re ready to search for potential acquisition targets matching your goals and budget.
Ways to Find Listings
- Check online marketplaces like BizBuySell and BusinessBroker.
- Please work with your broker to access their proprietary seller leads.
- Let your networking contacts know you’re searching.
- Pay attention to “business for sale” signs when driving around.
Assess listings based on the following:
- Price – Is it in your budget?
- Location – Convenient to customers/suppliers?
- Size – Employees, revenue, square footage fit goals?
- Financials – Are revenue, profits, and costs realistic?
- Operations – Turnkey or needs overhaul?
- Growth potential – Runway for expansion?
Looking at multiple listings builds perspective and intuition
Step 5: Make First Contact
Once you’ve identified some promising opportunities, it’s time to make first contact and kickstart the conversation.
- Reach out to broker/seller by email expressing general interest.
- Sign NDA if needed to access more detailed information.
- Have an introductory call to discuss the opportunity and see if it aligns with your goals.
- Request more detailed financials, tax returns, sales figures, etc.
- Ask clarifying questions about operations, real estate, employees, etc.
- Voice any initial concerns or red flags.
Avoid oversharing your background/finances at this stage or making verbal offers. Preliminary discussions will determine if it’s worth moving forward.
Step 6: Conduct Due Diligence
If initial contact is promising, proceed with due diligence – scrutinising records and operations to uncover dealbreakers. Key due diligence activities include:
- Inspecting facilities, inventory, equipment, etc.
- Interviewing employees/managers about procedures.
- Reviewing financials with an accountant to verify accuracy.
- Researching market, competition, and industry trends.
- Working with legal counsel to review contracts, agreements, and liabilities.
- Consulting subject matter experts (IT pro, environmental engineer, etc.) as needed.
Conduct thorough due diligence before making a formal offer. Identify ways to improve profitability.
Step 7: Make an Offer
With due diligence complete, it’s finally time to put together an offer and begin deal negotiations.
- Make an offer contingent on final due diligence for protection.
- Detail proposed price, payment terms, timeline, and contingencies.
- Keep some negotiating room on price terms.
- Discuss deal structure – asset sale vs. stock sale.
- Consider seller carryback for financing.
- Include a representative for legal review/negotiation.
Multiple rounds of offers and counteroffers are standard before settling on agreeable terms. Bring your A-game negotiation skills.
Step 8: Close the Deal
In the final stretch! Follow this checklist to close successfully:
- Sign purchase agreement with negotiated terms.
- Finalise financing and make a deposit.
- Complete final due diligence.
- Review all contracts transferring with an attorney.
- Final walkthrough of business premises.
- Close and transfer funds/collateral.
- Execute ownership transfer documents.
- Notify employees, vendors, and customers.
- Transition to new ownership!
Stay nimble through a closing period – you’re almost to the finish line.
Hit the Ground Running as Owner
Once the ink dries, it’s gone time! To set your new business up for success:
- Meet with employees/managers to align on roles and vision.
- Consider rebranding, renovations, or process updates.
- Review all operations, policies, and agreements.
- Ramp up marketing sales to drive growth.
- Stay disciplined in budgeting and cost management.
- Build relationships with vendors and customers.
- Plan some quick wins to build momentum.
Enjoy the thrill of ownership; feel free to make the business your own.
The business-for-sale marketplace can seem complex, but a systematic, focused approach will lead to finding and closing on the right opportunity. With clear goals, patient research, and guidance from experienced advisors, first-time buyers can successfully navigate the process. Take it step-by-step, trust your instincts, and move forward on an acquisition poised to help you achieve your dreams of business ownership. The rewards will make the effort worthwhile.