Everyone would agree that it is tough to build a successful company from scratch, and this is the reason some people opt to buy a business. Well, there may be other reasons, too, like building a better investment portfolio or reducing the level of competitiveness in the sector. Whatever the reason it is, here are seven important tips you need.
1. Know the company you are about to purchase
Apparently, the first step is to know the company you want to purchase. There are always different organisations that are available for sale. Nevertheless, you should go for one with great financial prospects. Things you should consider while doing this;
- Your familiarity with the industry
- Long-term plan
- Trajectory of cashflow
- Customer’s diversity
2. Value the company
You should know the value of the company to know its worth. Sellers will always place a higher value on their organisation, but you have a duty to only pay for the value. You can estimate the value yourself or hire a professional to do that for you. To buy a business, you will always need a helping hand.
3. Begin the negotiation process
It is a given that there will be a negotiation to buy a business. Since you have an idea of the company’s worth, you should negotiate the price. Make an offer (verbal or written). Be ready to go back and forth till you have a comfortable agreement.
4. Your Letter of Intent (LOI)
You need to send a letter of intent to show the negotiation process, purchase price, and the intent to buy a business. The letter shows your readiness to progress in the buying process. Similarly, it gives you an exclusive right to pay for the company within 90 days. As a result, the seller cannot sell the company to anyone until after 90 days, and you have not been able to fulfil the LOI terms.
5. Review all the necessary documents
You should crosscheck every necessary document involved to buy a business. At this stage, it is not wrong to have a lawyer examine all the legal and financial details before you close the deal. Some of these documents are;
- Organizational documents
- Balance sheets, year income, and cash flow statements
- Tax returns for 3 years
- Information on possible debt
- Existing contracts and rent rolls
- Other important documents as advised by your lawyer.
6. Get your finances right
To buy a business, you must have plans for how you want to raise the money. The whole money does not have to be yours. You can take loans or consider rollover when you buy a business startups to get things started. Once you have tightened all ends about the finances you need, you can proceed to the final stage.
7. Close the transaction
Closing the transaction is the final stage. At this point, you should have a final draft to show the purchase agreement. The seller should append their signature, and you can finalize the contract.
Do not make any hasty decision. You can consult a team of experts to be sure you are on the right track. To buy a business, you require due diligence, and we hope the tips shared in this article help you go about it the right way.