If you are ready to become a small business owner, buying an existing small business might be a better option for you than building one from scratch. There are numerous strategic advantages of acquiring an established business. You can find many opportunities to grow thriving small businesses—from self-storage facilities to medical practices and beyond.
Whether you are looking at taking on a product or service, be sure to weigh the benefits of a business acquisition against starting your own and conduct diligent research before you proceed.
Established groundwork
By purchasing an existing business, a lot of the heavy lifting has already been done. You will not have to build a company from the bottom up—securing supplies, office space, buying initial equipment, etc. And the groundwork for selling the goods or services has already been done—including the product development, business/product names, market research, product or service pricing, target market establishment, etc. You will have a much quicker path to small business ownership by avoiding the lead time it takes to build a business from scratch.
Proven product or service
With an existing business, your product or service has already been developed and demonstrated its market demand. The product is also already established as a legitimate one in the eyes of customers, so you have a level of confidence and trustworthiness already built in.
With numerous online review sites, you will be able to find firsthand reviews of the product or service written by actual customers to verify legitimacy and find out how appealing the product or service is.
Solid customer base
An existing small business already has a successful customer base established. You will not need to put in the effort to drum up business from scratch. While you can always look to expand your customer base, having an existing one makes the job much easier as you can continue to profit from repeat customers and customer referrals.
Existing supply chain
When you take over an existing small business, it can offer solid, established relationships with suppliers and vendors. This will save you the time it takes to research reliable suppliers and build relationships with vendors, weeding out unreliable partners. You will automatically have built-in, trustworthy partnerships.
If the business requires employees, there will likely be trained and experienced workers for you to continue to employ, saving you time and money in hiring and training.
Less risk
While owning a business is always a bit risky, buying an established business is ultimately less of a gamble than starting from zero. With a startup, you have to put in the work to establish a company before you even know if the customers will come. With an existing business, there are already customers in place, so you have a head start on success.
Financial credibility
With an established business showing a track record of sales demand and profits, you will have credibility in the eyes of financial institutions—much more so than with a startup. A proven business is appealing to lenders so you should have an easier time securing funding, especially from banks focused on small businesses, such as Live Oak Bank. Obtaining financing for the acquisition of an existing business is much easier than securing funding for a startup.
Identify a business
If you’ve decided that you want to buy an existing small business, but don’t already have one in mind, there are a few ways you can go about finding one. You can look online for sites that list small businesses for sale in your area. You can use your local network to ask around, or even cold call local businesses you’re interested in buying. Some might wish to sell but don’t want to advertise, or perhaps they are just waiting for the right buyer to come along at the right time. You can also consider using a business broker, a company that assists in the buying and selling of small businesses. Business brokers can help you navigate the entire process from connecting you to the right business, to completing due diligence, to filing the paperwork.
Conduct due diligence
If you are considering buying an existing small business, it’s important to meticulously conduct your due diligence. First, question why the current owner is selling the business—is it simply for retirement or to focus on other pursuits, or is the business in trouble? Be sure to look for potential problems in the future.
Look closely at the financials—tax returns, balance sheets, business budget, debt, leases, etc. Consider hiring a financial expert to verify your own research.
Watch out for misinformation about the business; conduct your own research rather than just taking the current owner’s word. Examine the business structure; look for signs of mismanagement. Research the market extensively, especially competitors.
Talk to suppliers and customers about the business. Conduct extensive online research to look for negative reviews or bad press about the business. See if you can shadow the business owner prior to acquiring the business. Also, be sure to check the status of all of the equipment involved. You don’t want to get saddled with faulty equipment and repair or replacement fees.
How to proceed
Once you’ve verified that the business is a good acquisition, you can proceed with the purchase. You’ll need to negotiate the price and establish a letter of intent, which outlines the terms of the deal—the sale process, conditions, timeline, etc. You should consider hiring an attorney to review all of the paperwork involved, including noncompete agreements, leases, closing documents, etc.
You’ll also need to explore financing for buying a business, such as pursuing a Small Business Administration (SBA) loan from a small business bank like Live Oak Bank. Before long, you’ll be signing closing documents and strategizing how to maximize the profits of your new small business.
