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Step by Step- The Purchase Process for Buying a Business
The truth is that buying a business is slightly different every time you do it. Even if you've bought and sold dozens of companies, you'll run into unique questions and challenges along the way every time. That's why it's a good idea to work with a professional broker who can guide you through all those hurdles. That being said, almost every business purchase does require you to go through six common steps.
1. Make the decision to buy a business.
First, you come to the decision that you want to buy a business. Before you jump on this urge, take some time to understand exactly why you want to own a company. Are you looking for a new challenge, or do you want to expand into a different location or industry? Understanding your goals will help you find the right company to purchase. If, for example, you want to immediately support your family with the new business, you must search for profitable endeavours. If you intend to buy the company, add value and then resell it for profit, you may search for businesses that aren't performing up to expectations.
2. Do the research on potential businesses.
Once you know why you want to buy a business, it's time to locate one you can purchase. This is where a broker can really help: he or she likely has access to more listings than you do, thus expanding your options considerably.
3. Choose a company you feel matches your criteria and conduct preliminary due diligence.
Out of the options presented to you, select a business that seems to match the criteria you set in step one. Do as much due diligence as you can without making an offer. This can involve checking out the physical premises yourself, reading reviews about the business and reviewing any publicly filed forms regarding the company. You may also request a valuation of the business. If this research causes you to change your mind about the company, return to step two and choose another option.
4. Make a conditional offer.
Work with your broker or agent to make an offer on the business. Remember that the first offer is rarely the final offer, so leave yourself room to negotiate. Your offer should always be conditional, which means that you are agreeing to buy the business for the price stated only if certain conditions are met. Following a conditional offer, you'll have an agreed upon time to conduct further due diligence and secure funding.
5. Conduct comprehensive due diligence.
Now that you've made a serious offer the seller is more likely to work with you so you can fully comprehend what it is you're purchasing. Legally, the seller has to disclose some things to you and you usually have the right to see some information about business holdings, property and accounting. This lets you understand whether the business is profitable or see if there is a potential way you can turn things around. It's recommended that you work with your own independent professionals at this stage to review financial records and answer as many questions as you can. This is also the step where pre-agreed upon conditions must be met or you may have a legal way out of the deal.
6. Finalise the deal and celebrate before getting to work.
Once you come to a final agreement, the funding is in place and all the paperwork is in order, it's time for everyone to sign. This is the moment the business officially changes hands.
The moment right after that you can celebrate. Then it's time to get to work and make your new company a success.
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