What To Think About Before Buying an Existing Business

If you’re interested in running a business but you don’t want to build one from the ground up, purchasing an existing one is a great option.  

Where To Find Businesses for Sale

You first need to decide what business you’re looking to purchase. If you don’t already know of a business for sale, don’t worry. There are several ways to find one. You can save some legwork and find a broker who helps transfer businesses. Another choice is to use a website that features companies for sale. Craigslist and Facebook Marketplace can be good resources, but websites like BizQuest and BizBuySell are likely to be even better.

Research the Business You Want To Buy

Find out about the business’s background

You’ll want to investigate why the current owner is selling their business. Visit the site if you can. Purchase a product they sell and try it for yourself. Look to see what the online reviews have to say. Search for competitors. Find out if there’s any pending litigation involving the business.  

Make sure the licenses and permits are in order

It’s important to know if there are associated permits and licenses. If the business has a product or service that has specific zoning or environmental requirements, you’ll need to know so you can be vigilant and remain compliant with those requirements. It can take a long time to get some certificates, which may affect the time you have to close the deal.  

A Checklist of Things To Remember

  • Review the business plan in place or create a new one.  
  • Inspect the inventory and check the state of all the business’ assets, from office furniture to manufacturing equipment.  
  • If the business doesn’t own its base of operations, evaluate the conditions of the lease.  
  • Look at existing agreements with vendors to make sure you can continue to honor those agreements once you take ownership.  
  • Consider adding a non-compete clause to the sales contract. This is helpful if there aren’t many competitors nearby so you can give the business time to grow under your leadership before the previous owner has a chance to become direct competition.  
  • Examine the business’ books. Look at how the previous owner was spending money and covering overhead, not to mention getting a benchmark on sales numbers. 

How Do You Plan to Finance?

You have several options when it comes to financing. Think about which would be best for your cashflow situation. 

Pay out of pocket

Use your own money and purchase with funds you have immediately available. You won’t owe anyone anything, but you can run into obstacles, like not having that money as a safety net if something unforeseen happens. 

Seller financing

Another way to purchase a business is through seller financing, where the seller of the business acts as the lender. Typically, you make monthly payments until the sale price is covered. It can be helpful to have the seller involved in your purchase for a longer period.  

An SBA 7(a) loan

SBA 7(a) loans are one of the best ways to buy a profitable, existing business. The Small Business Administration allows you to borrow up to $5 million for various business purposes, including business acquisition. There are requirements to obtain an SBA 7(a) loan, so it’s critical to work with a knowledgeable, experienced lender, like Fund-Ex Solutions Group. We specialize in helping small businesses, whether they’re just starting or changing ownership. Our team has decades of combined experience and the know-how you need to close the deal on your new business. 

If you’re interested in purchasing a business using an SBA 7(a) loan, Fund-Ex Solutions Group is here to help. Contact us to schedule a consultation. 

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