How to Acquire a Small Business

Buying an existing small business can be a great way to become a business owner. The purchase will give you an established client base and potential profits, but there are certain things a buyer should be aware of. Doing a little research and knowing what to expect will make buying a small business a smoother process.

Instructions

Prepare to Buy a Small Business

1. Know what you want before you start looking. Do research into the location and the type of business you will feel most comfortable owning.

2. Create your own business plan even if one is already in place. A business plan is usually expected when applying to finance a business.

3. Try to obtain funds before you begin looking. Business owners and brokers will take you more seriously if you are prequalified for a loan or have commitments from investors.

4. Consider what is necessary to qualify for a business loan. A lender will want you to have a good credit record, collateral for the loan and business experience to make sure you won't default on payments.

Evaluate and Buy a Small Business

1. Hire a business lawyer and an accountant. These professionals can help you with the aspects of business purchase and operation that may prove time-consuming or difficult.

2. Find out if you can take over the lease or rent of the current business location before you buy to avoid problems trying to find a new location. Such a search could affect profits.

3. Make a formal offer in order to review financial records and business documents.

4. Be sure that the business is current with all of its taxes, including payroll taxes and sales taxes.

5. Research state laws that have to do with the sale and transfer of businesses. Your business lawyer should help you address these.

6. Consider how you are going to handle current employees and whether you need them to teach you how to run the business.

7. Remember that there will be closing costs that may include prorating and reimbursing the seller for any payments that were made in advance.

8. Choose a long escrow if you need time to see the business operate or if the business is seasonal in nature.

Tips & Warnings

• If you and the seller disagree on the projected value of the business, you can structure the contract so that you can make balance of your payment over a defined period while basing that payment on future earnings. If business profits increase, you'll pay more, but if they slump, the seller discounts the balance.

• Create an indemnity when you buy a small business to cover yourself in case there are any lawsuits in response to something the previous owner was responsible for.