Are you looking to become an entrepreneur? The first decision you need to make is whether to buy a business or start a new one. There are many advantages to buying a business, including an established operations process, knowledgeable employees, and a built-in customer base.
Being a first-time business owner can come with a lot of stress. Therefore, it is essential to know what to expect and the hurdles to watch out for.
Here are some things to keep in mind as you buy your first company!
You Won’t Fit Every Business Opportunity
It may be thought that a person with strong business skills should be able to run any business successfully, but that isn’t the case. It is important not to make a decision based on your track record or financials alone. Rather, make sure the business opportunity suits you.
Are you knowledgeable about the business model? Do you have a passion and understanding of the industry? If not, that company isn’t a good fit for you. For your business to be successful, it is vital that you understand the industry and genuinely enjoy the work.
It’s Not Good to Go At It Alone
Even if you consider yourself a savvy individual with high intelligence and an eye for detail, you never want to buy a business without help.
There are a lot of hindrances to keep an eye on when buying a business. For example, if something seems “too good to be true”- in terms of financing or business success- it probably is. This is where a business broker can come in and help you scout out the behind-the-scenes happenings.
Do not let yourself be taken advantage of during a business deal. This will lead you to an awful financial situation. To avoid this devastation, work with the right people from the start.
There are Several Ways to Value a Business
When buying a car or a home, there is a standard way to find value, staying the same for all similar assets. When finding the value of a business, that’s not the case. However, there are better valuation options to use depending on the business type.
The earnings approach may be used for existing businesses that have been around for a while. This approach can be done using discounted cash flows or capitalized earnings. The downside to this approach is that it relies on predicting future earnings, which can be a difficult task.
The assets approach should be considered when you’re buying a business with many capital or assets and hasn’t turned a profit yet. To complete this method, you take the tangible and intangible asset value and subtract the liabilities and debts. With the assets approach, you look at the current cash value of assets and the potential return on investment of using them.
The final valuation method is the market approach. This method may be used in sync with either the earnings or assets approach. While using the market approach, you need to ask these two questions: How much have similar businesses in the area sold for recently? How does that price compare to the price you are being offered?
Working with a business broker can help you choose the proper valuation method for your industry and situation.
There Are a Variety of Ways to Fund a Business
As we have discussed the various ways of determining a company’s value, there are many ways to seek financing as well.
A very common payment arrangement is when a down payment is placed, and an agreement is made to pay the seller on a set schedule until the balance is paid in full. It is vital to ensure that the down payment isn’t too big that you struggle to have the capital to run the business.
Another option is looking into traditional or Small Business Administration (SBA) loans. SBA loans tend to be easier to qualify for and have more favorable terms for entrepreneurs.
Some buyers consider alternatives that can help reduce the purchase price. This can include assuming business debt, issuing stock to employees, and more. The crucial part is to thoroughly understand the terms of the deal to ensure you aren’t putting yourself in a bad situation.
Murphy Business Can Help You Find Your Dream Company
If you’re ready to purchase a business, you will want to find a qualified business broker to assist you. Murphy Business brokers are just that. We have many years of experience helping business buyers and sellers, and we know what it takes to close a beneficial deal.
If you’re ready to start the journey of buying a business, contact us today!
