When most people think about starting a business, they envision building it from the ground up. However, buying an existing business can minimize risk and optimize rewards. When you buy a business, you take over an operation that's already generating cash flow and profits. You have an established customer base, reputation, and employees who are familiar with all aspects of the business.
Ask yourself: How much do you need for the business to pay you? How much do you have to invest? Will you need financing?
A good broker will help answer questions and find a business that’s right for you. It may even be in an industry you never considered.
The negotiation process is where brokers earn their fees. Brokers stay focused on the end goal of completing the transaction and smooth out any problems.
Fees are paid by the seller. There is no cost for a broker’s services to you as a buyer.
When you start taking a serious look at a business, here are a few things you’ll want to consider:
• Inventory. You must know the value of the inventory and you should only pay for inventory that is usable.
The big question for every buyer is ‘What is the business worth?’ It’s not too difficult to determine an appropriate value. Once the owner’s benefits have been determined and the revenue is known, it’s often easy for a broker to run a list of similar businesses that have sold. Using a multiple of earnings, you can determine the approximate value. The seller may have purchased an independent valuation, which is a more precise measurement.
Every buyer is making the purchase based on the potential of the business, but the price should be based on the current worth of the business.
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