Buying a business

Buying a business can take time, energy and some detective work. It is important that you do your homework to ensure that you buy the right type of business and that you pay a fair price for it.

• Buy a business or start your own?
  If you have a great business idea and are ready to work hard to build it from the ground up, then you may wish to start your own business. But if you want to hit the ground running and avoid some of the common start-up pitfalls, then buying an existing business or a successful franchise may be a better option for you.

Where to find a business to buy

Businesses for sale are often advertised in newspapers, on the Internet, by word of mouth or through trade publications. It will be necessary to investigate a little before buying a business.

• Businesses for Sale: Where to Look?
  
  http://www.canadaone.com/tools/buy_a_biz/section1d.html
  What is the right business for you? Find out where to look when buying a business.

Evaluating a business

Before deciding to buy a business, you should evaluate the condition and potential of the business. You will need to consider:

• Are the building, equipment and inventory operational?
• Does the business have a good reputation?
• How visible and easily accessible is the business? Is it located in the city or out of town? You will have to take into account shipping costs that will be necessary, if you are distanced from your suppliers and customers.
• Are the products or services generating revenue? Are sales increasing, decreasing or are they flat?
• Is there a good working relationship with the suppliers and the bank that the business deals with?

If a deal seems too good to be true, it probably is. So, beware! For more information on how to determine what type of business you should buy, read:

• Buying the Right Business
  
  http://www.bdc.ca/en/my_project/Projects/articles/acquiring_business_options.htm?iNoC=1&context=%7BC9764760-8292-4705-931E-51427ED3E92F%7D
  Learn the "ins" and "outs" of finding the right business to buy.
• Franchising
  Learn more about buying a franchise as an option for starting a business.

Determining how much to pay for the business

As a buyer, it all comes down to knowing what you can honestly afford before negotiations start. You should be flexible in your negotiations to buy, but also keep your budget and the value of the business in mind.

What is the value of the business?

• You may want to investigate the value of assets, such as the building, equipment and products.
• Other factors to consider are the business' financial statements, annual report and intellectual property (for example, patents, trade-marks, and so on).
• Some valuable assets to any business are reputation, customer lists, quality of personnel, and so on.

Talk to clients who buy directly from the business. It is better to find out a business' reputation before you sign on the dotted line. Banks are more receptive to a business that has a proven track record.

These articles have good information to help you evaluate the assets and potential of the business, and determine its worth:

• Put a price tag on your business: A guide to business valuation
  Before you approach potential investors or buyers for your business, you need to assess the value of your business. Learn about the different ways to calculate the value.
• How to evaluate a proposed business acquisition
  
  http://www.bdc.ca/en/my_project/Projects/articles/acquisition_business_evaluate.htm?context={C9764760-8292-4705-931E-51427ED3E92F}
  What is a fair price to pay for a business? Read this article to learn how to estimate the value of a business.
• Know what you are buying
  
  http://www.bdc.ca/en/my_project/Projects/articles/acquisition_business_assessment.htm?context={C9764760-8292-4705-931E-51427ED3E92F}
  Protect yourself when buying a business. This article lists the things to do and look into before you sign on the dotted line.

Financing your acquisition

You will need money to be able to buy the business and may need some working capital to get things going.

• How to get money for your business
  What type of financing is right for your business? How can you increase your chances of getting that money?

Final considerations

• Take your time and verify all information you are given before you commit yourself.
• Buy a business within an industry you know well and with products and services you are comfortable selling.
• Buy based on the return on investment and not the price.
• Don't use all your cash for the purchase.
• Investigate suppliers, clients and the reputation of the business before you buy.