Four Steps You Need to Do When Buying a Company

Many companies have tired and drained owners who have lost passion for the business. Despite this, some of these businesses have great potential and will prosper under a motivated owner. Plus, considering the economy being what it is, you may find a good deal. Not only does buying a company grow your business, but also it expands your offerings and brings in more customers.

Buying a business involves legal, licensing, taxes and paperwork creating a challenging process that pays dividends when done right. These four steps will help you navigate the road to finding and buying the right business.

1. Find the right company.

Not all companies advertise they're for sale, or they'll be willing to sell for the right price. Start by attending industry events. This connects you with others in the industry of the business you want to buy. Don't skip those social events because that's where people tend to relax more and share more information.

Owners who solely focus on the other company's profits put their company at risk. They overlook the other company's traits that could affect how the two companies work together. It's more important to find a company that fits your business goals and strategies.

 2. Build a team.

Your team needs a qualified attorney and a certified public accountant. Attorneys review offer and purchasing agreements. Accountants interpret the selling company's financials and tax returns. They also identify any tax consequences that come with the deal.

It's also helpful to add a broker to the team. Brokers buy companies for a living. They can prescreen the business for the company's financials and determine if its owners put too high a price on the business. Brokers also solve problems and help during negotiations. They know the all the laws and regulations in buying a business.

Brokers save time on paperwork ensuring you don't miss any forms or fees. They typically charge a commission for about 5 to 10 percent of the purchase price. One way to save money working with a broker is to wait until you're close to the negotiating phase of the purchase.

3. Figure out financing early in the process.

You don't want to do all that work and spend money on lawyers only to discover financing falls apart. Work with a bank, private lender or even the company selling to you.

If you don't have assets that meet a bank's requirements, the seller might have assets you can use. If you use cash for a down payment, be aware of your future cash flow needs. You want to avoid a working capital shortage.

4. Determine the company's value.

We go to the grocery store regularly, which gives us a good idea of what's priced high, what's average and what's a great buy. We don't buy businesses every day, so how do we know what the business is worth? A broker helps ensure you get a fair deal.

Entrepreneur has a great checklist of 25 things to consider when looking to buy a business.

What questions do you have about buying a business?