What You Need to Consider when Buying an Existing Business

Are you planning to be an entrepreneur but do not have a business idea in mind? Why not by an existing business? Here are some of the important things you have to know and consider if you decide to buy one:

business for sale

How to find a business for sale?

If you’re targeting a business based in Toronto, try to call other local businesses so you would get some details about the market in the said area. Business put on sale do not usually announce that they are on sale to avoid negative reactions from the customers and employees. For sure, there are a lot of potential business for sale in Toronto, just take time to call around and you might stumble upon an owner who is actually selling his/her business or know someone who is selling his/her business.

Attend trade shows and industry conferences. These gatherings will be attended by professionals who might be able to help you find right business to purchase.

You may also seek the help of a business broker to find a business for sale for you. Usually, brokers are tapped by business owners to help them find buyers for their business and negotiate the asking price. They will help you determine the business that will match your interests. He/she will also advise you on which businesses to avoid.

Sellers also make listings for their business on online websites like Business for Sale in Toronto. These websites will help you search for prospective business based on your preferred industry, location, and price.

Refer to local newspapers or trade publications for any postings. But you may also create your own ad to catch the attention of owners who are actually selling their businesses.

What are the questions to ask when planning to buy a small business?

  • Why is the business being sold?
  • What is the sales trend? What is the business’ customer base? Who are the current suppliers?
  • What are the overhead costs?
  • Is the business generating profit?
  • What are the existing assets of the business? Does the business have intellectual properties, other than the physical assets? Does it also have any leasing agreements?
  • Is the existing inventory included in the sale? How are the stocks being managed, where are they stored, and how are they distributed?
  • Does the business have debts to settle?
  • Is there a purchase agreement crafted? Review it carefully.
  • What kinds of taxesthat apply to the business that you are targeting?
  • What are the agreements made for the lease?
  • What is the current structure of the business? Is there a need to change it?
  • Is there someone else who’ll purchase the business with you? Did you set a partnership agreement prior to the purchase?
  • What practices, processes, and systems worked and did not work for the business?
  • What expectations should be managed as a business owner?
  • Do you have a marketing plan reflecting the objectives for the business?
  • How much will it cost to buy an existing business? In coming up with an estimate, you should consider the sales, costs, profits, assets, liabilities, tax responsibilities and legal concerns, if there are any.

Steps in Buying a Business:

Gather all the needed information

Work with an advisory team of professionals so you will be able to get the information you need before making the big step of closing the deal. The usual documents that you should secure are the ff:

  • Letter of intent
  • Confidentiality agreement
  • Copies of existing contracts and leases
  • Financial statements
  • List of fixtures, equipment, and existing inventory
  • Sales agreements

Assess the value of the business

To come up with a reasonable value estimate of the business that you are eyeing, consider the performance of the business in terms of cash flow and its existing assets. Make sure that you do not just rely on the historical record of the company but also consider its potential growth in setting an estimated value. A professional such as an accountant and a broker might be able to help you with this.

Close the sale

Apart from making the payment, you must also prepare other necessary documents and agreement forms to finally close the deal with the seller.

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