Many people want to start a business by buying it from previous owners. When purchasing a business, it is important to keep it simple and short. By acquiring small businesses, much of the initial works have been completed. The business also has existing customers, so we could expect immediate sales. However, before buying a new business, it should have a proper track record. We should make sure that we could get some amount of profit from day one. Although a newly bought business already has running operations and consumer, it is still likely won’t survive the first few years after being acquired. Differences in culture and improper mindset may prevent growth.
One effective way is to get the new owner prepared and trained by the previous owner. This task should be included in the purchase agreement. The previous owner could also be hired for a few months to monitor the progress of the company. Although the new owner has some experience in the same industry, a training session is often mandatory. The previous owner is a valuable knowledge base. The newly acquired business will likely to run better, if the new and previous owner team up. In many cases, this kind of requirement will result in higher overall costs in acquiring the company. Even so, because revenue is more assured, this method should be implemented by the new owner.
It is actually quite to find business owners who are willing to provide guidance to the new owner. Before making up our mind, it is important to know whether we are able to work with the business owner. It is acceptable for business owner to ask for higher price for the extra service. In order to reduce costs and fees, it is better to implement hourly rates for the previous owner’s service. In the end, we should know how much that we should pay for the business. Most newly acquired businesses are transferred to the second owner. Often, we find that the previous owner overestimate the value of their company. This kind of situation may happen quite a lot and it’s often not the seller’s fault. Although the value of the company is often based on existing asset and projected profit, it’s likely that the original owner has spent a lot more when established the business.
If value of the company is decided properly, it is less likely to be confused with the actual amount that we should pay for the business. There are industry standards related to the likely values of the company. It is also likely that we will be able to get better approximation by finding out about the value of similar companies in the market. It is also a good idea to work with a professional broker who is experienced with mediating small business acquisitions. It is also important to work with professional appraisers to further validate the actual cost of the business. These are things that people should consider before buying an operational small business.