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Archived - How to Buy a Business: What Every Entrepreneur Needs to Know

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By: Greg Carpenter, MBA '82

Owning a business is a rollercoaster of highs and lows. The hours can be long, the work can be stressful, but the payoff can be extraordinary. It is important that would-be business owners weigh the advantages and disadvantages before embarking on this difficult but potentially rewarding journey. Here is a look at five things aspiring entrepreneurs need to consider before buying a business.

  1. A successful business owner is both a leader and a follower. You must be able to make good decisions about marketing, sales, finance, accounting, customer service and a host of other business topics. You must think independently but know when to take and follow advice - and criticism - properly. Making good decisions and taking advice well will help you earn the respect of your employees, customers, and vendors. Above all else, you must be resilient.  Bouncing back from a failure and using it as a learning opportunity is a critical survival skill for aspiring entrepreneurs. Before buying a business, consider whether or not you have the characteristics to succeed as a business owner.

  2. It is crucial to know your goals and how to attain them. Before buying a business, determine what you hope to achieve as a business owner. This will help you evaluate whether a prospective business opportunity fits you and your lifestyle. Factors to think about include the industry category, geographic location, business earnings, revenues, trends, growth potential, quality of earnings, management team, age and condition of equipment, premises lease, competition, management infrastructure, and more.

  3. Finding viable business opportunities can be tricky. A prospective business owner must be willing to search online business exchanges such as, seek out business brokers, or approach business owners whose businesses are not yet for sale. Since business sales are normally confidential, you will not usually find ‘for sale’ signs on businesses. Be prepared to look hard and to sign confidentiality agreements.

  4. Collaboration is essential in order to find a business and secure the purchase of it. When a business is purchased, accountants will check the books and records of the business, attorneys will draft purchase agreements and commercial leases, Small Business Administration (SBA) lenders and/or commercial bankers will finance the purchase, and escrow companies will transfer funds and ownership of the business. Being able to work with people in these capacities is of utmost importance.

    You may decide to partner with a business broker. A business broker can advise a potential owner about business valuation, offers, negotiations, and many other relevant topics. They can help you make decisions, manage the process to keep all parties on the agreed timeline, and resolve any other issues that may arise. Odds of finding a business and closing a sale may be better with an experienced broker.

  5. The rewards of owning your own business should outweigh the costs. Your business should create income and equity without putting undue stress on your personal health or family life. If you are working 24/7, and unable to enjoy the fruits of your labor, perhaps you picked the wrong business or you need help learning how to manage it.

 Greg Carpenter is the Managing Director at BTI Group/California Equity Advisors.

Aug 31, 2016