About > FAQs >
What are the key motivators for people going into business for themselves?
Money is not always at the top of a buyers list of reasons for going
into business for themselves. More likely, they have lost their job,
are extremely dissatisfied with their job or are entering into
retirement. Their reasons for purchasing a business could include:
1) independence/be own boss, 2) flexibility, 3) capitalize on a
skill set and, 4) to make money.
What should I look for when buying a business?
There are so many aspects of a business that require close
examination before determining whether it is right for you. First
you should identify your reasons for owning a business, the type of
business you would be most comfortable running, the amount you have
available to invest and the type of income you will need to take
home. Other areas you should look at when examining a business
include: 1) what is the annual increase in sales, 2) what are the
debts, credits and inventory, 3) will the seller help transition the
business, and 4) what does the future hold for the business?
Is it better to buy an existing business or to start one?
There are more benefits to buying a business than to starting one,
especially since most new businesses fail within 5 years. An
existing business has three things that are the most challenging for
new businesses to achieve: a customer base, established
credit/financial history and employees. This provides an immediate
cash flow, which could improve your ability to obtain acquisition
When should I consult an attorney/accountant?
The advice of attorneys and accountants is important once you have
selected a business and you think your terms will be accepted by the
seller. Both parties can help protect you. The attorney will create
and prepare all legal documents for the transaction and an
accountant will advise you on tax issues and be able to review the
financial data of the business.
How much cash do I need to purchase a business?
One of the ways in which you can purchase a business is through
deferred payment in which a portion of the total is paid in
installments/over time in the form of a seller notes or based on the
performance of the business. The other way to purchase a business is
through a third party/lender where you may be required to put down
1/3 to 1/2 of the purchase price in cash.
Where can I obtain financing?
Your ability to obtain financing will depend upon the strength of
the business you are purchasing. This includes the asset base,
operating history, collateral availability and projected cash flow.
There are several types of third party lending including commercial
lending, asset-based lenders and seller financing. With seller
financing, the seller takes back a promissory note for part of the
value of the company. We recommend you consult with an
specialist or one of our
financing experts to help you decide the
best course of action for you.
What is due diligence?
Due diligence is an important step that involves close examination
of public and proprietary information related to the assets and
liabilities of the business being purchased. It covers background,
finance, human resources, tax and legal matters. EBB has a
diligence check list.
What are some significant warning signs I should look for during due diligence?
Some red flags include: seller withholds, misleads or provides
limited access to information or employees, seller is vague about
why they are selling or proposes an unrealistic timetable, or seller
is not willing to provide you a commitment after the sale.
Phases of Buying a Business
|Before you start familiarize yourself