The process for buying a business depends on many factors, though many business owners can expect to close within six to 12 months of making their original offer.
Understanding the factors that go into buying a business vs. selling one helps you make the right decision and not jump into owning a company you don’t actually enjoy.
The question, “How long does it take to buy a business” doesn’t have a straight answer, so learn more about what affects purchasing a business and how you can prepare for each part of the process.
How to Buy a Business
Can You Buy a Business?
Before making any offers, check out your finances and credit score to ensure you have the funds to purchase. Can you buy a business, invest in any potential upgrades or updates, and make that business profitable? Once you know that you can secure funding, you can begin the search yourself or ask a business broker to help you find a business worth purchasing.
Know Why You’re Buying.
Are you planning to take over a business, stepping into the previous owner’s shoes? Or will you take a more hands-off approach, installing trusted associates to run the business in your stead? Asking yourself these questions and more can help you as you plan to buy a business.
Take Your Time.
Once you understand what role you wish to play in the business world, you’ll find it easier to settle on what kind of business to buy. Purchasing a restaurant requires different diligence than an auto mechanic shop, especially if you plan to run it in person. Do you understand the business you’re getting into, and do you feel up to the unique challenges and benefits of owning that business?
Do Your Research.
Now that you have the basics in hand, you can focus on performing the necessary research to ensure the specific businesses you find are worthwhile. With your first business purchase, you may wonder, “How do you buy a business,” or need help recognizing what makes a business worthwhile. Look for businesses that actively want to sell, as the owners may work better with you than an owner you approach out of the blue.
While some information can only come from the owner, you can find out a lot about a business with some basic online research.
Ask questions like:
- Does the business have a consistent customer base?
- What does the local market look like for the business’s location?
- Is the business up to date on its licensing and similar legal requirements?
- Do you have the funds to buy for business upgrades like equipment or technology?
- What do customers and employees say about the business on review sites and social media?
This research not only prepares you to buy the business but helps you weed out bad business owners who may extend the process of buying a business. Owners who haven’t invested in the company themselves might make it more difficult for you, especially if it seems like the business will need significant upgrades.
The Process of Buying a Business
While the actual time to purchase a business varies, you can use the below steps as a general purchase of business timeline.
1. Make Your Offer
Now that you or your broker has found a business worth purchasing, you should consider your first official offer. This step can determine the answer to “How long does it take to buy a business,” as many initial offers turn into a negotiation with the business owner. Expect to go back and forth a few times as you come to a mutual agreement on the value of the business.
2. Secure Financing
Some business buyers have funds in hand, but others may need to take out a loan to ensure they can afford the business. If you don’t have the funds readily available, read every word of contracts or loan offers to ensure that you have the time and ability to pay it off. Sometimes you may not see an immediate profit from your new business, so keep that in mind when finding financing.
3. Ensure You Have the Proper Licensing
Some businesses require special licensing for the company or its employees. Speak with the business owner and acquire any legal permits necessary for the business to function. You may find that some licenses require you to finish closing on the business before you can get them, but preparing for them helps you plan for the future.
4. Prepare for Closing
Closing day for your business purchase requires the presence of you and the business owner, along with any agents or brokers involved in the purchasing deal. During the meeting, the owner will provide various documents and information, such as:
- The Bill of Sale: Legally proves the transfer of ownership to you, including all assets.
- Settlement Sheet: A list of all prices and costs associated with the seller and buyer arrangement.
- Obligations: Any contracts or agreements with outside services, 1099 employees, or other third-party providers.
- Lease Agreements: Building or equipment leases, including any legal documents for filing with local and state governments.
- Passcodes: A list of all computer passwords, security codes, safe combinations, and other passcodes.
- Contact Lists: Lists of names and contact information for clients, contractors, distributors, vendors, and suppliers.
Both you and the owner will sign any documents required for the sale, ending with a handshake and you walking away as the new business owner.
5. Learning the Business
Taking over a business means more than purchasing a name, brand, and building. After the purchase, visit your new business and get to know the pros and cons that the business owner may not have mentioned.
- Look for any improvements that could update the business’s environment, like a new coat of paint or upgraded furniture.
- Ask employees what they do and don’t like about working there, then consider changes in methodology or company culture based on their suggestions.
- Spend a day in the building and observe the business from different aspects. Stand at the cashier’s counter, visit the back office, and learn the basics of unfamiliar processes.
When considering a business purchase, you may wonder, “How long does it take to buy a business”? So many details go into that answer that the best conclusion usually lies between six and 12 months. Using this guide, you can work through some of the usual snags and find the best information possible before you move forward with purchasing a business.
If you wish to purchase or start a business in the Sacramento, CA, area, visit Sacramento Business Broker online to learn more.