business plan to purchase existing business

Business Plan for Investors
Bank/SBA Business Plan
Operational/Strategic Planning Services
L1 Visa Business Plan
E1 Treaty Trader Visa Business Plan
E2 Treaty Investor Visa Business Plan
EB-1 Business Plan
EB-2 NIW Business Plan
EB-5 Business Plan
Innovator Founder Visa Business Plan
Start-Up Visa Business Plan
Expansion Worker Visa Business Plan
Manitoba MPNP Visa Business Plan
Nova Scotia NSNP Visa Business Plan
British Columbia BC PNP Visa Business Plan
Self-Employed Visa Business Plan
OINP Entrepreneur Stream Business Plan
LMIA Owner Operator Business Plan
ICT Work Permit Business Plan
LMIA Mobility Program – C11 Entrepreneur Business Plan
USMCA (ex-NAFTA) Business Plan
Franchise Business Plan
Landlord business plan
Nonprofit Start-Up Business Plan
USDA Business Plan
Cannabis business plan
Ecommerce business plan
Online boutique business plan
Mobile application business plan
Daycare business plan
Restaurant business plan
Food delivery business plan
Real estate business plan
Business Continuity Plan
Pitch Deck Consulting Services
Financial Due Diligence Services
ICO whitepaper
ICO consulting services
Confidential Information Memorandum
Private Placement Memorandum
Feasibility study
Fractional CFO
How it works
Business Plan Examples

Business Plan for Buying an Existing Business

OCT.18, 2023

business plan to purchase existing business

Buying an existing business is a great way to enter a new market, expand your product or service offerings, or leverage the seller’s existing customer base and brand recognition. However, before making an offer, you need a clear and realistic acquisition business plan for running and growing the business post-acquisition.

A business plan for buying an existing business is a document that outlines your vision, goals, strategies, and financial projections for the business you want to buy. It is similar to a regular business plan but also includes information about the seller’s business history, performance, strengths, weaknesses, opportunities, and threats.

A business plan for buying an existing business via franchise business planning services helps you to:

Evaluate the feasibility and profitability of the deal
Negotiate the best price and terms with the seller
Secure financing from lenders or investors
Manage the transition and integration process smoothly

What to Include In an Acquisition Business Plan?

A business plan for purchasing an existing business should cover all the essential aspects of running and growing a business, such as:

Executive summary
Company overview
Industry analysis
Marketing plan
Operations plan
Organization and management
Financial plan

Why Do You Need a Business Plan Sample for Buying an Existing Business?

A business plan sample can help you write a business plan for buying an existing business by providing a template and examples of how to structure and present your information. A business plan for buying an existing small business can also inspire you with ideas and insights on improving or innovating the existing business.

To help you get started with writing your acquisition business plan template for buying an existing business, we have created a sample based on buying a restaurant for you.

Executive Summary

We are XYZ Restaurant Group, a company that owns and operates several successful restaurants in New York City. We seek to acquire ABC Restaurant, a well-established and popular Italian restaurant in Brooklyn, New York.

For over two decades, ABC has been a mainstay in the community, earning devoted regulars and renown for top-notch cuisine and hospitality. This 100-seat eatery runs at full capacity for lunch and dinner daily. Raking in $1.2 million yearly with $150,000 left over after expenses, ABC shows no signs of slowing down after its longstanding prosperity.

ABC Restaurant is an excellent opportunity to expand our portfolio and enter a new market. We have identified several areas where we can add value and improve the performance of the restaurant, such as:

Updating menu and dishes
Enhancing online presence and marketing
Renovating interior/exterior
Hiring and training new staff

We estimate the total cost of acquiring and improving ABC will be $500,000. We project that ABC will generate an annual revenue of $1.5 million and a net profit of $200,000 in the first year after the acquisition and grow by 10% annually.

Company Overview

XYZ Restaurant Group owns and whips up several nifty eats-places in the Big Apple. We’re crackerjack at serving out first-rate delicious eats from all over the world, like Mexican, Thai, Indian, and Mediterranean. Folks rave about our mouthwatering chow, friendly service, cozy mood, and fair coin.

Our mission is to dish up a memorable dining experience that delights taste buds and beats hopes. Our vision is to become top cook in the USA, with a diverse and brainy bill of fare for different chowhounds. We value being the cat’s meow, passionate, upright, diverse, and keeping customers cheerful.

We aim to acquire ABC, a swell and popular Italian hub in Brooklyn. ABC has loyal eaters and a dynamite food and service name. We want to buy ABC because it has a potential for growth and bankroll.

Industry Analysis

The restaurant industry in the USA is a large and diverse sector that includes various types of establishments, such as full-service restaurants, fast-food restaurants, cafés, bars, and catering services.

Here are some key stats regarding the restaurant industry in the USA:

The food service industry might reach $997B in sales in 2023. (Source – National Restaurant Association )
There are 749,404 restaurants in the United States as of 2023. (Source – Zippa )
Between April 2022 and March 2023, new business openings in the restaurant industry increased by 10%. (Source – Yelp )
The US restaurant industry shall grow at a CAGR of 10.2% in 2022 and 2023.

Some of the key trends and drivers that influence the restaurant industry are:

Consumer preferences
Regulations

Our primary competitors in the Italian restaurant segment are:

Strong brand recognition
Diverse menu selection
Provides good value
Menu lacks innovation
Food quality is inconsistent
Customer service needs improvement
High quality food using fresh ingredients
Excellent service with knowledgeable staff
Charming, intimate ambiance
Expensive menu prices
Small capacity limits covers
Relies heavily on its location

Marketing Plan

Our marketing plan for ABC is based on the following objectives:

To increase the awareness and recognition of ABC.
To attract new customers and retain existing customers.
To increase the sales and profitability of ABC.

Our business plan for buying an established business consists of the following elements:

Professionals
Millennials
Updating the menu and introducing new dishes
Enhancing the online presence and marketing
Renovating the interior and exterior
Hiring and training new staff and implementing best practices
Branding – Our brand name is simple, memorable, and distinctive. Our brand logo is a stylized letter A with a fork and knife on either side. Our brand slogan is “ABC: A Taste of Italy.” Our brand colors are red, white, and green, representing the colors of the Italian flag. Our brand voice is friendly, professional, and authentic.
Offering discounts and coupons
Implementing dynamic pricing
Creating bundle deals
Providing upselling and cross-selling opportunities
Online – Search engines, social media, email, and blogs, online reviews, testimonials, and referrals
Offline – Newspapers, magazines, radio, TV, billboards, print ads, radio spots, TV commercials, outdoor signs, flyers, brochures, and business cards
Events – Trade shows, festivals, and community events via booths, banners, and samples to display using contests, games, and giveaways

Operations Plan

Our operations plan for ABC is based on the following objectives:

To provide a safe, clean, and comfortable environment
To deliver high-quality food and service
To manage our resources and costs effectively

Our business plan for buying an existing company consists of the following elements:

Location and Facilities – ABC operates at 123 Main Street, Brooklyn, New York. It is a prime location with high foot traffic, visibility, and accessibility. The restaurant occupies a 2,000-square-foot space, including a dining area, kitchen, storage room, restroom, and office. The dining hall has a capacity of 100 seats and can accommodate up to 150 customers at peak times.
Food: We buy ingredients from XYZ Food Distributors, a local company specializing in Italian food products.
Beverages: We buy our beverages from ABC Beverage Company, a national company that offers a wide range of alcoholic and non-alcoholic drinks.
Other: We buy our other supplies from DEF Supply Store, a regional company that provides various supplies.
Food Safety – Adhere to all FDA and DOHMH guidelines. Monitor and log temps, freshness. Train staff on protocol.
Service Excellence – Follow XYZ standards for hiring, training, dress code, incentives, feedback. Address complaints ASAP.
Performance Evaluation – Track KPIs (sales, costs, satisfaction, retention) with POS, software, spreadsheets. Hold regular reviews to improve.
Business License from NYS Department of State
Food Service License from DOHMH
Liquor License from NYS Liquor Authority
Health Inspection clearance from DOHMH
Fire Inspection clearance from NYFD
Workers’ Compensation Insurance
Liability Insurance
Sales Tax registration and remittance with NYS Taxation and Finance
Passed inspections for health, sanitation, and fire safety standards
Obtained all necessary permits, licenses, registrations, and insurance

Organization and Management

XYZ Group is a partnership between Alex Smith, Park Smith, and Mark Wood, who own 33.3% and oversee strategy, operations, and technology, respectively.

ABC is a subsidiary operated by the following staff:

General Manager – Reports to Alex Smith, oversees daily strategic and operational planning services
Chef – Reports to Park Smith, manages kitchen and food preparation
Sous Chef – Assists the Chef ensures food quality
Kitchen Staff – Report to Sous Chef, perform various kitchen duties
Servers – Report to the General Manager, take orders, and serve customers
Host – Reports to General Manager, greets and seats guests
Bartender – Reports to General Manager, prepares and serves drinks
Delivery Driver – Reports to Mark Wood, delivers orders to customers

We have an experienced, competent team at ABC with proper training, compensation, and a collaborative work culture to drive success. The organizational structure establishes clear roles and reporting lines.

Financial Plan

Our financial plan for ABC is based on the following objectives:

To generate sufficient revenue and profit
To maintain a positive cash flow
To secure adequate funding

When buying an existing business, it’s important to determine how much operating capital you should plan for. Our financial plan consists of the following elements:

Funding Sources
Assumptions

Income Statement

Balance Sheet
Cash Flow Statement
Ratio Analysis
Break-Even Analysis

Get Expert Help with Your Acquisition Business Plan

As you can see, developing a comprehensive business plan for buying an existing business requires significant time and expertise across various areas like finance, operations, marketing, and more. That’s where our expert advisors at OGSCapital can help.

With over 15 years of experience in M&A, strategic planning, and business planning, OGSCapital has helped numerous clients acquire and integrate businesses successfully. Our business plan writers can conduct diligence, analyze the deal, create projections, and craft a winning plan tailored to you. If you’re still thinking about how to buy an existing business, partner with our seasoned advisors to maximize your chances of closing and profiting.

Frequently Asked Questions

What is acquisition in business plan.

Acquisition in a business plan is buying or merging with another company to achieve strategic or financial goals. Acquisition planning can help a company expand its market share, diversify its product portfolio, acquire new technologies or skills, or reduce competition.

How do you create an acquisition plan?

To create a business plan for buying an existing business, you must define your objectives, identify and evaluate targets, conduct due diligence for merger and acquisition , negotiate the deal, plan and execute the integration, and monitor the outcomes.

How do I prepare my business for acquisition?

To prepare your business for acquisition, you should improve your business value, know your valuation range, establish an advisory board and a transition team, clean up your financials and legal documents, and prepare a pitch deck and better buy side due diligence services .

What should be included in an acquisition plan?

A business plan for buying an existing business should include an executive summary, target description, market overview, sales and marketing, financial history and projections, transition plan, deal structure, and appendices/supporting documents.

OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.

Add comment

E-mail is already registered on the site. Please use the Login form or enter another .

You entered an incorrect username or password

Comments (0)

mentioned in the press:

Search the site:

OGScapital website is not supported for your current browser. Please use:

Credit cards
View all credit cards
Banking guide
Loans guide
Insurance guide
Personal finance
View all personal finance
Small business
Small business guide
View all taxes

You’re our first priority. Every time.

We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.

So how do we make money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. Here is a list of our partners .

How to Buy a Business: Everything You Need to Know

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .

Buying a business is a big decision — but when you pull the trigger on buying an existing business, you get the opportunity to become an entrepreneur without starting a small business completely from scratch. Every year, more than 500,000 businesses change hands, and that number is expected to skyrocket in the next several years as millions of baby boomers begin retiring and selling their businesses.

Buying an existing business is so popular because it lets you skip past some of the pain points and costs of starting a new business. But the journey from finding a business for sale to closing the deal can be long and complicated.

Before you begin the journey of buying a business of your own, find out everything you need to know to avoid buyer’s remorse. Our buying an existing business checklist will give you a step-by-step guide. We'll also cover the pros and cons of buying a business when you’re still just thinking about the idea, and end with how to buy a business when you're ready to close the deal and get the keys.

Buying an existing business checklist

If you’re set on the idea of buying a business, then it’s crucial to make sure you pick the right business for you . The easiest way to set yourself up for success is buying a business that you’re passionate about improving and taking to the next level. But passion alone isn’t enough — experience and knowing which questions to ask when buying a business are also important when making your choice.

Here is your buying an existing business checklist:

1. Figure out what type of business you want to buy

Narrow down your passions, interests, skills and experience. You’ll be happier if you buy a small business that dovetails with what you already like and have some experience in.

For example, if you’ve been a line cook at a restaurant for several years, maybe you’ve decided you’d like to own your own restaurant. Or maybe you’ve been an employee for a long time at a company that’s now on the market. In that case, who better to buy the business than someone who knows it as intimately as you?

Although you might just want to buy a business for the financials alone — by its expected return on investment — it’s also important to align yourself with the business's immaterial goals. After all, the more knowledgeable and familiar you are with the business's model, products or services, customers, industry and trends, the more innovative and successful your new ideas will be.

How much do you need?

with Fundera by NerdWallet

We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

2. Search for businesses that are for sale

There are plenty of ways to find the right business for sale that fits the criteria you’ve decided on. These include:

Online business marketplaces such as bizbuysell.com, the largest site of its kind with more than 45,000 active listings.

Craigslist ads.

Classified newspaper ads under the “Businesses for Sale” category.

Asking people in your network of small-business owners.

Going to meetups or industry conferences to ask other business professionals.

Working with a business broker.

Business brokers legally represent the seller, so you should be careful about conveying certain information to them (such as how far you’re willing to go in negotiations). However, a broker can help you understand what kind of business you want, prescreen businesses to cut out all the failing companies, keep negotiations civil and smart and help you with all the necessary paperwork. Brokers do earn a commission when a sale goes through, but it’s typically paid by the seller.

3. Understand why an existing business is up for sale

There are plenty of reasons a business owner might put their business up for sale, including something as simple as an innocuous lifestyle choice like retirement. Or, there might be a more worrisome reason, like a fundamental problem with the business. If you’re about to buy a business, you’ll want to know exactly why the businesses you're considering are no longer working for their current owners.

You should ask the current owners what challenges they've encountered, what they’ve done to try solving those problems and how those attempts fared. During every conversation with the current owner, you should ask yourself, “Do I have what it takes to meet these challenges with different or better solutions?”

Be on the lookout for:

A poorly conceptualized business plan (there’s just not a market for the product or service).

Competitors that are far ahead.

Existing business debts.

Location problems.

A brand issue.

Inventory difficulties (the cost of production is too high, low quality is losing the business customers, storage is difficult, there’s no supply and demand balance, etc.).

Bad equipment (it’s outdated and too expensive to upgrade).

Make sure you know as much as you can about the existing business's successes, failures, challenges and future opportunities. In addition to speaking with the owner about these concerns, also talk to existing customers, existing employees, locals in the area, neighboring businesses and so on. They’ll give you an honest view of how the business is doing, without the bias of the seller trying to convince you to buy.

4. Narrow in on a business that aligns with your budget, goals and resources

Until now, you might have been considering several different businesses, but now it's time to hone in on the best option. The best option is the business that aligns with your budget, goals and resources.

Calculating the ideal size, location, sales, staff and so on of your prospective business is an important step in your plan of buying a business, since it will give you a scale to keep in mind when you’re shopping around. Figure out how much you’d ideally want to change a business, and assess how much that will cost you.

Money isn’t the only thing you’ll be spending. Look at the time and energy commitments you’re planning to invest to make the business your own. Some managers prefer to be “on” at all times, in the weeds with their employees, while others prefer to delegate and, one day, own multiple businesses.

The amount of resources you’ll have to invest depends in large part on the people and processes already in place and on the experience you have in the industry. For example, if you’re buying a tech company but lack technical expertise, you’ll need to invest time learning the ropes or hiring people who have the experience.

5. Do your due diligence

Due diligence is the process of gathering as much information and intel as you can before buying a business, and it is a critical step in your journey to becoming a business owner. During this period, you should work with an accountant and lawyer to make sure you have all the information you need to move forward.

As the buyer, you’ll want to have a good accountant on your side to review the business's financials. It's also beneficial to have a good business attorney to represent you in negotiations and to help you understand how the transaction will be structured.

Before you can begin your due diligence, the seller will most likely ask for a signed confidentiality agreement or nondisclosure agreement. By signing, you agree not to disclose any confidential information about the business that’s uncovered during the due diligence process. This protects the seller in case you decide buying the business is not for you after reviewing all the documents.

There are many business documents, files, agreements and statements that you’ll want to collect and analyze, ideally with the help of a lawyer and accountant. Here are some of the must-have documents when doing due diligence in the process of considering whether to buy a business:

Business licenses and permits

First up is to make sure that the business you’re looking at has all the business licenses and permits it needs. If you’re buying a business, you want to make sure that the current owner hasn’t run afoul of any local business licensing laws. Businesses in certain industries, particularly highly regulated ones like food services and childcare, need a valid permit to stay open.

Organizational paperwork and certificate of good standing

If the business you’re buying is a sole proprietorship or partnership, there may not be official “founding” paperwork. However, a registered business entity, such as an LLC or corporation, will have organizational documents on file with the state. For an LLC, this is the articles of organization. For a corporation, this is the articles of incorporation.

The secretary of state in your state should also be able to produce a certificate of good standing for the business you’re interested in buying. This certifies that the business is approved to operate in the state.

Zoning laws

Check with your area’s local zoning laws to make sure that you're buying a business that isn’t violating any restrictions. While some localities allow mixed-use commercial and residential zoning, others have tight restrictions on where businesses can be located. This especially goes for businesses like bars and nightclubs that may not be desirable in a residential area.

Environmental regulations

Has this business been secretly dumping chemicals into the nearby reservoir or violating other environmental laws? Make sure the answer is a firm no before moving forward with buying the business. Double-check that this business abides by all of the area’s small business environmental regulations .

Letter of intent

As you move forward with buying a business, the seller issues a letter of intent, or LOI, to the buyer when both sides have agreed on a price point and about which business assets and liabilities will be included in the transaction. The price proposal, along with the terms and conditions of the business sale, should all be included in the seller’s LOI.

The LOI is an indication from the seller that they are serious about seeing the deal through to the end. Once you have it in hand, you can feel more comfortable forging ahead with the remainder of due diligence.

Contracts and leases

Half the fun of the decision to buy a business is all the stuff it comes with. Whether that means a lease for the location, equipment or something else, you’ll want to make sure the landlord is alright with transferring over these legal documents to your name. Otherwise, you’ll need to negotiate a new lease, which can significantly add to your expenses.

You’ll also want to review any outstanding agreements that the owner has with vendors or customers. This can be very revealing. For example, if your review indicates that 90% of the business's revenue comes from a single client, you’ll want to think twice before buying. If that client parts ways with the business, it could put a serious dent in the business's potential.

Business financials

Before buying a business, make sure to examine its past few years of financials, including:

Tax returns.

Balance sheets.

Cash flow statements.

Sales records and accounts receivable.

Accounts payable.

Debt disclosures.

Advertising costs.

Double-check that the tax returns and financial statements have passed an audit by a certified public accountant; don’t accept those financials from the sellers themselves.

Use the business's financials as an opportunity to analyze its income stream. The business you purchase doesn’t necessarily have to be profitable yet (particularly if it’s a young business), but there should be a clear path to profitability.

Be in the know on whether the business's debts and liabilities will be included in the transaction or not, and be wary of taking these on. For example, if some of the outstanding receivables the ex-owner was dealing with are too old — 90 days or more, for example — then they’ll be pretty tough for you to collect on. You might be better off asking the seller to insure them or contact the customers themselves.

Organizational chart

If you buy a business with employees, make sure you understand how they rank and relate to one another by asking for a business organizational chart. This should also include compensation data, management practices and processes, benefit plans, insurance and vacation policies.

Status of inventory, equipment, furniture and building

Make sure to critically analyze these aspects of the businesses, since their values will directly impact the cost of the business. You’ll want to check:

What’s on hand.

Its quality.

How sellable it is, both in terms of market viability and its condition.

How fast and for how much each type of inventory has sold in the past.

The present condition of equipment and furniture versus its original selling price.

Whether it was maintained well or needs repairs.

Whether the furniture will be useful to you or if you’ll need to replace it to be operational or for aesthetic reasons.

If you’ll need to make larger modifications to the building.

And other similar questions.

Sites like whayne.com can be used to look up equipment and obtain price estimates.

6. Evaluate the price of the business with the earnings, assets or market approach

This is where many deals fall apart because buyers and sellers often place very different values on the same business, and several factors affect a business's value.

Buyers and sellers usually use some kind of pricing model to get a ballpark number and frame negotiations. During this process, it can be very helpful to call in an independent business valuation professional to make an objective determination of value. Valuation services, which can be found online or through word of mouth, cost around $3,000 to $5,000, but they can save you thousands more in the long run by coming up with a good estimate.

Whether you do this yourself or hire someone, it’s helpful to have some knowledge of different business valuation method s. To get some insight, we spoke with Mike Bilby, CPA and certified valuation analyst, at Concannon Miller.

Bilby said small businesses should understand three main approaches to valuing an existing company when they're considering how to buy a business:

Earnings approach

Best used for : buying existing businesses that are already turning a profit or have a positive forecast of earnings.

The earnings approach values a business based on its historical, current, and projected profits. Specific methods you may come across that fall into this approach include the capitalized earnings method and discounted cash flow method.

For businesses with a history of fairly stable profits, that history can be used to anticipate future earnings and value the business. Even if a business hasn’t generated a profit yet, earnings models can be used to predict how much the business might earn in the future. The disadvantage of the earnings approach is that it relies on a prediction of future earnings, which may not be accurate.

Assets approach

Best used for : buying capital-intensive businesses, such as manufacturing and transportation businesses, and businesses that aren’t profitable yet.

The assets approach measures the value of a business's tangible and intangible assets minus debts and liabilities. Tangible assets include things like equipment and real estate, and intangible assets include things like patents, trademarks and software. The assets approach considers the current fair-market value of the business's assets but also the future return on investment that the owner could get from those assets.

Market approach

Best used for : accounting for local factors or confirming a price that you arrived at based on one of the other two approaches.

The market approach measures the value of a business based on how much comparable businesses have sold for. It’s a good way to get a ballpark range for a business's value and to account for local factors that the other approaches may miss, such as the business's location in a particular neighborhood.

It might be confusing to get all these approaches straight in your head, but the point of all of them is to assess the current financial health of the business, as well as its growth potential. In reality, Bilby says, none of these methods exists in isolation. All three of these approaches can be used to arrive at a fair price for a business, and the final price will always be the one that both the buyer and the seller agree on.

7. Secure capital to make the purchase

Once you and seller agree on a number, the next step in buying a business is to get the money. There are a few different ways you can gather the capital you’ll need to purchase a business — some specific to buying an existing business, others pretty standard.

Here are some of the ways to finance a business acquisition:

Use personal or family money

If you’re able to cover the costs of buying an existing business, that’s always an option. This is more likely if you're buying a small business rather than a chain. Of course, you’ll want to consult your accountant before ponying up a large lump sum of your own cash. Also, make sure that you’re not using all your money buying a business because running a business takes capital, too.

Many businesses are also funded with money borrowed from family. If you go this route, you should understand the tax implications for gifts and family loans. Make sure that you and your family member put the exchange of money in writing and follow IRS rules for family loans.

Seller financing

Some sellers will agree to holding a note, or accepting staggered payments — sort of like a lender. This way, they get guaranteed income for the coming months (or years, depending on your plan).

There are rules around seller financing, particularly if you plan to use another form of debt financing as well. For example, sellers have to be on “standby” if you’re also getting an SBA loan, meaning they have to agree that they won’t be paid back until you pay off the SBA loan.

Some sellers might also be willing to trade in some assets, like some furniture they really loved or the company car, for a lower price.

By turning to a partnership instead of buying a business solo, you can divide the payments you’ll be making while still owning that company.

Taking on a partner when buying a business isn’t only useful to cut costs, though: You can also bring someone on board with more specific experience or a different skill set. Just don’t forget to draw up a partnership agreement, so co-ownership doesn’t cause any problems down the line.

Sell stock to employees

By selling company stock to your employees, you can get a big discount — making up 50% or even 90% of the business price by some measures. You’ll probably want to sell non-voting stock, if possible, to retain ownership over the business. In order to issue stock, you’ll have to organize the business (or re-organize it) as an S corporation or C corporation.

Start by leasing the business

It might be possible for you to lease the business instead of buying it outright — with the option to make the big purchase down the road once you’re able to afford it.

Understandably, not all sellers will be open to this option, since they more likely than not want to wash their hands and walk away from the sale. However, if leasing is something you’d be more comfortable with — even though it may cost more money in the long run — you might as well ask.

Debt financing

Buying a business will give you tons of documents to approach a bank or alternative lender with for financing: financial histories, tax returns, employee records, cash flow analyses, inventory and equipment valuations, and much more. This wealth of data makes business acquisitions a good candidate for loans because lenders aren’t working with a risky blank slate.

If you’re looking for a small-business loan , here are a few potential financing options that might help in buying a business:

Asset-based financing.

Getting a business acquisition loan is typically easier because the lender has a history to assess. But just like with any business loan, lenders will scrutinize all of the following:

Borrower’s personal credit score.

Business credit report and score.

Annual revenue.

Time in operation.

Balance sheet.

Outstanding debts.

For term loans and SBA loans for when you buy a business, banks typically require buyers to put down a 20% to 25% down payment on acquisition loans. However, the SBA recently made some changes that make it easier for buyers to obtain SBA 7(a) loans for buying a business. Now, the SBA requires the buyer to put down just 10%, and only half of that (5%) has to come from the buyer's own cash. The rest can come in the form of a seller's note as long as the seller agrees to be on full standby — meaning that the seller won't be paid back on their note until after the bank is paid.

When getting a business acquisition loan to help with buying a business, you’ll also have to provide a formal business valuation (like we discussed before), explain your relevant experience, offer an updated business plan, and show financial projections for the business under your command. In short, you’ll want to tell a story of how you'll improve the business.

» MORE: Compare the best business acquisition loans

8. Close the deal with the appropriate documents

The last step in our buying an existing business checklist is to close the deal.

When you’ve finally found the right business, done your due diligence, agreed on a fair price and gathered the capital you need, make sure you (or a broker) have all of these documents, notes and agreements in place before you officially buy a business:

Bill of sale

When buying an existing business, this document will prove the actual sale of the business, officially transferring ownership of the business's assets from the seller to you.

Adjusted purchase price

This is the final count of the cost of your purchase, including all prorated expenses—like rent, utilities, and inventory.

If you’re taking over the business's lease, make sure your future landlord is in the know. On the other hand, if you’re negotiating a new lease, double-check that everyone understands its terms.

Vehicle documentation

Does the business you're buying come with any vehicles? If so, you might have to transfer ownership with the local DMV — make sure to get the right forms completed by the time of sale.

Patents, trademarks and copyrights

Similarly, when buying an existing business, all patents, trademarks, and copyrights might require certain forms to get transferred to you, the new owner.

Franchise paperwork

Check the SBA’s Consumer Guide to Buying a Franchise to see if you’ll need to file any franchise documents.

Non-compete agreement

It’s standard practice — and generally a good idea — to ask for a non-compete from the former owner. This way, the previous owner won’t set up a competing shop right across the street.

Consultation/employment agreement

This document should be drafted in the case that the seller is staying on as an employee. Make sure to file this agreement if so.

Asset acquisition statement

The IRS Form 8594 will list the assets you’ve acquired, and for how much. This document is pretty important in the "buying an existing business" checklist for your tax returns, so don’t forget it.

Bulk sale laws

Bulk sale laws have to do with the sale of business inventory and are designed to prevent business owners from evading creditors by transferring ownership of the business to someone else. To comply, prospective buyers usually have to notify the local tax or financial authority about the pending sale.

And that's everything you need to know about how to buy a small business. But knowing how to do it is one thing, knowing why you're doing it is another. So let's talk about reasons for buying a business.

Start Your Dream Business

Reasons to buy a business

Buying a business is kind of like being in the market for a home. Although some people like the history and character that comes with an older home, others don’t want the baggage that can saddle an older home and prefer something turnkey. Similarly, there are plenty of advantages when you buy a business that’s already been around for a while, but there are drawbacks, as well.

Pros of buying a business

Proven business concept.

When launching a brand-new business, the bulk of your time will be spent on the planning phase. You’ll have to write a business plan and figure out how to turn that plan into a reality.

But when you buy a business that's already up and running, you’ll typically have all of this in place:

A building or office space.

Inventory and equipment.

An established brand and business brand identity (whether or not you want to change it, people know it).

Customer base.

Vendor and supplier base, plus manufacturing resources.

Existing employees who can share their knowledge and expertise.

Management processes and policies.

An understanding of your competition and market.

Granted, each of these things may not be in great condition, and the business might not be turning a profit yet. However, buying an existing business means it has some structure already in place, which will save you time upfront, letting you quickly see what you need to zero in on. Particularly if you’re testing a new market or entering an industry that you don’t have much experience in, zipping past the difficult startup phase can be a huge advantage.

Lower operating costs

One of the major benefits of buying a business is that the operating costs are lower. For example, startup costs for a brand-new restaurant can run upward of $450,000 for initial supplies, food and beverage, signage and a customized kitchen design. With an existing business, your initial operating costs are lower because — unless your acquisition is pretty atypical — many parts of the business are already in place and ready to go once you’re at the helm.

You don’t need to spend as much of your budget on hiring employees, developing marketing strategies or building a customer base because those come with the transaction. Instead, you can pour more cash into expanding the business and adapting it to your vision.

Easier to obtain financing

While the move to buy a business isn’t always a safe bet, lenders and investors see it as lower-risk than launching a new company. This is because there’s a history of financial performance that a lender or investor can use to gauge how the business has performed to date and to predict future performance. Plus, there’s also existing data around the company’s market position, competitors, brand recognition and customer base.

All this makes investors more likely to invest in the business and can make lenders more comfortable in giving you a business acquisition loan. The current owners can even participate in financing the transfer of ownership by giving you a loan.

Intellectual property is on the table

If your business-to-be has patented their products or has a copyrighted slogan or trademarked logo that wins over customers, then that intellectual property value will probably transfer over to you in the acquisition. That means when you buy a business, you sometimes buy more than what the eye can see.

This isn’t on the table with every business acquisition, but it could be critical if you’re dealing with something that you think could be expanded even more. What if you turned this small business into a national franchise? All of a sudden, that patent and copyright becomes a lot more valuable. Patents, copyrights and trademarks are often included in sales of software companies, tech businesses and creative businesses (e.g., music, design and art).

Cons of buying a business

Higher upfront purchasing costs.

By buying an existing business, you’ll be able to save money on operating costs, such as inventory and equipment. However, you’ll probably face some pretty sizable purchasing costs. In fact, those purchasing costs might be greater than what it would take you to start a new business.

That’s because, in addition to the obvious assets, you’re also buying ownership over the following:

Built-out brand.

Design work, from logo to store interior.

Business concept and plan.

Time, effort, and money spent testing out products.

Refined processes, procedures and policies.

Income stream (if the business is already profitable).

Assets and equipment.

Intellectual property, such as copyrights, patents and trademarks.

All of these items will be the subject of negotiations between the buyer and seller and factor into the final purchase price when buying an existing business.

Unfamiliarity with the details

If you’re buying a business you didn't start, you’ll understandably be a bit less familiar with its inner workings and the details of its products, processes, employees and financials than if you built the business yourself. This could be a bit of an obstacle, especially when you’re just starting out. This is especially true if you are entering an industry that you lack experience in. You’ll need to spend a lot of time learning the ropes, and prepare for the learning curve to be steep.

Risk of a hidden problem

As a prospective business buyer, you’ll go through a fairly intensive due diligence process, where you’ll gather information about the business and the current owner. But no matter how much information you uncover, you always run the risk of taking on an issue that you’re not aware of or that’s worse than it appeared. For example, equipment could be damaged, or the brand might have a bad reputation. Once you buy a business, you buy those issues, like it or not.

On a similar note...

One blue credit card on a flat surface with coins on both sides.

Business Plan for Existing Company

It should include a financial plan and high-level strategy with clearly assigned priorities, specific responsibilities, deadlines and milestones. 3 min read updated on February 01, 2023

A business plan for existing company should include a financial plan and high-level strategy with clearly assigned priorities, specific responsibilities, deadlines and milestones.

Business Plan for an Existing Business

Business plans are not only meant for new businesses. Having a business plan for an existing business offers several benefits. It increases the confidence of investors in your business, attracts new partners or employees to your company and makes your business look more attractive to the prospective buyer if you are selling your business. Above all, a business plan guides you through growth and success at different stages of your business.

Preparing a business plan in black and white gives you an opportunity to give a careful thought to each step required to achieve your business goals. You can discover any existing weaknesses and likely challenges you may encounter down the line. It also helps you identify untapped opportunities and capitalize on them.

A typical business plan includes the following sections:

Description of the Company
Mission and Objectives
Products and Services Offered
Market Demand and Trends
Marketing and Sales Plan
Operational Plan
Management and Organization
Financial Statement
Financial Analysis
Financial Plan

Sometimes, events like business acquisition, new product development or franchise purchase, may necessitate an existing business to create a business plan. Existing businesses generally use a business plan to outline their strategies, keep a tab on expenses, and benchmark the progress. Unlike in the case of a new business, creating a business plan for an existing business is simpler due to ready availability of operational information.

Benefits of Having a Business Plan for an Existing Business

Guide your growth : The success of a business depends upon a lot of factors, including persistent hard work, prevailing economic trends, market needs and location of your business. Having a business plan guides and influences your growth and helps you move towards defined business objectives in a proactive manner.

Manage your priorities : A business plan helps you focus on the order of your priorities and you can allocate resources where they are required the most. You can capitalize on your strength to perform those tasks first, which are most important in achieving your business objectives. In the meantime, you can simultaneously work towards tackling your weaknesses.

Assign responsibilities : Organizational responsibilities are developed and assigned on the basis of a business plan in order to achieve the set objectives.

Monitor business progress : A business plan sets the benchmark to measure progress towards achieving your goals. Without a plan, it becomes difficult to monitor whether you are managing the business in the right manner or whether the business is progressing in the right direction at a speed it ought to.

Plan for cash : Cash is the lifeline of any business. However, many businesses do not plan cash management well, although they are very particular about earning profits. Poor cash management can create bottlenecks in operations and damage your reputation among suppliers, vendors and creditors. A business plan includes a plan for efficient cash management, making way for smooth operations and functioning of the company.

How to Write a Business Plan for an Existing Business

Create a cover page with your business name, address, and contact information.
Write a general business description with company's mission.
Write a legal business description that includes the type of business entity (sole proprietorship, Limited Liability Company, corporation, etc.), number of years you've been in the business, sales, profit and finance history, etc.
Define the products and services of your business.
Analyze your industry, target market, demand and competition.
Prepare a marketing plan using your research and analysis.
Identify your main competitors along with their products, strengths and weaknesses vis-à-vis yours.
Define strategies for advertising and customer retention, along with associated costs and revenue generation.
Describe the operations of your business including its location and equipment details.
Identify the key personnel, and assign responsibilities and functions to them.
Provide financial information like accounting method (whether cash or accrual basis), credit terms, payment collection methods, etc.
Prepare financial statements like balance sheet, profit and loss statement and cash flow statement.
Summarize your business plan.
Generate a table of contents and appendices.

If you need help with a business plan for an existing company, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

Hire the top business lawyers and save up to 60% on legal fees

Content Approved by UpCounsel

Service Business Plan
Sample of a Good Business Plan
Details of a Business Plan
LLC Business Plan Template
Do I Need a Business Plan
Creating a Business Plan
Purpose of Business Plan Sample: Everything You Need To Know
Business Plan for New Company
Parts of Business Plan and Definition
Business Plan Contents Page

Original text

Business plans aren't just for startups. Developing a business plan for an established business serves several purposes: It can help convince investors or lenders to finance your business, persuade a business buyer to purchase your business or entice partners or key employees to join your company. Most importantly, it serves as a roadmap guiding your business's growth and continued success throughout its following stages.

Writing a business plan is an opportunity to carefully think through every step to achieving your goals for your company. This is your chance to discover any weaknesses that may threaten your business, identify opportunities you may not have considered, and plan how to deal with challenges that are likely to arise.

This template includes instructions for each section of the business plan for your established business, followed by corresponding fillable worksheet/s.

Sections of this business plan include:

Executive Summary
Company Description
Products and Services
Marketing Plan
Operational Plan
Management & Organization
Personal Financial Statement
Financial History and Analysis
Financial Plan

The last section in the instructions, “Refining Your Plan,” explains ways to modify your plan for specific purposes, such as getting a bank loan, or for specific industries, such as retail.

After you complete the worksheets, print them out, and you will have a working business plan for your established business. Then, contact a SCORE mentor to review and refine your plan.

Business Planning & Financial Statements Template Gallery Download SCORE’s templates to help you plan for a new business startup or grow your existing business.

Simple Steps to Write and Follow a Sustainable Business Plan that Ensures You Achieve Your Goals In this webinar, you will learn how to write a business plan to ensure you can go from business idea to business success.

You Created a Business Plan; Now What? So you have created your business plan. Now what?. In this webinar, you will learn the next step, how to execute your business plan.

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

A Complete Guide to Buying an Existing Business in 2023

There are many opportunities to buy an existing business, and it’s important to set yourself up for success before starting the process.
The positives of buying an existing business include inheriting a customer base and operational plan, while the negatives include a potentially higher purchase price and having to deal with possible existing problems.
This article explains what you need to look for in a potential business purchase, the pros and cons, where to find the right one, and the best funding options you can use to purchase an existing business.

Plan ahead – see what you qualify for today

Check out the options you qualify for as you explore buying an existing business.

State of the “Businesses for Sale” Market

The “businesses for sale” market refers to the sector that deals with buying and selling established businesses. It’s made up of a wide range of industries and sectors, from small local businesses to large enterprises. The market is influenced by a variety of factors, like:

The state of the economy : During times of economic growth and stability, the market tends to be more active, with a higher number of businesses being bought and sold. On the other hand, during economic downturns or recessions, the market may experience a slowdown as buyers become more cautious.
Industry trends : Different industries have varying levels of demand. Some sectors, like technology, healthcare, and e-commerce, traditionally have more potential for growth and profitability. Other industries may experience fluctuations based on consumer preferences, regulatory changes, or market disruptions.
Demographics : The aging population and retirement of baby boomers have had a significant impact on the “businesses for sale” market. Many business owners from this generation are looking to sell their businesses and transition into retirement, creating a supply of businesses for sale. This trend is expected to continue as more baby boomers reach retirement age.
Online marketplaces : The invention of online platforms and marketplaces has transformed the way businesses are bought and sold. Websites and platforms dedicated to connecting buyers and sellers have made it easier to access a larger pool of potential buyers. These platforms offer various tools to streamline the buying and selling process.
Financing and deal structure : The availability of financing options and deal structures can impact the market. Access to capital and favorable lending conditions can motivate buyers and make acquisitions more feasible. One the other hand, the market can go down when interest interest rates are high and credit is less easily available.

Like all markets, the “businesses for sale” market is dynamic and can vary significantly based on regional and local conditions. Factors like government regulations, tax policies, and cultural norms can also shape the market dynamics.

Pros and Cons of Buying an Existing Business

Buying an existing business can offer several advantages and disadvantages for small business owners. Here are some pros and cons to consider when finding the right business to purchase:

Established operations: An existing business already has a foundation in place for things like operational systems and processes. This can save time and effort compared to starting a business from scratch.
Brand recognition: You’ll get a brand name, reputation, and customer loyalty built into the deal. This can provide a head start in terms of market recognition and customer trust (although make sure that the brand reputation is a positive one).
Established customer base: One of the biggest advantages is inheriting an existing customer base. This can generate immediate revenue and provide a platform for future growth and expansion.
Cash flow and financial history: An established business often has a track record of financial performance, which can help in securing small business loans and assessing the business’s financial viability. Positive cash flow from day one can also reduce the risk of initial losses.
Supplier and vendor relationships: Established businesses may already have established relationships with suppliers, vendors, and partners. This can make it easier to access reliable suppliers and favorable terms from the get-go.
Higher cost: Buying an existing business can cost more than starting a new business. The value of an established business may reflect its assets, customer base, and potential for future earnings.
Existing challenges: The business you acquire may come with existing problems or challenges that need to be addressed, like outdated equipment, inefficient processes, or legal issues. Assessing and fixing these issues can require time, effort, and investment on your part.
Management challenges: It’s hard for a new owner to integrate into an existing business culture and manage employees who already work there. These challenges can lead to difficulties putting needed changes into place or achieving desired outcomes.
Hidden liabilities: It’s crucial to conduct thorough due diligence to uncover any hidden liabilities — this could be pending lawsuits, unpaid taxes, or contractual disputes. If you don’t identify these risks ahead of time, you may end up paying for them down the road.

Ultimately, you’ll want to consider both the advantages and disadvantages, as well look closely at the specific business and its market conditions. Conducting due diligence, seeking professional advice, and creating a well-informed business plan can help mitigate risks and increase the chances of a successful acquisition.

Where to Find Existing Businesses

There are several ways to find businesses that are for sale. Here are some common strategies to help you locate businesses that are on the market.

Online business marketplaces

There are online platforms dedicated to buying and selling businesses. Websites like BizBuySell, BizQuest, and BusinessesForSale.com offer listings of businesses for sale across different industries and locations. These platforms let you search for businesses based on specific criteria, like industry, location, and price range.

Business brokers

Working with a business broker can help you access a wider range of businesses for sale. Brokers specialize in connecting buyers with sellers and often have a large network and access to confidential listings. They can help you navigate the buying process, negotiate deals, and provide guidance throughout the transaction.

Professional networks and associations

Engaging with professionals such as lawyers, accountants, and financial advisors who work with businesses can provide access to potential opportunities. They may be aware of businesses looking for buyers or have connections with business owners who are planning to sell.

Direct outreach

If you have a specific industry or location in mind, you can proactively reach out to business owners to ask about their interest in selling. This approach requires research and targeted communication, but it can lead to discovering businesses that are not actively listed for sale.

Industry-specific publications and websites

Some industries have specialized publications, websites, or newsletters that feature businesses for sale within their niche. These resources can provide insights into opportunities within your industry.

When searching for businesses to potentially buy, having a clear understanding of your own criteria, budget, and objectives will help streamline the search process and focus on opportunities that line up with your requirements.

Why Consider a “Boring” Business

When people think of successful businesses, they often first think of flashy startups like Google or household names like Target. But there are a lot of lesser-known businesses with less of the pizzazz that provide fantastic opportunities for any entrepreneur looking to buy an existing company. More localized businesses or family-owned companies can have a proven track record of success, be profitable, and provide stability for you as an investor.

Types of “Boring” Businesses

There are many types of businesses that might be more low-key than a billion-dollar tech startup or high-profile company but are profitable and stable. These businesses include:

Construction or landscaping companies
Vending machines
Personal training
Online teaching
Cleaning service
Accounting and bookkeeping
Real estate

When you’re looking to buy a business, it’s best to look at the financial details and potential for future performance rather than being drawn in by a shiny idea. Making sure the business is a stable investment is the best way to set yourself up for success.

Female business owner happy with her business progress

Personalized financing that grows with your business

Your best funding options available at your fingertips. Join Nav and we’ll track all of your business financial health in one place, so you can always see the funding options you qualify for.

Business Formation: Due Diligence and Legal Considerations

With any new venture — whether that’s forming your own business or buying an existing one — you’ll need to both conduct due diligence and address legal considerations to ensure compliance, mitigate risks, and protect your interests.

Due diligence is the process of thoroughly investigating and assessing a potential business opportunity before going ahead with it. You’ll need to gather relevant information (like the asking price vs. the fair price), analyze these details, and make informed decisions before agreeing to a sale of the business. Due diligence helps you understand the risks, opportunities, and overall viability of the business you’re forming or acquiring.

During due diligence, you’ll want to think through the following aspects:

Compliance : Make sure that the business complies with all applicable laws, regulations, and licensing requirements. Assess any potential legal liabilities, ongoing litigation, or regulatory issues that may affect the business.
Finances : Review financial statements, balance sheets, tax returns, and other relevant financial documents to assess the business’s financial health, revenue, expenses, profitability, and cash flow. Identify any outstanding debts and liabilities.
Contracts and agreements : Examine contracts with customers, suppliers, landlords, and employees. Evaluate their terms, obligations, rights, and potential risks. Identify any limitations, exclusivity, clauses, or potential disputes that may impact the business.
Intellectual property : Determine whether the business owns or has the right to use any patents, trademarks, copyrights, or trade secrets. Assess the protection and enforceability of its intellectual property.
Assets and liabilities : Identify and evaluate the assets and liabilities of the business, including real estate, equipment, inventory, leases, loans, and outstanding obligations. Assess any potential environmental, legal, or operational liabilities.

In addition to due diligence, you’ll want to consider several legal aspects when forming or acquiring a business. While the specific legal requirements may vary depending on the jurisdiction and type of business entity, some common legal considerations include:

Business structure : Make sure the business uses the appropriate legal structure, such as a sole proprietorship, partnership, corporation, or limited liability company (LLC). Each structure has different legal and tax implications.
Registration and licensing : Check that the business is registered with the relevant government authorities and has the necessary permits and licenses required to operate legally in your area.
Contracts and agreements : Review contracts, like partnership agreements, operating agreements, shareholder agreements, employment contracts, customer agreements, and vendor contracts. Make sure they’re comprehensive, clear, and protect your interests.
Compliance with employment law : Ensure the previous owner understands and complies with employment laws, including hiring practices, wage and hour regulations, employee benefits, workplace safety, and anti-discrimination laws.
Tax obligations : Check that the business complies with tax laws and obligations, including obtaining tax identification numbers, understanding tax reporting requirements, and fulfilling tax payment obligations.
Data privacy and security: If the business handles customer data, make sure there are appropriate privacy and security measures to protect it in compliance with the law.

It’s a good idea to consult with legal professionals to ensure that all legal requirements and considerations are adequately addressed when you’re acquiring or forming a business. Using a business formation service is one of the best ways to form a business and make sure you’re compliant.

Funding Options for Purchasing an Existing Business

When you’re buying a business, you’ll need quite a bit of working capital up front to cover startup costs like the purchase price and the down payment. This capital can be made up of private funding (from investors, personal savings, or loved ones) or from lenders for funding like bank loans or lines of credit.

You also may be able to use seller financing, which is an agreement between the buyer and the current owner to pay back the value of the business over time. Seller financing can benefit both parties by allowing the buyer to pay more slowly and giving the seller a bigger pool of potential buyers to choose from.

Some examples of good business acquisition loans include:

How Can Nav Help?

We’re your partner in all things financial health for your small business. Nav is the only platform that can show you what business funding you can qualify for — before you apply. Let your business’s details work for you to find your business’s best funding options like loans or business credit cards faster. Get actionable cash flow insights, ways to help better your business credit, and more today.

This article was originally written on October 25, 2023.

Rate This Article

This article currently has 1 rating with an average of 5 stars.

Tiffany Verbeck

Tiffany Verbeck is a Digital Marketing Copywriter for Nav. She uses the skills she learned from her master’s degree in writing to provide guidance to small businesses trying to navigate the ins-and-outs of financing. Previously, she ran a writing business for three years, and her work has appeared on sites like Business Insider, VaroWorth, and Mission Lane.

Have at it! We'd love to hear from you and encourage a lively discussion among our users. Please help us keep our site clean and protect yourself. Refrain from posting overtly promotional content, and avoid disclosing personal information such as bank account or phone numbers. Reviews Disclosure: The responses below are not provided or commissioned by the credit card, financing and service companies that appear on this site. Responses have not been reviewed, approved or otherwise endorsed by the credit card, financing and service companies and it is not their responsibility to ensure all posts and/or questions are answered.

How to Buy a Business in 8 Steps (+ Due Diligence Checklist)

There are several paths to becoming a business owner. The most popular one is building a business from scratch. It is also one of the hardest routes to owning a business.

You have to come up with a product or service from scratch, conduct market research , find the right employees, attract customers, build cash flow, and so on.

If you don’t want to go through all this, an easier and less risky option is to buy an already existing business .

An existing business already has existing products or services, existing customers, employees who are knowledgeable about the company and its products, existing cash flow, and so on.

It’s good to note, however, that buying a business is not as simple as finding a business that’s on sale and paying the asking price. There are several things you have to keep in mind if you don’t want to end up making the wrong decision.

Below, let’s check out the 8 step process of buying an existing business.

Table Of Contents

How To Buy An Existing Business Checklist

Step 1: decide what type of business you want to buy.

If you go to BizBuySell and search for all businesses that are on sale, you’ll find thousands of businesses from a wide range of industries.

For instance, if you search for on-sale businesses in California, there are over 1,500 businesses that you can buy. The first three results show how varied the businesses are – the first business is in the tax preparation industry, the second in the food industry, and the third in the cannabis industry.

It is very unlikely that these three businesses across very different industries would all be suitable for you.

Therefore, before you begin searching for an existing business to buy, you have to start by thinking about the kind of business that you want to buy, one that would be suitable for your unique needs, characteristics and financial goals .

Some of the things you need to look at when deciding what type of business you should buy include…

1. Location

Most businesses operate within a specific location, and therefore, when buying a business, this is something you need to think about. Ideally, it is a good idea to look for a business that is within your locality .

If you are looking to buy a business in a different geographical location from where you live, this could require you to move, so it’s something you should be ready to do.

Apart from the convenience of being able to closely monitor your new business, the location of a business also affects other things such as taxes, labor costs, the cost of leasing rental premises, and so on .

All these have an impact on the business’s performance, so it is important to consider them before deciding to buy a business.

It’s good to note that if you’re looking to buy a business that operates online, location will not be such a huge factor to consider, since you can operate the business from anywhere.

2. Your Passion, Skills, Talent, And Experience

When buying a business, it is always a good idea to go for something that is well aligned with your passion, as well as your skills and experience . This is because these factors affect your ability to properly run the business and keep it profitable.

For instance, let’s say you have always worked as a marketing executive in a marketing agency, and have always dreamt of owning your own digital marketing agency.

If you go ahead and buy an existing digital marketing agency, you have enough skills and experience in the industry to successfully run the marketing agency you just bought.

Now, imagine that with your experience in the marketing industry, you go and instead buy a business that deals in mountain biking gear.

You have never ridden a mountain bike all your life, you have no idea which gear is popular among mountain bikers, you have no mountain biker in your network.

Without the experience, skills, and passion in the industry, it would be very difficult for you to keep the business profitable, even if the business was making money before you acquired it.

Note that this doesn’t mean that it is impossible to achieve success with a business in an industry you have no prior experience with. However, the more knowledgeable you are about the industry, the more likely you are to be successful .

3. Market Outlook

Just because an industry is performing well today, this doesn’t mean that it will do the same in future. And just because an industry is not doing well today, this doesn’t mean that it won’t do well in future.

Therefore, before making the decision to buy a certain type of business, take the time to do some market research and consider the long term forecast for the industry. Is there potential for growth within the industry?

Another important thing to think about is the size of the business you are interested in buying . Are you looking for a small business that you can run by yourself? Do you want a large company with dozens of employees and revenue that runs into the millions?

5. Lifestyle

Being a business owner is more than a job; it is a lifestyle. This is because running a business is a demanding venture that will have a huge impact on your lifestyle .

Before you decide to buy a business, therefore, you have to consider how it will affect your life, and if you are ready for such changes.

For example, if you are a solitary person who likes spending their time alone and doesn’t enjoy interacting with strangers in person, it would be advisable to buy a business that allows you to make money online , without the need to interact with customers in person.

Similarly, if you buy a business that will involve lots of travel, yet you do not like traveling, this could take a toll on your lifestyle, making it difficult for you to keep the business running successfully.

With this in mind, we recommend choosing a business that is well aligned with the kind of life you’d want to lead .

Finally, before you start looking for a business to buy, you have to consider how much you are willing to spend on purchasing the business .

You could find a well-performing business in an industry you are passionate about, a business that is well aligned with your lifestyle, and in a location that is convenient for you, but if it costs more than you can afford, you’ll have no other choice but to let it go.

You should keep in mind, however, that you don’t need to have all the money in cash in order to buy a business . You can still afford a business through other innovative financing options, such as seller-financing, debt financing, and so on.

Step 2: Search For Businesses That Are For Sale

Once you have determined the kind of business you want to buy, you can now start looking for businesses that are available for sale and that meet your criteria.

At this point, you want to identify as many businesses as possible that fall within what you are looking for, so you should look in as many places as possible. Some of the places and methods you can use to search for on-sale businesses include…

1. Online Platforms

The easiest way to find businesses that are for sale is to use the internet. There are several websites that list businesses that are for sale. The beauty of using online platforms is that they allow you to quickly identify thousands of businesses that you can buy .

Many of these platforms also allow you to filter available businesses by criteria such as location, industry, price, cash flow, gross revenue, how long the business has been in operation, and so on.

Another advantage of using online platforms is that they allow you to set up email alerts . This way, if a business that meets your search criteria is listed, you get notified. This is a lot easier than having to come back to the listings website to search for businesses every few days.

One of the best online platforms for finding businesses that are for sale is BizBuySell . With over 100,000 for sale businesses listed at any one time, you have a very high chance of finding a business that is perfect for you.

Other online platforms and websites where you can search for on-sale businesses include…

BizQuest.com : Best for finding small businesses and local business brokers.
BusinessBroker.net : Over 30,000 listings at a time, and offers finance and loan options.
BusinessMart.com : Best for finding business using advanced search and filtering options.
BusinessForSale.com : Over 70,000 listings from across the world.
DealStream.com : Has a database offering over 40,000 businesses and investment options at a time.

2. Reach Out To Local Businesses

Very often, business owners that are selling their businesses don’t put up signs on their door advertising that the business is for sale, since this can easily push away employees and customers.

So, how do you tell that such a business is up for sale? By talking to actual business owners.

To use this method, start by identifying suitable local businesses in your preferred industry that you’d be interested in buying, then reach out to the owners and let them know that you are looking to buy a business in that industry .

If you are lucky, you’ll get in touch with a business owner who is looking to sell their business. Even if they are not selling, however, they probably know another business owner who would be interested in selling their business.

With this method, you’re basically tapping into the network of business owners within your locality and using it to identify businesses that could be looking for a buyer .

One thing to keep in mind when using this method is that you are not looking for an immediate yes or no answer. If the person you are talking to doesn’t know anyone who is selling their business, ask them to be on the lookout and notify you if they happen to hear about a business that is for sale.

3. Hire A Business Broker

Hiring a business broker is one of the most effective ways of finding a business that you can buy . Business brokers are always in contact with business owners looking to sell their business, and therefore, it is very easy for them to find a business that meets your needs.

It’s good to note that brokers will charge you a commission to help you find a suitable business . However, this commission is usually paid if you find a business you like. Working with a broker can also provide you with several other benefits, including…

Screening the business for you : Any broker worth their salt will usually screen a business before recommending it to their clients. Many will check to make sure that things like the business’s financials and price are okay before recommending the business to you.
Paperwork assistance : If you have no prior experience buying a business, a business broker can help you with the required paperwork and ensure that you are compliant with all necessary laws and regulations.
Negotiation : A good broker also knows the ideal price range for different kinds of businesses and can help you negotiate a good deal.
Help you avoid pitfalls : Good business brokers know what kinds of businesses you should avoid and the mistakes to watch out for when buying a business, and can help steer you from buying a business you’d later come to regret.

4. Watch Out For Advertisements

Business owners looking to sell their business will sometimes put up advertisements in local newspapers, industry journals, publications and newsletters, and even classifieds sites like Craigslist. By keeping an eye out for such ads, you might find a business that fits the bill of what you are looking for.

You can also take matters into your own hands by putting out your own ads letting business owners know that you are looking for a business to buy.

Someone who is looking to sell their business but doesn’t know how to find a buyer could spot your ad and reach out to you with just the right kind of opportunity you were looking for.

5. Talk To Professionals That Work With Business Owners

Another way to identify businesses that are up for sale is to talk to professionals that work with business owners, such as lawyers, insolvency guys, M&A firms, auditors , and so on.

These guys will often know if a business owner is looking to sell their business, and by asking them for leads, you can easily identify business buying opportunities that you’d not have known about otherwise.

Step 3: Shortlist The Companies You Would Want To Own

The aim of the previous step was to identify all businesses that fit the criteria of the kind of business you are looking for. However, all the businesses you identified in that step will not be suitable for your needs, and after all, you cannot buy them all.

What you need to do next is to take a more detailed look at the businesses you identified in step 2 and come up with a shortlist of 2 or 3 businesses that are best aligned with your goals, your budget, and your resources.

When shortlisting the most suitable businesses, here are some of the factors you need to look at.

When identifying businesses that fit your criteria in Step 2, you looked at the cost and your ability to afford them. Now, it’s time to take a second look at each of the businesses you identified and determine which ones are comfortably within your budget.

Here, you should look not just at the initial cost of purchasing the business, but also the working capital needed to keep the business running once you take over . You don’t want to buy a business and then run it to the ground simply because you spent all the money on the purchase and don’t have the money to keep the operations going.

As part of evaluating how much you’ll need to keep the business running, you have to think about what you intend to change about the business, and how that will affect operation costs .

For instance, if you intend to focus on new marketing channels to help you grow the business, confirm whether your budget allows you to do this, in addition to paying the purchase price.

2. Expected Return On Investment

Take a look at things like the products or services offered by each of the businesses you identified, their customer base, and their annual revenue to help you estimate how much returns you can expect once you take over the business. Generally, the higher the expected return from the business, the more suitable it is .

3. Think About The Required Time Investment

All the different businesses you identified will require different levels of time investment. For instance, if one of the businesses is in an industry you don’t have a lot of experience in, you’ll need to spend a lot of time learning about the industry and the market.

An online business in an industry you are experienced in, on the other hand, might not require such a huge time investment from you, especially if it is a business that you can easily automate.

What you need to do here, therefore, is to go through the list of businesses you identified and determine the kind of time investment you’ll need to put into each business, compared to the time that you can actually put in realistically . The less time you need to invest in order to make the business successful, the better.

4. Understand Why The Owner Is Selling

A lot of times, business owners sell their businesses for very valid reasons. They could be relocating to a different place, they might be looking to retire, or they might have undergone a lifestyle change, making it impossible for them to continue running the business.

All the above reasons have something to do with the owner, rather than the business, and therefore, you can easily take over the business and continue running it successfully.

Sometimes, however, people will put up their businesses for sale because there is something wrong with the business . This is a huge red flag, since it will affect your ability to earn returns from the business once you take it over.

Some of the negative reasons why someone could be selling their business include…

Poor business concept
Declining market
Business debts
A product or service that does not have any market
Poor business location
Negative brand reputation
Outdated, costly equipment
Excessive competition

If the owner is selling the business for some of these reasons, they’re just trying to dump it on some unsuspecting investor. Note, however, that the seller won’t tell you this is why they are selling, so you need to do your homework to identify the owner’s motivations for selling.

If you feel that the business owner is being untruthful about their reasons for selling the business, strike it off your list.

5. Steady Income Stream

Just because a business has been operational, this doesn’t necessarily mean that the business has been making any profit, or even sustaining itself.

Therefore, it is important to check whether the business has been providing enough cash flow to pay for its expenses, and whether it has been making any profit for the owner.

Go through each business in your list and strike off any business that has been in existence for a significant amount of time but has not been generating sufficient income to keep things running smoothly.

Such businesses could end up being a money pit for you without delivering any returns, even in the long run.

6. Potential For Improvement

Sometimes, a business that is up for sale might not be performing optimally. However, upon closer inspection, you realize that there are some opportunities you can potentially exploit to significantly improve its performance .

Such businesses are some of the best that you can buy. Due to the sub-optimal performance, you will be able to negotiate for a significantly low price. Once you take over the business, you can then exploit the opportunities you spotted and rake huge returns from the business.

When evaluating a business, always try to see if there’s anything that can be done to improve the business. If there is no potential for improvement, strike it off your list.

7. Competition

Finally, make an evaluation of the market each business is operating in and the level of competition it is facing . What percentage of market share does the business control? Who are its biggest competitors? What do the competitors excel in? Does the business have any edge over the competition?

Generally, the less the competition a business is facing, and the greater the advantage it has over the competition, the more suitable it is .

By the end of step 3, you should have narrowed down your list to about 2 or 3 businesses that present the best opportunity for you.

Step 4: Complete Your Due Diligence

Now that you have 2 or 3 businesses you are really interested in owning, it’s time to conduct proper due diligence into each of these companies. This allows you to determine whether the assumptions you have so far about the business are accurate, and whether the business presents a good opportunity for you.

To do this, you need in-depth access to the company’s information, so you’ll first need to sign a letter of intent .

The letter of intent is drafted after you have spoken to the business owner and expressed your interest in purchasing their business.

The letter of intent defines your proposed buying price (subject to valuation), the tentative list of assets and liabilities that you intend to purchase as part of the acquisition, and the terms and conditions that will govern the sale.

The letter of intent is a demonstration to the seller that you are serious about your interest in purchasing their business , and that if everything meets the conditions agreed upon, you’ll go ahead with the deal.

Once you’ve signed the letter of intent, the seller can now allow you to access any legal or financial information that you need in order to perform a thorough analysis of the business. It is advisable to go through these documents with the help of an accountant to help make sure everything is in order.

During the due diligence stage, some of the things you need to look at include…

1. Financial Statements

These give you a detailed look into the business’s finances. How much money is flowing into and out of the business every month? Is the business generating enough money to keep itself running, or is it spending more money than it is making? How do the company’s assets compare to its liabilities?

Checking the financial statements will allow you to determine the financial health of the company and decide whether it is a worthy purchase .

The financial statements will also help you identify any opportunities that can be exploited to grow the business . For instance, you might identify expenses that can be reduced to generate more profits, or revenue opportunities that the business is not taking full advantage of.

2. Sales Records

Even though the financial statements have a record of the sales, you should still go through the sales figures individually. If possible, check the monthly sales figures for the last three years or more.

When evaluating the sales, check which products generate the most sales, whether most of the sales are made in cash or credit, whether most of the sales come from a single client or multiple clients , and so on.

This will give you a good idea of current business activity and help you make more accurate projections of what to expect once you take over the business.

3. Business Structure

How is the business legally structured? Is it a sole proprietorship, a partnership, or a corporation? This information is important because it will affect things like taxes, as well as your liabilities once you take over the business.

4. Brand Recognition

Branding is a very important factor in business. When a lot of customers know about the business you are interested in purchasing, you can easily achieve results without having to invest so much into marketing. It is also easier to benefit from things like word of mouth marketing.

It’s good to note that brand recognition can sometimes be negative, which is something you want to avoid. You are better off trying to build a little known brand than trying to do damage control for a brand with a negative reputation .

You can evaluate the kind of reputation a business has by checking feedback from past customers on the company’s social profiles, BBB ratings, and other online reviews.

5. Business Operations

These are the processes that the business undertakes every day in order to deliver products and services to customers. How are products manufactured? How does the business facilitate sales? What distribution channels does it use?

The point of evaluating business operations is to help you determine whether you’ll be able to keep these operations up once you take over the business, and identify any opportunities to make the business more efficient once you acquire it.

6. Marketing Strategies

How does the business promote its products and services to customers? What kind of image does the business project to customers? Are these marketing strategies working?

Taking a look at the marketing strategies the business is applying and their effectiveness will help you determine if you can grow the business by improving how it markets itself.

7. Inventory

If the business deals with physical products or supplies, check the level of inventory that the business is holding at the moment.

Find out the condition of the inventory, where they are stored (and whether you’ll have access to the storage area following the purchase), the company’s inventory management processes , and whether you’ll get the inventory as part of the purchase.

8. Existing Contracts

Since the business is already in operation, there is a high chance that it already has some existing contracts with clients, partners, suppliers and vendors, and so on.

Go through these contracts and determine how they will affect business operations once you take over the business .

For instance, some contracts could prevent you from bringing in new vendors, which means you won’t be able to lower some expenses.

If the business has existing contracts with clients, on the other hand, this is a good sign, because it means you’ll have clients even after you take over the business.

9. Employee Details

A business is as good as the employees working for it. Therefore, before purchasing a business, take the time to dig into the existing team. How skilled and qualified are they? How productive are they? Are there employees who are redundant?

If the business has a good team in place, it will be easier for you to take over the business without any significant impact on business operations .

Similarly, if you find that the business has some redundant roles, you can reduce costs by letting go of the employees in these roles.

10. Location

In the shortlisting stage, you only looked at the general location in which the business is located and how that affects your ability to run the business. During the due diligence stage, you need to look at the specific location of the business and how it affects the performance of the business .

For instance, if you are interested in buying a restaurant business, look at the specific area where it is located and ask yourself questions like,

“Is there enough foot traffic to sustain the business?”
“Are there other restaurants around the area?” “
“What kind of people frequent this area?”

In addition to helping you determine how the location affects revenue, you should also consider the costs that come with maintaining a business in that location .

For instance, if the business you want to buy is a manufacturing business that doesn’t rely on foot traffic, you can reduce expenses by moving the business to a cheaper location.

Does the business own any assets, such as buildings, property, equipment, furnishings, vehicles, and so on? Will these be sold together with the business, or does the owner intend to retain ownership of some of these?

Generally, purchasing a business together with its assets will be costlier, but it could still be beneficial, especially when these assets are crucial to business operations . However, take the time to evaluate the condition of some of these assets, such as equipment and furniture.

12. Liabilities

With the help of an accountant, go through the list of all liabilities owed by the business and determine how they affect the business .

For instance, if the business owner has used some of the business assets to secure loans, this is something you’ll want to know.

Similarly, if there are any unrecorded liabilities, such as out of court settlements that the business is paying off, or employee benefit claims, you’ll want to be aware of them, since they could be transferred over to you once you purchase the business.

13. Customer Patterns

If the business has been keeping track of customer data, go through this data to gain a better understanding about customer patterns.

Here, you want to answer questions like:

“Do most sales come from existing customers or first time buyers?”
“What is the customer churn rate?”
“Which seasons attract the highest number of first time or repeat buyers?”
“Which products are the most popular with customers?”

The more you understand about the business’ customers, the easier it will be for you to give them what they want and grow the business.

14. Seller-Customer Ties

Sometimes, you’ll find that there is some special tie between the business owner and some customers. In such situations, the exit of the business owner could result in the loss of such customers .

To avoid finding yourself in a situation where the business loses major customers following your purchase, try to identify any relationships between the seller and customers .

Who are the biggest customers? How long have they been customers of this business? Do they have some special agreements with the business? Do you have any reason to believe that these customers could leave once you take over the business?

Step 5: Brainstorm On What Marketing, Product, And Organizational Changes Could Increase Your Enterprise Value

While it is important to consider the past performance of a business before acquiring it, greater attention should be paid to its potential performance in future .

Now that you have done your due diligence and have a good idea of where the business you want to buy stands, both in terms of finances, legal and organizational structure, and business operations, it is time to brainstorm on ideas that you can use to grow the enterprise and increase its value.

The more ideas you can come up with on how to grow the business once you own it, the more suitable that business is, and the higher chances you have of achieving success after you buy the business.

Below are some marketing, product and organizational changes that you can make to grow the value of the business once you own it.

1. Create Additional Income Streams

If you have noticed some opportunities for earning the business new income streams that the current owner has not been taking advantage of, implementing them can be a great way to grow the business following the acquisition.

For instance, let’s say the business you want to buy is an online sports store. During the due diligence stage, you noticed that the business’s only source of revenue is selling sporting equipment.

However, based on your experience in the industry, you feel that the company is sitting on an opportunity to make money selling digital workout programs that your customers can do using your sporting equipment.

By implementing such new income streams, you can grow the company’s revenue without any significant increase in recurring expenses, leading to increased profitability .

2. Get Rid Of Unprofitable Products And Services

Sometimes, a company could be generating good revenue, but then a huge chunk of this revenue goes to producing and maintaining products and services that are not profitable.

By getting rid of such products, you can quickly increase the company’s profitability, while at the same time freeing up your employees to work on more productive tasks that contribute to the company’s bottom line.

Steve Jobs provides a great example of how this works. In 1996, Apple was producing dozens of products, but the company was on the brink of bankruptcy, with over $1 billion in losses in 1996.

When Steve Jobs came back to the company in 1997, he realized that the company was supporting too many products that were not making any profit.

When Jobs took over as the new CEO , he got rid of 70% of Apple’s existing products at the time, and only retained four of the company’s most profitable products . By the end of 1998, Apple had made over $300 million in profits.

Just like Jobs, if you notice that a business is spending resources producing and maintaining unprofitable products and services, you can increase the company’s profitability by simply getting rid of these products and services.

3. Improve Product Quality

Another easy way to grow a business after acquisition is to improve the quality of its products and services.

For instance, if you are buying a restaurant, and you think that the reason it has not been maximizing its revenue is because the food was average, you can hire a skilled chef after acquisition to improve the quality of the food, which will lead to more clients patronizing the restaurant.

4. Invest In Better Marketing

After doing your due diligence, you might have noticed that the business has great products at a great price point, but is still not making enough sales. In such a situation, the problem could be the marketing strategy.

Once you take over the business, you can increase the company’s revenue by investing in better, more effective marketing channels , such as Facebook marketing or webinar marketing .

5. Review The Current Pricing Structure

A business’s pricing strategy has a huge impact on its ability to make profits . While raising prices immediately after acquiring a business can be a risky move, it can still make a huge impact on the company’s profits, especially if the price increase is accompanied by an increase in quality.

6. Increase Operational Efficiency

Very often, businesses are unable to achieve peak performance not because they don’t have the right resources, but because they are not using these resources in the most efficient manner.

For instance, unnecessary red tape and departments that operate in siloes can easily lead to increased delivery times and loss of productivity.

If you identified such inefficiencies during the due diligence stage, you can make a significant impact on the organization’s bottom line by reducing the inefficiencies .

Some of the things that you could do to improve operational efficiency include getting rid of policies and workplace procedures that introduce bottlenecks, breaking down siloes between teams and departments, and ensuring that all teams are aligned with the needs of the business.

7. Reduce Expenses

Another low hanging fruit for anyone looking to improve a company’s bottom line following an acquisition is reduction of expenses. By reducing business expenses, you can achieve an immediate increase in profitability without implementing any other strategy.

Some of the things you can do to reduce expenses include shifting to low cost production processes, finding cheaper vendors and suppliers or negotiating for discounts, letting go of redundant employees, moving the business to new premises with lower rent costs, digitizing processes to reduce paper and stationery costs, and so on.

You can easily identify excessive expenses that present the opportunity for reduction during the due diligence stage by looking at documents like the cash flow statement .

8. Take Advantage Of Technology

Adopting new technology is another very effective way of increasing the value of an enterprise after acquiring it and making an impact on the bottom line.

For instance, by taking advantage of artificial intelligence software and tools , you can automate various business processes and increase productivity without the need to increase your staff.

Aside from increasing productivity, adoption of new technology after you take over the business can also help you increase the quality of your products or services and give you a competitive edge over the competition.

Step 6: Evaluate The Price Of The Business

Having done your due diligence on the business, and with a clear idea of the changes you’ll make to improve the business and grow its value, it’s now time to evaluate the current value of the business, which will help you determine a reasonable price for the business.

In most cases, the seller will often try to get as much as possible for the business , and will sometimes use unconventional valuation methods that give them the greatest advantage. This is why it is very important to conduct your own valuation.

You can evaluate the price of the business by yourself or hire a professional to do it for you. Whatever option you opt for, below are some of the most common methods used to determine the price of a business that is on sale.

1. Using Multipliers

This is a simple way of evaluating the price of a business, where you take a certain business value, such as after tax profits, seller discretionary earnings (SDE) , or monthly gross sales, and apply a predetermined multiplier to this value .

For instance, let’s say you are using monthly gross sales as the basis of your valuation. The business you want to purchase registered average monthly gross sales of $100,000 over the last 12 months, and the industry multiplier for this type of business is x3.

In this case, the price of the business would be:

$100,000 x 3 = $300,000

While using multipliers is often the simplest way of determining the price of a business, it has one major weakness – multipliers are subjective .

Multipliers will often vary depending on factors like the industry the business is operating in, the level of competition in the industry, how diversified the business is, post-closing expenditure, how well-established the business is, how closely related the business is to the owner, whether the business owns any intellectual property, and so on.

With all these, deciding which multiplier to use can be confusing, and there’s a chance that the seller will prefer using a different multiplier that gives them the greatest advantage.

That said, using multipliers can still give you a quick estimate of what you should pay for the business .

2. Assets Approach

This is one of the most accurate ways of evaluating the value of a business. With this method, you determine the price of the business by subtracting its liabilities from its assets, then multiplying the difference by a predetermined number , usually one or two.

You can easily determine the difference between assets and liabilities by checking the company’s balance sheet.

The assets to consider when using this method include any property owned by the business, equipment, furniture, fixtures, leasehold improvements, unsold inventory, supplies, accounts receivables, trademarks, patents, and so on.

Liabilities include tall unpaid debts, bad investments, liens, uncollected taxes, lawsuits and judgments, and anything else that can potentially take money away from the business.

Asset based pricing evaluation is the best approach when you are purchasing a business that is capital intensive, as well as those that have not started making profit .

3. Discounted Cash Flow

This method allows you to estimate the current value of a business by looking at its projected cash flows in future .

In other words, the DCF method tries to determine the current value of a business based on the return on investment you will receive from the business in future, adjusted for the time value of money.

The DCF method assumes that the value of a dollar today is higher than the value of the same dollar tomorrow , because today’s dollar can be invested to yield more money tomorrow.

When using this method to value a business, you need to calculate the projected cash flows from the business for a certain period of time, then use a discounted rate to calculate the present value of those earnings .

While the DCF method is a great way to evaluate the appropriate price of a business based on your expected returns, it has one major weakness. The accuracy of your valuation depends on the accuracy of your predictions . If you come up with inaccurate cash flow projections, you’ll end up with an inaccurate valuation.

When evaluating the price of a business , it is always advisable to work with a professional who is well conversant with valuing businesses , otherwise you can easily end up paying more than the business is worth.

Step 7: Secure The Required Funding To Finance The Purchase

After valuing the business, you now know how much money you need in order to complete the purchase. If the seller is in agreement with your valuation and has agreed on the amount you are offering, it’s now time to put together the money you need to acquire the business.

It’s good to note that buying a business can be a costly affair, so you need to have given some thought to your source of funding even before you start looking for businesses to buy.

Fortunately, you have several options when it comes to raising funds to finance a business acquisition. Let’s check out some of them below.

1. Personal Funds

This is the simplest way of funding a business purchase. Here, you are basically using your own money to cover the cost of purchasing the business .

The problem with this financing option is that you need to have a lot of money saved up, which often makes it a not viable option, especially when you want to acquire a large business.

However, y ou can easily use personal funds to finance the purchase of a small business that has a relatively low price tag.

2. Debt Financing

This is one of the most common ways of financing the purchase of a business. With debt financing, you are purchasing the business with money borrowed from a bank or other lending institution.

The beauty of debt financing is that you can then use proceeds from the business to clear the loan over the agreed period of time.

What makes debt financing such an attractive option for financing the purchase of an existing business is the fact that the existing business provides you with tangible proof of the ability of the business to pay back the loan .

By providing the lender with documents like cash flow statements, the company’s tax returns, financial histories, valuations of the company’s equipment and inventory, employee records, and so on, you give lenders the confidence that they are not funding something that could end up being an expensive gamble.

If you decide to use debt financing, some of your options include…

Traditional bank loans : This involves approaching a bank for a loan. The bank gives you money that has to be repaid plus interest within a certain time, usually ranging from 1 to 5 years. Bank loans work best when you are purchasing a business with substantial assets. You also need to have an exceptional credit score.
Online loans : This involves financing the business acquisition using funds borrowed from online lenders. They are similar to bank loans, but they usually have lower qualification requirements compared to traditional bank loans. However, these loans often charge higher interest since they are usually unsecured. Some examples of good online lenders that you can borrow from include Fundera , Lendio , Fundbox , Funding Circle , BlueVine , and OnDeck .
SBA Loans : This is one of the best options for borrowing money to purchase a business. SBA loans are guaranteed by the U.S Small Business Administration , which makes SBA loans easily accessible and very affordable, with very low interest rates.

3. Seller Financing

This is a unique way of financing the acquisition of a business by borrowing money from the seller.

In simpler terms, you pay the seller an initial sum of money, take control of the business, then continue paying them over time until the whole purchase amount has been cleared . In most cases, you pay off the seller using money generated from the business.

It’s good to note that finding a seller who’s open to this option can be very difficult , since most sellers want to get their money and hand over the business entirely. However, there is no harm in asking, you might come across a seller who is comfortable with this option.

4. Asset Based Financing

Also known as a leveraged buy-out, this is where you use the assets owned by the business you are buying as collateral to secure a loan, and then use this loan to fund the acquisition of the business .

Some of the business assets that you can use to secure funding include the company’s property, equipment and machinery, inventory, and unpaid invoices.

It’s good to note that with this kind of financing, you won’t be able to raise the whole amount required to purchase the business. Therefore, this option is typically used with another financing option, such as use of personal funds or seller financing.

5. Find A Partner

If you are unable to raise the funds to purchase the business on your own, another suitable option is to find a partner to help you purchase the business.

With this option, you have two options. The first one is to find a co-owner . In this case, you own the business together, and each one of you will be involved in the day to day running of the business.

If you opt for the co-owner route, it is advisable to find someone who has some skill set or experience that is beneficial to the business .

If you don’t have someone who’d be interested in partnering with you in mind, ask the business owner to give you a list of any other people who had expressed interest in purchasing the business but couldn’t afford the purchase price.

You can then approach these people and propose a partnership deal. Remember to always prepare a partnership agreement with the help of your lawyer before bringing on board a partner.

The second option is to find a venture capitalist or an angel investor . In this case, the investor is not involved in the day to day running of the business. Instead, they only give you the money and get a share of the profits until they recoup their investment plus interest.

6. Selling Stock To Employees

Another innovative way to finance the purchase of a business is to sell stock to the company’s employees.

With this route, you pay a percentage of the purchase price, while the employees raise the remaining percentage , which gives them some ownership of the company.

If you opt for this route, it is advisable to sell non-voting stock. This way, you get to retain total control over how the business is run. The employees only get a share of the business profits in the form of dividends.

7. Decline Receivables Or Assume Liabilities

You can also lower the initial purchase price of the business by declining the company’s receivables or assuming its liabilities.

When you decline the receivables, any money owed to the business before you took over will be paid to the seller . This means that you can deduct this amount from the purchase price.

When you assume the business’ liabilities, you are agreeing to pay off the debts that the business owed before you acquired it .

Note that while this will reduce the initial purchase price, you’ll still have to spend money to cover the debts. The only difference is that you will not be required to spend this money immediately, and can therefore pay off the debts using money generated by the company after you take it over.

Step 8: Close The Deal With The Right Documents

If everything is in order, and you have secured the funds you need to finance the purchase, it’s now time to do the final thing in the process – closing the deal and taking ownership of the business.

Closing the deal is a complicated process that sometimes involves various legal and financial traps, so you should always go into this step with the guidance of your lawyer.

Your lawyer will ensure that you meet all your contractual rights and obligations, and help you scrutinize all the necessary documents.

Below is a list of the documents that need to be present before you can finalize the deal, pay the seller, and officially take ownership of the business.

1. Confidentiality Agreement

During the sale of a business, a lot of confidential information is exchanged – details about business assets, debts, and finances, details about how the business runs its operations, details about you (the buyer) and how you intend to finance the purchase, and so on.

All these are very sensitive details that both you and the seller might want to keep away from the public – whether the deal goes through or not. To prevent such details from leaking to the public, it is a good idea to always have a confidentiality agreement.

2. Bill Of Sale

This is a very important document that proves that the sale occurred and that the business, as well as its assets have been transferred from the seller to the buyer.

3. Adjusted Purchase Price

This document gives the final purchase price of the business , and takes into account the cost of everything that contributed to the final purchase price – including the cost of things like assets, inventory, goodwill, and so on.

4. Acquisition Agreement

This is a legal document that covers all the terms that govern the purchase . It defines all the details of everything that the seller and the buyer have agreed upon, including the price of the acquisition , the assets and liabilities that are to be transferred as part of the purchase, and the time frame within which the acquisition needs to be completed .

The acquisition agreement also anticipates and describes what needs to be done in case things do not go as planned – for instance, if the buyer discovers that the seller misrepresented some information. The aim of this is to protect you (the buyer) and ensure you get what you are paying for.

5. Asset Purchase Agreement

If you are assuming ownership of the business’s assets as part of the purchase, you will need an asset purchase agreement. This document describes, in detail, the exact assets that you are purchasing, and those that you are not purchasing .

The information in the asset purchase agreement is usually covered by the IRS form 8594 , which you must complete before acquiring a business.

The asset purchase agreement typically covers the following:

Inventory : A list and value of all inventory currently held by the business.
Plant and machinery : a list and value of the plant and machinery owned by the business, as well as the lease or purchase agreements for these assets.
Goodwill : This gives the value of intangible assets like customer base, brand and reputation, and intellectual property.
Creditors/debtors : Unless you have agreed to decline receivables or assume liabilities, the seller will be responsible for paying creditors and collecting debtor payments until the transfer is officially completed.
Employees : This describes whether the employees will be automatically transferred with the purchase of the business. This is usually governed by the TUPE regulations , and usually applies when the business is being transferred as a ‘going concern.’
Contracts : Any current contracts will be listed here. You might want to review the contracts and protect yourself from potential liabilities by adding some clauses to these contracts.
Assignment deeds : In the event that you are taking over lease or hire purchase contracts, you have to get the consent of the lessor or the hire purchase company before the contracts are transferred to you.
Property transfer documents : If you are acquiring the business premises as part of the transfer, you’ll need to fill and sign the formal transfer documents.
Landlord consents : In situations where the business has leased the business premises, you’ll need to get the consent of the landlord to have the lease transferred to you. As part of getting the landlord’s consent, you might be required to provide some personal guarantee.
Vehicle transfer documents: If the business owns any vehicles that you are purchasing as part of the business acquisition, you’ll need to get the proper forms and have the ownership of the vehicles transferred with the local DMV.

6. Intellectual Property Transfer Documents

If the business you are purchasing owns any copyrights, trademarks, and patents, make sure that these are transferred to you before you take over the business.

7. Non-Compete Agreement

Imagine a situation where someone sells their business to you, then sets up a similar business next door. By doing so, they take away the customer base, as well as any goodwill they had built in the business they just sold to you.

To avoid such situations, it is always recommended that you ask the seller to sign a non-compete agreement.

The non-compete agreement restricts the seller from setting up a business, or from being employed or consulting for a business that would be a competitor to your business within a given radius from your business premises.

A good non-compete agreement will also have a clause to restrict the seller from engaging in similar business with the customers of the business for a given time frame following the purchase.

The non-compete agreement should also restrict the seller from encouraging the employees of the business to quit from their positions in your business and take up employment in a competing business.

8. Employment/Consultation Agreement

In the event that you intend to have the seller remain in the business, either as an employee or a consultant, you’ll need to create this document to define the terms of this agreement.

9. Bulk Sale Laws

Bulk sale laws are laws that were created with the aim of protecting creditors of a business by giving them a notice whenever a company that owes them is selling most or all of its assets . This way, business owners cannot sell their businesses with the aim of escaping their liabilities to creditors.

Before closing the deal, you’ll need to notify the local tax office about your intention to purchase the business.

If all the above documents are in order, you can now go ahead to make the payment to the seller and assume control of the business.

Quick Due Diligence List For Buying A Business

Collecting as much information as you can about a business before you decide to acquire it, which is also known as due diligence, is a very important part of the process of buying a business.

If you don’t do it right, you could potentially find yourself in various financial or legal problems shortly after taking ownership of a business.

To help you avoid finding yourself in such problems, here is a quick list of everything you need to look at when doing your due diligence before buying a business. You should go through everything in this list with the help of your lawyer and accountant.

1. Organization And Good Standing

Here, the aim is to determine the legal structure of the business and find out whether it is in good standing with state authorities .

Some of the documents and paperwork you need to look at here include:

The articles of incorporation for the company, and any amendments that have been made since incorporation.
All company bylaws, as well as amendments of the same
Copies of the company’s minutes for the duration it has been in operation
A list of shareholders showing how much shares each shareholder holds
Certificate of good standing
A list of all states and countries where the business is legally authorized to do business, as well as states and countries where the business does business, has employees, and holds or leases property.
The company’s annual reports for the last 3 years

2. Financial Information

A company’s financial information plays a key role in helping you determine whether a business is worth buying, as well as how to value the business . When evaluating a company’s financials, some of the documents you need to look at include…

The business’s audited financial statements for at least 3 years
The company’s most recent unaudited statements
Auditor’s reports, letters, and replies for at least 3 years
Sales records for the last 3 years
A schedule of accounts receivable and accounts payable
The company’s capital budgets, projections, and strategic plans
The company’s analyst reports
The company’s credit report
The company’s general ledger
An analysis of the company’s gross margins, if available
An analysis of the company’s expenses, both fixed and variable
A schedule of the business’s advertising costs

3. Inventory, Equipment, And Other Assets

T he assets owned by a business you want to purchase will have a direct impact on the amount you are going to pay for the business , so it is important to know what they are, their actual value, and their condition, as well as whether you’ll actually need them once you take over the business.

Some of the documents to ask for here include…

Copies of purchase documents on equipment owned by the business
All leases on equipment not owned by the business
A schedule of the business’ fixed assets and where they are located
A schedule of all major capital equipment purchased or sold by the business in the last three years
A schedule of all inventory held by the business
All U.C.C filings

4. Real Estate

If the business owns some property, you need to know about the property, and whether it will be part of the transfer or not. If the business owns real estate, you’ll need to ask for the following documents…

A schedule of all business locations maintained by the company
Copies of all deeds, title policies, mortgages, leases, variances, surveys, and use permits

5. Intellectual Property

Where the business you are interested in holds some intellectual property rights, copyrights, and trademarks, you should ask to see the following documents…

A schedule of copyrights
A schedule of trade names and trademarks
A schedule of all patents held, both domestic and foreign, as well as any pending patent applications
Any “work for hire” agreements
A description of how the business protects its know-how and trade secrets
A description of all technical know-how held by the business
Copies of consulting agreements the business has with third parties
A list of all intellectual property claims or threatened by or against the business

6. Employees And Employee Benefits

When purchasing a business that employs staff, it is important to know the number of staff under employment and how much they get paid , especially if you intend to retain the employees after acquiring the business.

Here are the employee-related documents you’ll want to check as part of your due diligence…

A detailed list of all staff, including their positions and roles, their salaries and benefits, how long they’ve been working for the company, and all salaries and benefits paid out for at least 3 years.
All agreements between the business and its employees, including employment, consulting, non-competition, non-solicitation, and non-disclosure agreements.
The company’s employee handbook and schedules of all employee policies
Resumes of key employees
Copies of any existing collective bargaining opportunities
Copies of all stock purchase plans and stock options available to employees
A description of existing employee health and welfare insurance policies and the benefits accorded under these policies
A list and description of all labor disputes the business has faced within the last 3 years – whether settled or pending

7. Business Permits And Licenses

It is also important to know whether the business you want to purchase has all the permits and licenses it needs to operate, and that it is not in violation of any state or city laws. The permits required will depend on the nature of the business and the industry it operates in.

8. Environmental Regulations

Imagine buying a business, only to discover that it is facing fines and penalties because it has been illegally disposing of hazardous chemicals into a nearby river? To avoid such situations, you need to make sure that the business is in compliance with all environmental laws .

Any available environmental audits for all properties leased or owned by the business
A list of the business’s environmental licenses and permits
A list of all hazardous substances the business uses in its operations, as well as how they are disposed
Copies of all correspondence between the business and any environmental regulatory agency
A list of all environmental disputes, investigations, or litigations the business has been involved in

9. Zoning Laws

Next, you need to check whether the business you intend to buy is in compliance with any zoning restrictions.

In some cities, you might find that certain businesses, such as bars, nightclubs, and manufacturing businesses, are not allowed in certain neighborhoods. You don’t want to buy a business that could end up being closed for violating zoning laws.

Has the business you are interested in buying been diligently filing its taxes, and is it compliant with all tax laws and regulations? Here, ask to see the following documents…

All sales and income tax returns filed for the last 3 years
All employment tax filings for the last 3 years
All recent tax settlement documents
Any tax liens

11. Contracts And Leases

It is important to find out all the contracts and leases held by a business before you acquire it. This way, you can determine whether to maintain the contracts and leases or whether to negotiate new ones, as well as how canceling any of these contracts will affect the sale .

When reviewing contracts and leases, you’ll need to look at the following:

Contracts and agreements between the business and its vendors and suppliers
Contracts and agreements between the business and its customers
Any lease agreements for properties occupied by the business or equipment
All installment sale agreements
All loan or credit agreements to which the business is a party
All non-competition and non-disclosure agreements the business has signed with other parties
Any other contracts and agreements that apply to the business

12. Product And Service Lines

Ask for a list of all products and services currently offered by the business, as well as those that are under development. If there are any evaluations, studies, tests, surveys, or customer complaints regarding the products or services, get a copy of these as well.

13. Customer Information

Your due diligence would be complete without information about the company’s customers. When reviewing customer information, ask for the following…

A list of the company’s biggest customers for the last 3 years
Any existing supply or service contracts between the business and customers
A description of any credit agreements between the business and its customers
A list of all pending customer orders
A list of all key customers lost over the last 3 years, and the reasons behind the loss
A description of the business’ current marketing strategies
A list and description of the business’s main competitors

14. Litigation

If you purchase a business that is facing legal disputes, you could easily end up assuming liability for these disputes.

To avoid this, you need to make sure that the business is under no legal threat . To do this, ask to see a list of all pending and threatened litigations, as well as documents relating to any settlements, consent decrees, or injunctions to which the business is a party.

15. Professionals

If the business has engaged any professionals over the last 3 years – such as consultants, external accountants, and law firms – ask for a list of these professionals, as well as their contact information.

16. Articles And Publicity

Finally, ask for copies of all of the business’s press releases, articles, or any other form of publicity that the business has been featured in over the last 3 years. This can help you evaluate the company’s brand and reputation.

Pros Of Buying A Business

Now that you are conversant with the step by step process of buying a business, is it better to buy an existing business or build your own business from scratch? Let’s go over some of the advantages of buying a business that is already in existence.

1. Market Tested Concept And Products

When starting a new business from scratch, you are taking a very big gamble. You don’t know whether your business concept will work, or whether there is a ready market for your products and services .

Things like creating a business plan and conducting market research will help you reduce the risk, but you’ll ultimately know whether there’s demand for your products once they hit the market.

With an existing business, the risk is less, because you can check how the business has been performing to determine whether the business concept is working, and whether there is demand for the products and services.

2. Reduced Startup Time

Getting a new business off the ground takes a significant amount of time and effort , because there are lots of things to be done.

You have to find office space or business premises, purchase equipment and inventory, find the right employees and train them, come up with management policies and processes, build relationships with vendors and suppliers, develop a distribution network, and so on.

With all these activities that need to be done, it could be a while before you actually open your doors to the public and start selling.

When buying an existing business, most of this work has been done for you . You can literally finalize the purchase today and open shop tomorrow.

However, this is not to say that there’ll be no work on your part. You also have to put in work to improve the business and take it where you want it to be.

3. Established Brand And Customer Base

Building a brand is no small task, especially if you are starting a business in a crowded industry. It could take a few years to get people to know about your brand and your products and services, and a few more to build a loyal customer base.

With an already existing business, the brand is already established, and the business already has an existing customer base , thus making things a lot easier for you.

4. Securing Business Funding Is Easier

Raising funds to start a new business is not an easy thing to do. This is because you are borrowing money against an idea that is only in your head.

This presents a huge risk for investors and lenders, because the only tangible thing is your business plan, and there is no guarantee that you will be able to successfully implement the business plan.

With an existing business, securing funding is a lot easier because you are not borrowing against projections that may never materialize. Lenders and investors can look at revenue figures, profit margins, and the company’s assets and lend you money against something tangible.

This is not to say that it is impossible for an existing business to fail. However, financing an existing business presents a lower level of risk to lenders and investors compared to financing a new venture.

Sometimes, the business you are buying could have copyrighted slogans, patents, trademarks, and other intellectual property.

Once you acquire the business, this intellectual property could be transferred over to you, and could give you a competitive edge that you would not have had by starting your business from scratch. Note, however, that you may be required to pay for this intellectual property as part of the purchase.

Cons Of Buying A Business

Despite having all the above advantages, buying an existing business is not all smooth sailing. Some of the drawbacks of buying an existing business include…

1. Higher Upfront Costs

With a new business, you can acquire various assets gradually as the company grows, which allows you to keep the cost of starting the business manageable. When buying an existing business, however, y ou’ll be expected to pay for these assets all at once .

In addition, when acquiring an existing business, y ou’ll also be paying for other intangible assets , such as the brand and reputation of the business, the customer base, intellectual property, business policies and procedures, income streams, and so on.

While all these are negotiable, having to pay for them at once can push the cost of acquiring an existing business way higher than the cost of starting a new business and growing it gradually.

2. Risk Of Unidentified Problems

Sometimes, business owners will decide to sell their business because there’s an issue with the business that could affect its long term success . However, many of them will try to hide this information from potential buyers.

While an intensive due diligence process can help you identify such red flags before you commit your money to buy the business, it is possible to miss an issue or two, or underestimate an issue that seems insignificant.

Once you have bought the business, there’s no going back. If you discover any red flags at this point, the only thing you can do is try as much as possible to rectify the issue, though this might not be possible in some cases.

For instance, if you just bought a business in a market that is declining, there’s not much you can do to revive the market.

3. Unfamiliarity With The Business

When you build a business from scratch, you’ll have an extensive knowledge of how that business works, how it makes its profits, and the inner workings and processes that make the business successful.

When you buy a business that was built by someone else, you don’t enjoy the privilege of such knowledge, even if you have experience in the industry . This means that you’ll have to go through a steep learning curve in order to continue running the business successfully.

Sometimes, someone who bought an existing business might be unable to discover the unique thing that made the business successful under the previous owner, and faces the risk of running the business into the ground.

4. Making The Business “Your Own” Can Be A Huge Challenge

When someone starts a business, they have a goal and vision for that business. When you buy the business, you’re essentially stepping into the founder’s vision.

Since you don’t have the same vision as the founder, you have to work on developing your own vision for the business, which calls for changes to the business.

For instance, you might want to introduce new products and services, or change the business model. However, instituting such changes to the business can be detrimental to its performance, and can sometimes lead to loss of customers or key employees .

Ready To Buy A Business And Start Your Entrepreneurial Journey?

If you want to become a business owner, but don’t want to go through the challenging process of building a business from scratch, you can start your entrepreneurial journey by choosing to buy an existing business instead.

While buying a business can be a complicated process that requires its own specialized knowledge, we’ve furnished you with all the required information and broken the process into 8 easy to follow steps.

Here’s a recap of the steps:

Step 1: Decide what type of business you want to buy
Step 2: Search for businesses that are for sale
Step 3: Shortlist the companies you would want to own
Step 4: Complete your due diligence
Step 5: Brainstorm on what marketing, product, and organizational changes could increase your enterprise value
Step 6: Evaluate the price of the business
Step 7: Secure the required funding to finance the purchase
Step 8: Close the deal with the right documents

While these steps break down buying a business into a simple process, buying a business is still an involved process that requires a lot of time investment and a lot of caution. We always recommend working with the right professionals to avoid any legal or financial problems down the road.

It is also advisable to keep in touch with the previous owner, because you might need their help or advice somewhere down the road.

All said and done, if you follow the process and recommendations shared in this guide, you’ll be able to successfully start your entrepreneurial journey without the pressure of building a business from the ground up.If you prefer starting your own business, rather than buying an existing business, check out our guides on how to start a blogging business , how to start a podcast , how to start a consulting business , and how to start an online store .

Was This Article Helpful?

Anastasia belyh.

Anastasia has been a professional blogger and researcher since 2014. She loves to perform in-depth software reviews to help software buyers make informed decisions when choosing project management software, CRM tools, website builders, and everything around growing a startup business.

Anastasia worked in management consulting and tech startups, so she has lots of experience in helping professionals choosing the right business software.

How to buy a business

Be careful if you're thinking about buying an existing business. Make sure you know why it's for sale and if it's worthy of the asking price.

Ready to start your business? Plans start at $0 + filing fees.

by LegalZoom staff

Buying a business in 7 steps

Step 1: choose a business to buy, step 2: find out why the business is for sale.

Step 3: Assess the company's financial health
Step 4: Calculate the business's market value

Pros and cons of buying an existing business

How much does it cost to buy an existing business, when does buying a business make sense as a business investment, you bought the business; now what.

Building a business from the ground up is not for everyone and can take a physical, emotional, and financial toll on entrepreneurs.

business people shaking hands after making a deal

But buying into an existing business with established demand and excellent profits can help reduce some of the stress and risk to you. Learn more about the pros and cons of purchasing a business, the steps to buying a business, the types of businesses you can buy, and tips to ensure that you're pouring your resources into a viable company.

7-step guide to buying a small to midsize business or a franchise.

If you've decided you're ready to buy a business , here's everything you need to know to get started and feel confident about your purchase.

Financials and ROI aren't the only important considerations when making a responsible business decision. You also need to understand the company and industry. This will help you offer fresh insights that can take the company you acquire to new heights.

You should also have a working knowledge of industry trends and the company's offerings, business model, and target audience. Understanding these things will help you bring fresh insights and innovative ideas to the company.

For example, if you have any job experience at a store, it might make sense to acquire some kind of retail operation. You'll likely be able to brainstorm better promotions, know when to order more or less of a specific product, and how to create a better shopping experience for your customers.

There are numerous other factors that you should consider before choosing a business to buy. Consider your interests, passions, education, and professional experience to narrow down your ideal business opportunity.

How to find businesses for sale

You can find small businesses, franchises, and corporations for sale online, in advertisements, by networking with locals and community leaders, or by hiring a business broker.

Online: Marketplaces like BizBuySell and Shopify's Exchange Marketplace are good places to start looking for business acquisition opportunities.
Advertisements: Some businesses may advertise on Craigslist or local swap sheets. You may also strike gold looking for businesses to buy in the classifieds.
Network: Perhaps the best way of finding elite opportunities before the general public is by reaching out to friends, family, former colleagues, industry leaders, community members, and area small business owners.
Outsource: If you don't have time to find the right business to add to your portfolio, a business broker can find the best deal, negotiate a great price, and assist with the purchase paperwork for a fee.

The reasons people may choose to sell their business are endless. Maybe they're retiring, they always intended to sell, profits are in the gutter, or they're struggling to catch up to more established competitors.

Some of these issues are yellow flags but could potentially be resolved with some extra funding and a better business plan. Other issues may disqualify a business altogether. Some red flags include the following:

Unhappy customers or a poor reputation
Dissatisfied and unmotivated employees
Lackluster online reviews
Oversaturated markets and established competitors
Poor location with insufficient foot traffic or parking
Bad credit history

Tips for learning why an owner is selling their business to determine if its a good investment.

How to have an honest conversation about a business

Sometimes owners genuinely just want to retire and pad their savings account or take their career in a different direction at a time when they can cash out for a profit.

Other times, there are more sinister reasons for owners putting their businesses up for sale. The only way to find out is to talk to the owner and fact-check everything.

Here are some ways you can uncover potential issues:

Talk to customers: A business is nothing without paying customers. Talk to clientele to see what they like and dislike about the company and the quality of its services.
Read online mentions: This can tell you more about how people feel about the company and give you insight into its reputation. If they have an F on the Better Business Bureau (BBB), one star on Google My Business (GMB), and complaints and controversies surfacing on social media, you know to ask questions or nix the deal.
Talk to employees: Some staff members may be hesitant to tell the truth, if it will put their job at risk, but many will give you valuable information about how the business is managed and areas where you can improve it.
Assess competitors: Do some research to determine if the local market is oversaturated with companies similar to the one you want to buy. You should also ensure that there aren't any established companies with a monopoly on those services.
Visit the business: Seeing a business in person can tell you a lot. Maybe it's in an awkward location, doesn't receive enough foot traffic, or has insufficient parking options.
Run a credit report: Paying bills late or not at all may indicate hidden problems with the business, like cash flow problems or irresponsible management.

Questions to ask before buying a business

Once you've talked to everyone and done your due diligence, evaluate everything you've learned by asking yourself these questions:

Why is the owner selling?
Can I add value to the business?
What is the company's financial status?
Is it priced right for the amount of money it brings in?
What assets are included in the sale?
Who are the company's main competitors?
Can you outpace the competitors, even if you're starting from behind?
What does the industry outlook look like?
How much money will you need to invest after the sale to make the business profitable?
What licenses and permits do you need to acquire or maintain?
Does the company have a good relationship with its employees and customers?

Step 3: Assess the company's financial health

Once you feel confident that the owner is selling the business for the right reasons and you're interested in moving forward, take an in-depth look at the business with an attorney and an accountant.

Documents you should review before purchasing an existing business

1. Sift through founding documents

Every business should have articles of incorporation, a business plan, operating agreements, employee and NDA agreements , and business registration documents. If you plan to buy a company, you have a right to request the chance to review all of these. But take extra care to review the following:

Articles of organization: Sift through these founding documents for LLCs and corporations to learn more about the business, including how long it's been around and who's involved in the enterprise.
Certificate of good standing: Ask for a certificate of good standing to prove that the company is properly registered and current on all fees and filings.

2. Check business licenses and permits

In addition to checking in on the businesses standing with the state, you should also ensure that it complies with local laws. They should have all city- and state-mandated licenses and permits on file.

3. Review local zoning ordinances

Cities use zoning to divide the land up by purpose. Ensure that the work the company does complies with zoning and environmental regulations.

Zoning laws: Ensure the existing business isn't violating the city's zoning regulations by checking area zoning laws.
Environmental and health regulations: You should also look at the area's small business environmental regulations to ensure the business is in good standing before moving forward with the purchase.

4. Request all contracts and legal documents

Ask for copies of all legal documents. This may include leases, standing agreements with customers, distributors, contractors, union contracts, and other documents.

5. Review intellectual property records

Understanding a company's trademarks, patents, copyrights, and trade secret policies can help you better understand its priorities, products, and value. Intellectual property protection also helps safeguard assets unique to the company.

6. Examine tax and financial records

Examine tax and financial records from at least the past five years to determine if the business is following the law and how much it's worth. The financial records you should review include the following:

Tax returns
Cash flow statements
Debt records
Balance sheets
Marketing and advertising costs

7. Evaluate sales records

In addition to the aggregate financial data, look at sales records monthly to determine which products and services sell the best and what times of the year might be slow for business.

You should also compare the business's prices with those of its competitors.

8. Take inventory of all business assets

Inventory all the business assets and note their age, condition, and value.

Some of these assets may increase the value of a business. But if things like tools and equipment are unsafe or outdated, it could be a liability and lower the company's value.

9. Check employee information

Look into the company's staff, salaries, benefits, and duties to ensure that it's on par with the industry.

Perhaps improving benefits will incentivize great employees to work hard and remain loyal to the company after ownership switches hands. Or perhaps you need to add more work to someone's plate if you're losing money based on their work-to-benefits ratio.

An honest assessment of employee skills, work ethic, and schedules also lets you know if you need to move people around or hire for an additional position.

Step 4: Calculate the business's market value

Calculate the market value of any company you're considering buying using the business valuation formula.

Business valuation formula

Add the value of the company's assets (equipment and inventory), then subtract all of its debts or liabilities. The remaining total is the company's market value.

Step 5: Consider funding and financing options

If the business already produces fairly stable quarterly profits, you should know how much it's worth now and how much it will make in the future. The process only becomes murky if the business hasn't turned a profit, but you expect it to in the future.

In a situation like that, consider the value of the business' assets (equipment, inventory, real estate, intellectual property, etc.) and how those assets could bring in during future months.

To arrive at a fair valuation, many prospective buyers also look at how much comparable businesses have sold in the market. Local factors like location and consumer demand are baked into the price.

Income-based valuation methods

This determines the value of a business based on the income you expect a business to earn using one of the following valuation methods:

Asset-based valuation: Determine the business' value based on the value of its tangible and intangible assets.
Market-based approach : Determine the business' value based on the value of comparable businesses within the industry.
Discounted future cash flows method: The discounted cash flow valuation method estimates how much a business is currently worth by looking at future cash flows.
Capitalization of earnings method: The capitalization of earnings method shows the business's future profitability by looking at how much you expect the business to earn based on its current earnings.

Business purchasing financing options

To finance the acquisition of a company, you can:

Use your savings or borrow money from family members
Find a business partner to purchase the business with you
Negotiate a rent-to-buy deal
Take out a loan from the bank or set up a payment plan with the seller
Explore additional loan options, like an SBA loan

But you should read up on the laws around seller financing. In many cases, other loans take a higher priority. For example, if you secure a loan from the U.S. Small Business Administration, you're usually required to pay that back before you pay a seller back.

Step 6: Sign a letter of intent

Before reaching a final agreement, consider drafting a letter of intent . Think of this as the first draft of your agreement.

It's typically short and sweet and includes the terms of the deal, price information, descriptions of any assets involved in the transaction, and other important information.

Letters of intent aren't typically binding. Instead, they're a way for buyers and sellers to negotiate a transaction without fully committing and to demonstrate that both parties are interested in the transaction.

Step 7: Close the deal

Finally, it's time to close the deal. In addition to settling on the appropriate price in your final agreement, you'll also want to consider how to transfer leases, vehicle ownership records, intellectual property, and other assets into your name.

6: Business purchasing mistakes to avoid

The business buying process is complicated, but there are some clear-cut things you can avoid to protect yourself and your investment.

Don't purchase without knowing why the business is for sale
Don't underestimate the value of goodwill toward a company
Don't just skim the surface—make sure you do your due diligence
Don't overextend your business purchasing budget
Don't buy into an industry you know nothing about
Don't buy to make a total overhaul immediately.

Buying an existing business has numerous advantages and disadvantages, but it's generally considered a low-risk way to become a business owner.

"If you buy a business, there are customers and clients, systems and processes in place, and documented financial performance that will allow a new owner to predict future income; and the future former owner is a mentor to help the new owner grow the business," John R. Allen III, the managing partner of Allen Business Advisors , a business brokerage firm, says.

Advantages of buying a business

When you start your own business, it can take several years of trial and error to hone in on your niche and develop a loyal audience. But when you purchase a business, you can skip over this tedious process altogether and enjoy numerous other benefits.

Perhaps the biggest advantage to buying over starting a business is the existing business's potential. You may see growth opportunities the current owner doesn't, or maybe you have a winning business plan in mind.

Your enthusiasm and excitement for the business can revive it and help it to flourish, and often relatively minor changes in advertising, personnel, or procedure can greatly improve profitability.

Some pros of buying a business are that you can:

Get a glimpse at the company's operating history to understand its successes and brainstorm solutions for its failings.
Understand which advertising efforts are most effective and will provide a high return on your investment.
See if cash flow consistently outweighs operating expenses.
Determine if you have enough money to purchase the company and make updates before making an offer.

When you start your own business, numbers are much more difficult to estimate, potential issues are harder to anticipate, and it can be more difficult to secure funding because investors consider start-up businesses higher risk.

Disadvantages of buying a business

There are also some disadvantages when you buy an existing business instead of building one. For one, you miss out on the excitement of growing something from the ground up.

It can also get expensive if the company is already underwater due to poor management, which is why you must do your due diligence before closing a deal.

Once you better understand the issues a company has, weigh them seriously against the advantages to decide if it's right for you.

You may decide some things are simply too much of a hassle. For example, you may need to:

Re-staff, the company, collaborate with employees you don't know and didn't hire, or motivate employees who became complacent under old management.
Deal with internal and external resistance to changes you make to company offerings and practices.
Schedule health and building inspections and pay for updates.
Do a deep dive into company financials and address any debts or account deficits.
Think of ways to entice customers who shop there because they are loyal to the former business owner to continue working with the company.

If any of these things are applicable and too much of a red flag, pass on the business opportunity. Even if you don't notice any significant issues on the surface, keep in mind that the seller may try to downplay certain business problems.

Generally, franchising costs new owners between $20k and $50k, and buying a successful existing business comes with a median sticker tag of $150k to $200k.

The cost of buying a business depends on several factors—the primary ones being the revenue the company generates each month and its debt.

To determine the value of a company, calculate all of its monthly earnings and recurring revenue and subtract its debts and recurring expenses. You'll want to pay off your debt and become profitable in two to three years, so you should only pay about one to three times the amount of the company's annual profits.

Many investment experts are encouraging younger generations of entrepreneurs to buy existing businesses. Of course, anyone who has the time, money, and drives to take on a new business and add some value to it could be a good business acquisition candidate.

"Buying from a seasoned owner allows you to learn from decades of [the seller's] experience, taking a shortcut in the school of life," Lisa Kipps-Brown, the author of Boomer Cashout: Increase Your Business's Value & Marketability to Sell for Retirement , says.

Small businesses vs franchises can be different to acquire as a business owner. Small businesses offer more freedom, while franchises offer more support.

The type of business you should buy depends on who you are, your interests, and your experience.

If you'd rather buy a unique company that might still be carving out a reputation for itself and could use your insights to take off, buy a small to midsize business (SMB).

If you'd rather have a business model that works and a wealth of resources at your fingertips to get started, a franchise might be a preferable choice.

Buy a small business

Considering community, loyalty, goodwill, and the chance to experiment, consider acquiring a local small business.

Just be careful not to completely overhaul the business or ignore the wishes of the people who live there, or you may alienate employees and clientele.

"Most existing businesses are a big part of their local community and have considerable goodwill. They're not just businesses; they're part of people's lives and a place where memories are built," Kipps-Brown says.

If you want to set up a shop in a small town, acquiring a local business and showing respect to its heritage and legacy customers can go a long way—especially if you aren't already a part of that community.

Safest SMBs to invest in

Buying a small business can be an excellent investment, especially if it's already successful, doesn't have a slew of competitors, and isn't drowning in debt. Some savvy small business buys you can make as a new investor for less than $250,000 include:

Beauty salons, spas, and barber shops
Landscaping, yard, and remodeling services
Restaurants, bars, and taverns
Dry cleaning and housekeeping services

Buy a franchise

Purchasing a franchise is a great option for anyone who wants to invest in a company with a business plan that works, hands-on training and marketing support, and a well-known name.

"A franchise is a business with training wheels," Tom Scarda, the CEO and founder of The Franchise Academy , a franchise coaching firm, says. "The franchise company holds the owner's hand and teaches the franchisee best practices from Day 1 until the owner sells. The owner will keep almost 100% of the proceeds from the sale of the business and daily income while it operates."

Of course, owning a franchise comes with its own advantages and disadvantages. When you buy a franchise, you are purchasing a recognized brand name without an existing customer base in the area. So, while you have a head start, you don't have the benefit of built-in customers like you would with an existing SMB.

Best franchise to own

You're probably aware of well-known franchises like Taco Bell, the UPS Store, KFC, and Burger King, but there are many more to choose from.

There are 753,770 franchises in the United States. They include businesses like grocery stores and gas stations, restaurants, retail stores, auto repair shops, real estate companies, gyms, and beyond.

Five of the most successful franchises with household names to buy in 2022 include:

McDonald's
Dunkin'
Planet Fitness
Ace Hardware

Typical franchise fees and recurring costs

Franchise owners typically pay an upfront fee to cover the cost of training and guidance. Once that's out of the way, they also pay ongoing royalties, usually a percentage of the revenue they generate.

"It is like paying tuition upfront," Scarda says. "A franchise owner pays for the training, know-how, and best practices within the industry it serves."

Don't let the royalties deter you too much, though, since most of them go to business maintenance and marketing—things you would need to pay whether your business was a franchise or not.

"Some of the royalties pay for public relations, marketing, branding, demographic studies, and research and development at a much better price than a private entrepreneur can pay. Some concepts also have call centers and customer-facing apps that a typical mom-and-pop startup couldn't afford."

What to expect

Buying a franchise is a happy medium between starting your own business and buying an existing one. Of course, the brand name and wholesale purchasing price give you a competitive edge over someone creating a startup.

You will have upfront costs and considerations. But unlike when you start your own business, you are not on your own. A parent company will guide you through the start-up process and operating procedures.

If you're about to close on a business or already have—congratulations! You just made a huge step in your life and career.

Take some time to pat yourself on the back, disclose the sale to the business's creditors, and try to score coverage in the local newspaper.

This works as free advertising while letting the public know changes are happening. Then, talk to your employees about your ideas and business plan, and ask them for their thoughts about where you can make improvements.

You should also try to keep in touch with the former owner and decide on reliable legal, HR, and accounting services if you don't have someone on staff to help guide you. You never know when you might have a question or even need business advice .

How to Buy An Existing Business: A Step-By-Step Guide

Many people dream of owning and operating a business, citing that it’s essential to achieving the American Dream. It’s not uncommon to hear stories of people saving every last cent they earn to start their own company and watch it flourish. But, as business and economic landscapes change, more and more prospective business owners are opting to buy existing businesses instead of starting from scratch.

There are many benefits to buying an existing business, but above all else, business owners have a higher chance of mitigating risk and closure than launching a new venture. After all, it’s estimated that “30% of new businesses fail during the first two years of being open, 50% during the first five years and 66% during the first ten.” 1

But, buying a business isn’t an easy task to undertake. You need to have a solid plan under your belt to even have a chance of success. That’s why we’ve developed this guide to help you. With it, you will learn how to buy an existing business by gaining insight into what to look for in a prospective business, understanding why business owners sell their small businesses, evaluating a business’ financial and legal standing, and more.

Why do owners sell their business?

Choosing which business to buy.

Evaluate initial information about a few businesses.
Evaluate the business you’re considering.
Make a written offer.
Secure the required funding.
Finish the sale.

1. Why do owners sell their business?

When buying a business, it’s important to think about the reasons why the current business owner is trying to sell it. There are many reasons, good and bad, why small business owners make the decision to sever ties with the businesses they started. As someone who is considering buying an existing business, it’s vital that you understand those reasons so you go into the buying process with the understanding of the seller’s motivations.

Many business owners opt to sell their business due to:

Being an entrepreneur is often a job that easily exceeds the standard 40 hour work week. It’s natural to want to retire after getting a business off the ground and running it for many years, whether that means passing it to a trusted associate or selling the business altogether.
Many business owners want to start a business, set it up nicely in terms of revenue, and then sell it to turn a profit and go on to a new venture. This kind of reason can be a great opportunity for a prospective business owner. While this is generally a noble reason, we do recommend extra research if a business owner cites this reason.
After years of hard work, many business owners simply opt to sell in order to pull out their capital after years of building the business.

While these reasons seem to be mostly positive and constructive towards someone looking to purchase, not all business owners have the same motivations. In fact, many small business owners have not-so-great reasons why they want to dispose of their companies and you need to be able to spot the red flags.

Some red flags to keep in mind include:

Even if a business is profitable, the business owner can still have made bad financial decisions that land them in hot water. When this happens, they see liquidating the business as a way to relieve them of debt or other financial burdens. It’s important to uncover and assess the business’ financial information to make sure you aren’t buying something that has financial challenges.
Internal issues that result in a split are, of course, never good. We advise that you be wary of the issues themselves so you can understand the reasons behind the sale, so you know for a fact that they don’t have to do with any potential downfalls in the business. Examples of these include management problems, other disputes among staff and ownership, or even issues with equipment or resources that make running the business difficult.
Owning a business can be demanding, which often leads to burnout. Burnout can lead to declining revenues and discouragement of employees. If this is the case, you’ll have to pick up the pieces the old owner left behind, which can be challenging.

When you’re going into the process of buying a business, it’s vital that you ask the right questions, to dig deeper into why an owner is trying to sell a business. Doing so will help you find out if you’re making a sound investment.

Before you begin the process of looking for a business, you need to figure out the kind of business you want to buy. Not every person can run any business, so it’s important to evaluate your needs and wants from top to bottom.

You need to really evaluate what kind of business you want to buy in order to have the best chance of success. Some of the criteria you should keep in mind are the business’ physical location, its industry, the size of the business, and the lifestyle you have versus the lifestyle the company currently operates under. These are great baseline figures to think about because, even though you’re buying this business, you’re integrating into something that already exists. So, if you go to a company that you’re not compatible with and try to force it into something that it’s not, it can be difficult to move forward.

We encourage you to write out a series of needs and wants that you are looking for in a business. That way, you will have something to reference once you begin your buying process. Below is a form you can fill out with some questions to consider.

__________________________________

Once you’ve got your list of important characteristics determined, you are ready to start looking for businesses for sale that match your search criteria. Searching on BusinessBroker.net is a great way to find businesses for sale.

It may also be beneficial for you to have a helping hand to guide you along the way by way of a business broker. Business brokers work as many home brokers do – they help you find businesses that fit your buying criteria. Business brokers act as intermediaries between buyers and sellers in the brokerage process. They are trained in business transfers and have experience and knowledge in evaluating businesses from all essential angles.

A business broker can help you narrow down your options while also finding companies that fit into your above criteria without the stress of having to do it yourself.

To find a business broker near you, check out our business broker directory .

3. Evaluate initial information about a few businesses that interest you.

Consider each of the main characteristics you’re looking for in a prospective business as determined in step 2. Now, in conjunction with your business broker, find several small businesses you’re tentatively interested in and compare them to your wants and needs. Feel free to take notes directly on this page as you evaluate the businesses.

Note: As you’re going through this process, it may be beneficial for you to reach out to other business owners to learn more about industry standards that may impact or restrict your options related to these business characteristics. For instance, there may be certain industries that tend to be relocating to another area, or certain laws coming into effect that may impact operations. Even if something monumental like this isn’t going to impact your chosen business, it is always helpful to get another perspective before jumping in.

Business 1: ________________
Business 2: ________________
Business 3: ________________

Depending on which business meets these core needs, you can narrow down your search by choosing a handful of contenders to evaluate further.

4. Evaluate the business you’re considering.

Once you’ve found a few businesses that fit your base criteria, it’s time to start a more extensive evaluation process. In this stage, it may prove helpful to have an attorney and accountant on call who can assist as needed with specific questions or issues that may arise. Your business broker may have trusted attorneys or accountants that they use regularly so check with your them first before hiring anyone on your own.

This biggest thing to keep in mind during this step is to do your due diligence. But, luckily, your business broker will have a comprehensive list of items to check during your due diligence period.This checklist and corresponding analysis and collection of data will enable you to see if it is as much of a fit for you as you initially thought and will also point to any improvements you think are needed if you choose to move forward with the purchase.

Even though you’re not making price negotiations right now, that doesn’t mean you shouldn’t go through the business’ financials with a fine-tooth comb. Accurate financials are critical for making an informed decision, and the financial statements and income tax returns must mirror each other. You will want to review the past three years with your business broker or trusted advisors, as well as your accountant and attorney so they can spot specific things you might not know to consider. And if you want to move forward with a business you’ve evaluated, it’s a good idea to create a business plan with the information you find. This will help you in the next step when you’re making a written offer.

5. Make a written offer through your business broker.

Now that you’ve evaluated your prospective businesses and found the one you want to move ahead with, it’s now time to write up an offer with your business broker. To start, list out all the tangible and intangible assets of the business that will transfer to you. Other items to include in your offer are:

The offer price
Terms of payment
If you will need owner financing
How long the owner has to accept or counter
A negotiation clause

It is also vital to include a non-compete provision in your written offer to prevent the current business owner from opening a new business near you with the money from the sale. Along with that, it’s a good idea to require the owner to sign a statement that they have disclosed all of the assets and liabilities of the business, including liens, judgments, and lawsuits.

Have your business broker and attorney review the written offer you’ve drafted before you submit it to the business owner to ensure that everything is accurate. At this point, the owner will either accept, reject, or counter the offer you’ve given. We recommend really leaning on the expertise of your broker to navigate you through the offer process.

5. Secure the required funding.

Whether the buyer and seller ultimately agree to the sale, you need to find the appropriate funding. Most small businesses buyers finance a considerable portion of the purchase price themselves, but it’s important for the buyer to have enough money to make a down payment and cover the business's capital requirements, which sometimes means getting loans. There are several ways to get funding. It’s important to learn about all your options before you proceed to the next step.

Seller Financing

Also known as a seller carryback, seller financing is a loan the owner of a business gives to a new buyer to cover some or all of the cost of the purchase. The seller will be the de facto lender and hold the note on the business. This is beneficial because you can get cheaper financing and a faster close. In light of that, you need to also be aware that seller financing may bring higher interest rates and large balloon payments down the road.

Business Loan

You can, of course, go through a bank to get the loan you need to cover your business costs. This is generally a safe option because you can get a relatively low and stable interest rate and have access to refinancing options. Business loans can have downsides, however, like needing to see existing healthy cash flow and needing to have excellent credit.

Personal Savings

As we mentioned above, you can rely on personal savings to finance the purchase of your new business. This is a great option because, of course, you won’t have to rely on another person or entity when buying your business. But, this can also open you up to potential rejection and straining your personal finances if the seller wants more than you originally anticipated.

Retirement Savings

Tapping your retirement savings, such as a 401(k) account, is also an option. Similar to the personal savings option, this provides the benefit of not having to rely on another person or company for funding. However, be aware of penalties and fees you may face based on how old you are when you withdraw funds from a retirement account -- make sure the benefit of doing so outweighs the cost.

Again, we recommend weighing your financing options with your business broker because they will know what your situation is and guide you towards the right path for you.

7. Finish the sale

Finalize the terms of the sale
Draft a sales agreement that is explicit in its terms, and have an acquisitions attorney involved

During this final step, you need to finalize the terms of the sale, gather the last bit of paperwork to transfer everything over to your name. Several documents are required to complete the transaction. The purchase and sale agreement is the most important of these, but other documents often used in closings include:

Escrow Agreement
Bill of Sale
Promissory Note
Security Agreement
Settlement Sheet
Financing Statement
Employment Agreement

Closings are generally done either through an escrow settlement or through an acquisitions attorney. In an escrow settlement, the escrow agent will gather the money to be deposited, the bill of sale, and other relevant documents and hold them until all conditions of sale have been met. After that occurs, the escrow agent acts on the documents and funds in accordance with the terms of the contract.

If you go through an acquisitions attorney, they will draw up a contract and act as an escrow agent. Whereas escrow settlements do not require the buyer and the seller to get together to sign the final documents, attorney-performed settlements do.

Once all of the T’s are crossed and the I’s dotted, it’s time to celebrate – you’ve just bought your new business! Congratulations!

About Business Broker Network

BusinessBroker.net (BBN) was started in 1999 and is a marketplace for businesses- and franchises-for-sale on the internet. Essentially, BBN connects thousands of business buyers and sellers each month. Learn more about how you can find a business broker today.

1 https://www.investopedia.com/slide-show/top-6-reasons-new-businesses-fail/

Businesses for Sale
Businesses For Sale Near Me
Franchise Opportunities
Sell a Business
Business Brokers & Agents
Finance Center
Small Business Startup
Advertise With Us
Franchise Tips and Tools
Franchising Insights
Account Login
Privacy & Terms of Use
Business Broker Network 150 Granby Street, Norfolk, VA 23510

Get updated on the latest franchise and business opportunities.

Connect with BBN:

Get the App:

Please Confirm

Are you sure you wish to REMOVE from your request basket?

We're Sorry

We only allow businesses per information request. Please complete your current requests to continue.

Complete Requests »

Wow, glad you're interested in so many businesses! The you've inquired to will contact you shortly.

Sounds Good

Learn how you can create the life you want. Small business financing with Guidant Financial

Business Funding From Guidant Financial

Thank you for Business Funding Pre-Qualification Request.

You should receive an email response within a hour

This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. Review our cookies information for more details.

Small Business Trends

How to create a business plan: examples & free template.

This is the ultimate guide to creating a comprehensive and effective plan to start a business . In today’s dynamic business landscape, having a well-crafted business plan is an important first step to securing funding, attracting partners, and navigating the challenges of entrepreneurship.

This guide has been designed to help you create a winning plan that stands out in the ever-evolving marketplace. U sing real-world examples and a free downloadable template, it will walk you through each step of the process.

Whether you’re a seasoned entrepreneur or launching your very first startup, the guide will give you the insights, tools, and confidence you need to create a solid foundation for your business.

Table of Contents

How to Write a Business Plan

Embarking on the journey of creating a successful business requires a solid foundation, and a well-crafted business plan is the cornerstone. Here is the process of writing a comprehensive business plan and the main parts of a winning business plan . From setting objectives to conducting market research, this guide will have everything you need.

Executive Summary

The Executive Summary serves as the gateway to your business plan, offering a snapshot of your venture’s core aspects. This section should captivate and inform, succinctly summarizing the essence of your plan.

It’s crucial to include a clear mission statement, a brief description of your primary products or services, an overview of your target market, and key financial projections or achievements.

Think of it as an elevator pitch in written form: it should be compelling enough to engage potential investors or stakeholders and provide them with a clear understanding of what your business is about, its goals, and why it’s a promising investment.

Example: EcoTech is a technology company specializing in eco-friendly and sustainable products designed to reduce energy consumption and minimize waste. Our mission is to create innovative solutions that contribute to a cleaner, greener environment.

Our target market includes environmentally conscious consumers and businesses seeking to reduce their carbon footprint. We project a 200% increase in revenue within the first three years of operation.

Overview and Business Objectives

In the Overview and Business Objectives section, outline your business’s core goals and the strategic approaches you plan to use to achieve them. This section should set forth clear, specific objectives that are attainable and time-bound, providing a roadmap for your business’s growth and success.

It’s important to detail how these objectives align with your company’s overall mission and vision. Discuss the milestones you aim to achieve and the timeframe you’ve set for these accomplishments.

This part of the plan demonstrates to investors and stakeholders your vision for growth and the practical steps you’ll take to get there.

Example: EcoTech’s primary objective is to become a market leader in sustainable technology products within the next five years. Our key objectives include:

Introducing three new products within the first two years of operation.
Achieving annual revenue growth of 30%.
Expanding our customer base to over 10,000 clients by the end of the third year.

Company Description

The Company Description section is your opportunity to delve into the details of your business. Provide a comprehensive overview that includes your company’s history, its mission statement, and its vision for the future.

Highlight your unique selling proposition (USP) – what makes your business stand out in the market. Explain the problems your company solves and how it benefits your customers.

Include information about the company’s founders, their expertise, and why they are suited to lead the business to success. This section should paint a vivid picture of your business, its values, and its place in the industry.

Example: EcoTech is committed to developing cutting-edge sustainable technology products that benefit both the environment and our customers. Our unique combination of innovative solutions and eco-friendly design sets us apart from the competition. We envision a future where technology and sustainability go hand in hand, leading to a greener planet.

Define Your Target Market

Defining Your Target Market is critical for tailoring your business strategy effectively. This section should describe your ideal customer base in detail, including demographic information (such as age, gender, income level, and location) and psychographic data (like interests, values, and lifestyle).

Elucidate on the specific needs or pain points of your target audience and how your product or service addresses these. This information will help you know your target market and develop targeted marketing strategies.

Example: Our target market comprises environmentally conscious consumers and businesses looking for innovative solutions to reduce their carbon footprint. Our ideal customers are those who prioritize sustainability and are willing to invest in eco-friendly products.

Market Analysis

The Market Analysis section requires thorough research and a keen understanding of the industry. It involves examining the current trends within your industry, understanding the needs and preferences of your customers, and analyzing the strengths and weaknesses of your competitors.

This analysis will enable you to spot market opportunities and anticipate potential challenges. Include data and statistics to back up your claims, and use graphs or charts to illustrate market trends.

This section should demonstrate that you have a deep understanding of the market in which you operate and that your business is well-positioned to capitalize on its opportunities.

Example: The market for eco-friendly technology products has experienced significant growth in recent years, with an estimated annual growth rate of 10%. As consumers become increasingly aware of environmental issues, the demand for sustainable solutions continues to rise.

Our research indicates a gap in the market for high-quality, innovative eco-friendly technology products that cater to both individual and business clients.

SWOT Analysis

A SWOT analysis in your business plan offers a comprehensive examination of your company’s internal and external factors. By assessing Strengths, you showcase what your business does best and where your capabilities lie.

Weaknesses involve an honest introspection of areas where your business may be lacking or could improve. Opportunities can be external factors that your business could capitalize on, such as market gaps or emerging trends.

Threats include external challenges your business may face, like competition or market changes. This analysis is crucial for strategic planning, as it helps in recognizing and leveraging your strengths, addressing weaknesses, seizing opportunities, and preparing for potential threats.

Including a SWOT analysis demonstrates to stakeholders that you have a balanced and realistic understanding of your business in its operational context.

Innovative and eco-friendly product offerings.
Strong commitment to sustainability and environmental responsibility.
Skilled and experienced team with expertise in technology and sustainability.

Weaknesses:

Limited brand recognition compared to established competitors.
Reliance on third-party manufacturers for product development.

Opportunities:

Growing consumer interest in sustainable products.
Partnerships with environmentally-focused organizations and influencers.
Expansion into international markets.
Intense competition from established technology companies.
Regulatory changes could impact the sustainable technology market.

Competitive Analysis

In this section, you’ll analyze your competitors in-depth, examining their products, services, market positioning, and pricing strategies. Understanding your competition allows you to identify gaps in the market and tailor your offerings to outperform them.

By conducting a thorough competitive analysis, you can gain insights into your competitors’ strengths and weaknesses, enabling you to develop strategies to differentiate your business and gain a competitive advantage in the marketplace.

Example: Key competitors include:

GreenTech: A well-known brand offering eco-friendly technology products, but with a narrower focus on energy-saving devices.

EarthSolutions: A direct competitor specializing in sustainable technology, but with a limited product range and higher prices.

By offering a diverse product portfolio, competitive pricing, and continuous innovation, we believe we can capture a significant share of the growing sustainable technology market.

Organization and Management Team

Provide an overview of your company’s organizational structure, including key roles and responsibilities. Introduce your management team, highlighting their expertise and experience to demonstrate that your team is capable of executing the business plan successfully.

Showcasing your team’s background, skills, and accomplishments instills confidence in investors and other stakeholders, proving that your business has the leadership and talent necessary to achieve its objectives and manage growth effectively.

Example: EcoTech’s organizational structure comprises the following key roles: CEO, CTO, CFO, Sales Director, Marketing Director, and R&D Manager. Our management team has extensive experience in technology, sustainability, and business development, ensuring that we are well-equipped to execute our business plan successfully.

Products and Services Offered

Describe the products or services your business offers, focusing on their unique features and benefits. Explain how your offerings solve customer pain points and why they will choose your products or services over the competition.

This section should emphasize the value you provide to customers, demonstrating that your business has a deep understanding of customer needs and is well-positioned to deliver innovative solutions that address those needs and set your company apart from competitors.

Example: EcoTech offers a range of eco-friendly technology products, including energy-efficient lighting solutions, solar chargers, and smart home devices that optimize energy usage. Our products are designed to help customers reduce energy consumption, minimize waste, and contribute to a cleaner environment.

Marketing and Sales Strategy

In this section, articulate your comprehensive strategy for reaching your target market and driving sales. Detail the specific marketing channels you plan to use, such as social media, email marketing, SEO, or traditional advertising.

Describe the nature of your advertising campaigns and promotional activities, explaining how they will capture the attention of your target audience and convey the value of your products or services. Outline your sales strategy, including your sales process, team structure, and sales targets.

Discuss how these marketing and sales efforts will work together to attract and retain customers, generate leads, and ultimately contribute to achieving your business’s revenue goals.

This section is critical to convey to investors and stakeholders that you have a well-thought-out approach to market your business effectively and drive sales growth.

Example: Our marketing strategy includes digital advertising, content marketing, social media promotion, and influencer partnerships. We will also attend trade shows and conferences to showcase our products and connect with potential clients. Our sales strategy involves both direct sales and partnerships with retail stores, as well as online sales through our website and e-commerce platforms.

Logistics and Operations Plan

The Logistics and Operations Plan is a critical component that outlines the inner workings of your business. It encompasses the management of your supply chain, detailing how you acquire raw materials and manage vendor relationships.

Inventory control is another crucial aspect, where you explain strategies for inventory management to ensure efficiency and reduce wastage. The section should also describe your production processes, emphasizing scalability and adaptability to meet changing market demands.

Quality control measures are essential to maintain product standards and customer satisfaction. This plan assures investors and stakeholders of your operational competency and readiness to meet business demands.

Highlighting your commitment to operational efficiency and customer satisfaction underlines your business’s capability to maintain smooth, effective operations even as it scales.

Example: EcoTech partners with reliable third-party manufacturers to produce our eco-friendly technology products. Our operations involve maintaining strong relationships with suppliers, ensuring quality control, and managing inventory.

We also prioritize efficient distribution through various channels, including online platforms and retail partners, to deliver products to our customers in a timely manner.

Financial Projections Plan

In the Financial Projections Plan, lay out a clear and realistic financial future for your business. This should include detailed projections for revenue, costs, and profitability over the next three to five years.

Ground these projections in solid assumptions based on your market analysis, industry benchmarks, and realistic growth scenarios. Break down revenue streams and include an analysis of the cost of goods sold, operating expenses, and potential investments.

This section should also discuss your break-even analysis, cash flow projections, and any assumptions about external funding requirements.

By presenting a thorough and data-backed financial forecast, you instill confidence in potential investors and lenders, showcasing your business’s potential for profitability and financial stability.

This forward-looking financial plan is crucial for demonstrating that you have a firm grasp of the financial nuances of your business and are prepared to manage its financial health effectively.

Example: Over the next three years, we expect to see significant growth in revenue, driven by new product launches and market expansion. Our financial projections include:

Year 1: $1.5 million in revenue, with a net profit of $200,000.
Year 2: $3 million in revenue, with a net profit of $500,000.
Year 3: $4.5 million in revenue, with a net profit of $1 million.

These projections are based on realistic market analysis, growth rates, and product pricing.

Income Statement

The income statement , also known as the profit and loss statement, provides a summary of your company’s revenues and expenses over a specified period. It helps you track your business’s financial performance and identify trends, ensuring you stay on track to achieve your financial goals.

Regularly reviewing and analyzing your income statement allows you to monitor the health of your business, evaluate the effectiveness of your strategies, and make data-driven decisions to optimize profitability and growth.

Example: The income statement for EcoTech’s first year of operation is as follows:

Revenue: $1,500,000
Cost of Goods Sold: $800,000
Gross Profit: $700,000
Operating Expenses: $450,000
Net Income: $250,000

This statement highlights our company’s profitability and overall financial health during the first year of operation.

Cash Flow Statement

A cash flow statement is a crucial part of a financial business plan that shows the inflows and outflows of cash within your business. It helps you monitor your company’s liquidity, ensuring you have enough cash on hand to cover operating expenses, pay debts, and invest in growth opportunities.

By including a cash flow statement in your business plan, you demonstrate your ability to manage your company’s finances effectively.

Example: The cash flow statement for EcoTech’s first year of operation is as follows:

Operating Activities:

Depreciation: $10,000
Changes in Working Capital: -$50,000
Net Cash from Operating Activities: $210,000

Investing Activities:

Capital Expenditures: -$100,000
Net Cash from Investing Activities: -$100,000

Financing Activities:

Proceeds from Loans: $150,000
Loan Repayments: -$50,000
Net Cash from Financing Activities: $100,000
Net Increase in Cash: $210,000

This statement demonstrates EcoTech’s ability to generate positive cash flow from operations, maintain sufficient liquidity, and invest in growth opportunities.

Tips on Writing a Business Plan

1. Be clear and concise: Keep your language simple and straightforward. Avoid jargon and overly technical terms. A clear and concise business plan is easier for investors and stakeholders to understand and demonstrates your ability to communicate effectively.

2. Conduct thorough research: Before writing your business plan, gather as much information as possible about your industry, competitors, and target market. Use reliable sources and industry reports to inform your analysis and make data-driven decisions.

3. Set realistic goals: Your business plan should outline achievable objectives that are specific, measurable, attainable, relevant, and time-bound (SMART). Setting realistic goals demonstrates your understanding of the market and increases the likelihood of success.

4. Focus on your unique selling proposition (USP): Clearly articulate what sets your business apart from the competition. Emphasize your USP throughout your business plan to showcase your company’s value and potential for success.

5. Be flexible and adaptable: A business plan is a living document that should evolve as your business grows and changes. Be prepared to update and revise your plan as you gather new information and learn from your experiences.

6. Use visuals to enhance understanding: Include charts, graphs, and other visuals to help convey complex data and ideas. Visuals can make your business plan more engaging and easier to digest, especially for those who prefer visual learning.

7. Seek feedback from trusted sources: Share your business plan with mentors, industry experts, or colleagues and ask for their feedback. Their insights can help you identify areas for improvement and strengthen your plan before presenting it to potential investors or partners.

FREE Business Plan Template

To help you get started on your business plan, we have created a template that includes all the essential components discussed in the “How to Write a Business Plan” section. This easy-to-use template will guide you through each step of the process, ensuring you don’t miss any critical details.

The template is divided into the following sections:

Mission statement
Business Overview
Key products or services
Target market
Financial highlights
Company goals
Strategies to achieve goals
Measurable, time-bound objectives
Company History
Mission and vision
Unique selling proposition
Demographics
Psychographics
Pain points
Industry trends
Customer needs
Competitor strengths and weaknesses
Opportunities
Competitor products and services
Market positioning
Pricing strategies
Organizational structure
Key roles and responsibilities
Management team backgrounds
Product or service features
Competitive advantages
Marketing channels
Advertising campaigns
Promotional activities
Sales strategies
Supply chain management
Inventory control
Production processes
Quality control measures
Projected revenue
Assumptions
Cash inflows
Cash outflows
Net cash flow

What is a Business Plan?

A business plan is a strategic document that outlines an organization’s goals, objectives, and the steps required to achieve them. It serves as a roadmap as you start a business , guiding the company’s direction and growth while identifying potential obstacles and opportunities.

Typically, a business plan covers areas such as market analysis, financial projections, marketing strategies, and organizational structure. It not only helps in securing funding from investors and lenders but also provides clarity and focus to the management team.

A well-crafted business plan is a very important part of your business startup checklist because it fosters informed decision-making and long-term success.

Why You Should Write a Business Plan

Understanding the importance of a business plan in today’s competitive environment is crucial for entrepreneurs and business owners. Here are five compelling reasons to write a business plan:

Attract Investors and Secure Funding : A well-written business plan demonstrates your venture’s potential and profitability, making it easier to attract investors and secure the necessary funding for growth and development. It provides a detailed overview of your business model, target market, financial projections, and growth strategies, instilling confidence in potential investors and lenders that your company is a worthy investment.
Clarify Business Objectives and Strategies : Crafting a business plan forces you to think critically about your goals and the strategies you’ll employ to achieve them, providing a clear roadmap for success. This process helps you refine your vision and prioritize the most critical objectives, ensuring that your efforts are focused on achieving the desired results.
Identify Potential Risks and Opportunities : Analyzing the market, competition, and industry trends within your business plan helps identify potential risks and uncover untapped opportunities for growth and expansion. This insight enables you to develop proactive strategies to mitigate risks and capitalize on opportunities, positioning your business for long-term success.
Improve Decision-Making : A business plan serves as a reference point so you can make informed decisions that align with your company’s overall objectives and long-term vision. By consistently referring to your plan and adjusting it as needed, you can ensure that your business remains on track and adapts to changes in the market, industry, or internal operations.
Foster Team Alignment and Communication : A shared business plan helps ensure that all team members are on the same page, promoting clear communication, collaboration, and a unified approach to achieving the company’s goals. By involving your team in the planning process and regularly reviewing the plan together, you can foster a sense of ownership, commitment, and accountability that drives success.

What are the Different Types of Business Plans?

In today’s fast-paced business world, having a well-structured roadmap is more important than ever. A traditional business plan provides a comprehensive overview of your company’s goals and strategies, helping you make informed decisions and achieve long-term success. There are various types of business plans, each designed to suit different needs and purposes. Let’s explore the main types:

Startup Business Plan: Tailored for new ventures, a startup business plan outlines the company’s mission, objectives, target market, competition, marketing strategies, and financial projections. It helps entrepreneurs clarify their vision, secure funding from investors, and create a roadmap for their business’s future. Additionally, this plan identifies potential challenges and opportunities, which are crucial for making informed decisions and adapting to changing market conditions.
Internal Business Plan: This type of plan is intended for internal use, focusing on strategies, milestones, deadlines, and resource allocation. It serves as a management tool for guiding the company’s growth, evaluating its progress, and ensuring that all departments are aligned with the overall vision. The internal business plan also helps identify areas of improvement, fosters collaboration among team members, and provides a reference point for measuring performance.
Strategic Business Plan: A strategic business plan outlines long-term goals and the steps to achieve them, providing a clear roadmap for the company’s direction. It typically includes a SWOT analysis, market research, and competitive analysis. This plan allows businesses to align their resources with their objectives, anticipate changes in the market, and develop contingency plans. By focusing on the big picture, a strategic business plan fosters long-term success and stability.
Feasibility Business Plan: This plan is designed to assess the viability of a business idea, examining factors such as market demand, competition, and financial projections. It is often used to decide whether or not to pursue a particular venture. By conducting a thorough feasibility analysis, entrepreneurs can avoid investing time and resources into an unviable business concept. This plan also helps refine the business idea, identify potential obstacles, and determine the necessary resources for success.
Growth Business Plan: Also known as an expansion plan, a growth business plan focuses on strategies for scaling up an existing business. It includes market analysis, new product or service offerings, and financial projections to support expansion plans. This type of plan is essential for businesses looking to enter new markets, increase their customer base, or launch new products or services. By outlining clear growth strategies, the plan helps ensure that expansion efforts are well-coordinated and sustainable.
Operational Business Plan: This type of plan outlines the company’s day-to-day operations, detailing the processes, procedures, and organizational structure. It is an essential tool for managing resources, streamlining workflows, and ensuring smooth operations. The operational business plan also helps identify inefficiencies, implement best practices, and establish a strong foundation for future growth. By providing a clear understanding of daily operations, this plan enables businesses to optimize their resources and enhance productivity.
Lean Business Plan: A lean business plan is a simplified, agile version of a traditional plan, focusing on key elements such as value proposition, customer segments, revenue streams, and cost structure. It is perfect for startups looking for a flexible, adaptable planning approach. The lean business plan allows for rapid iteration and continuous improvement, enabling businesses to pivot and adapt to changing market conditions. This streamlined approach is particularly beneficial for businesses in fast-paced or uncertain industries.
One-Page Business Plan: As the name suggests, a one-page business plan is a concise summary of your company’s key objectives, strategies, and milestones. It serves as a quick reference guide and is ideal for pitching to potential investors or partners. This plan helps keep teams focused on essential goals and priorities, fosters clear communication, and provides a snapshot of the company’s progress. While not as comprehensive as other plans, a one-page business plan is an effective tool for maintaining clarity and direction.
Nonprofit Business Plan: Specifically designed for nonprofit organizations, this plan outlines the mission, goals, target audience, fundraising strategies, and budget allocation. It helps secure grants and donations while ensuring the organization stays on track with its objectives. The nonprofit business plan also helps attract volunteers, board members, and community support. By demonstrating the organization’s impact and plans for the future, this plan is essential for maintaining transparency, accountability, and long-term sustainability within the nonprofit sector.
Franchise Business Plan: For entrepreneurs seeking to open a franchise, this type of plan focuses on the franchisor’s requirements, as well as the franchisee’s goals, strategies, and financial projections. It is crucial for securing a franchise agreement and ensuring the business’s success within the franchise system. This plan outlines the franchisee’s commitment to brand standards, marketing efforts, and operational procedures, while also addressing local market conditions and opportunities. By creating a solid franchise business plan, entrepreneurs can demonstrate their ability to effectively manage and grow their franchise, increasing the likelihood of a successful partnership with the franchisor.

Using Business Plan Software

Creating a comprehensive business plan can be intimidating, but business plan software can streamline the process and help you produce a professional document. These tools offer a number of benefits, including guided step-by-step instructions, financial projections, and industry-specific templates. Here are the top 5 business plan software options available to help you craft a great business plan.

1. LivePlan

LivePlan is a popular choice for its user-friendly interface and comprehensive features. It offers over 500 sample plans, financial forecasting tools, and the ability to track your progress against key performance indicators. With LivePlan, you can create visually appealing, professional business plans that will impress investors and stakeholders.

2. Upmetrics

Upmetrics provides a simple and intuitive platform for creating a well-structured business plan. It features customizable templates, financial forecasting tools, and collaboration capabilities, allowing you to work with team members and advisors. Upmetrics also offers a library of resources to guide you through the business planning process.

Bizplan is designed to simplify the business planning process with a drag-and-drop builder and modular sections. It offers financial forecasting tools, progress tracking, and a visually appealing interface. With Bizplan, you can create a business plan that is both easy to understand and visually engaging.

Enloop is a robust business plan software that automatically generates a tailored plan based on your inputs. It provides industry-specific templates, financial forecasting, and a unique performance score that updates as you make changes to your plan. Enloop also offers a free version, making it accessible for businesses on a budget.

5. Tarkenton GoSmallBiz

Developed by NFL Hall of Famer Fran Tarkenton, GoSmallBiz is tailored for small businesses and startups. It features a guided business plan builder, customizable templates, and financial projection tools. GoSmallBiz also offers additional resources, such as CRM tools and legal document templates, to support your business beyond the planning stage.

Business Plan FAQs

What is a good business plan.

A good business plan is a well-researched, clear, and concise document that outlines a company’s goals, strategies, target market, competitive advantages, and financial projections. It should be adaptable to change and provide a roadmap for achieving success.

What are the 3 main purposes of a business plan?

The three main purposes of a business plan are to guide the company’s strategy, attract investment, and evaluate performance against objectives. Here’s a closer look at each of these:

It outlines the company’s purpose and core values to ensure that all activities align with its mission and vision.
It provides an in-depth analysis of the market, including trends, customer needs, and competition, helping the company tailor its products and services to meet market demands.
It defines the company’s marketing and sales strategies, guiding how the company will attract and retain customers.
It describes the company’s organizational structure and management team, outlining roles and responsibilities to ensure effective operation and leadership.
It sets measurable, time-bound objectives, allowing the company to plan its activities effectively and make strategic decisions to achieve these goals.
It provides a comprehensive overview of the company and its business model, demonstrating its uniqueness and potential for success.
It presents the company’s financial projections, showing its potential for profitability and return on investment.
It demonstrates the company’s understanding of the market, including its target customers and competition, convincing investors that the company is capable of gaining a significant market share.
It showcases the management team’s expertise and experience, instilling confidence in investors that the team is capable of executing the business plan successfully.
It establishes clear, measurable objectives that serve as performance benchmarks.
It provides a basis for regular performance reviews, allowing the company to monitor its progress and identify areas for improvement.
It enables the company to assess the effectiveness of its strategies and make adjustments as needed to achieve its objectives.
It helps the company identify potential risks and challenges, enabling it to develop contingency plans and manage risks effectively.
It provides a mechanism for evaluating the company’s financial performance, including revenue, expenses, profitability, and cash flow.

Can I write a business plan by myself?

Yes, you can write a business plan by yourself, but it can be helpful to consult with mentors, colleagues, or industry experts to gather feedback and insights. There are also many creative business plan templates and business plan examples available online, including those above.

We also have examples for specific industries, including a using food truck business plan , salon business plan , farm business plan , daycare business plan , and restaurant business plan .

Is it possible to create a one-page business plan?

Yes, a one-page business plan is a condensed version that highlights the most essential elements, including the company’s mission, target market, unique selling proposition, and financial goals.

How long should a business plan be?

A typical business plan ranges from 20 to 50 pages, but the length may vary depending on the complexity and needs of the business.

What is a business plan outline?

A business plan outline is a structured framework that organizes the content of a business plan into sections, such as the executive summary, company description, market analysis, and financial projections.

What are the 5 most common business plan mistakes?

The five most common business plan mistakes include inadequate research, unrealistic financial projections, lack of focus on the unique selling proposition, poor organization and structure, and failure to update the plan as circumstances change.

What questions should be asked in a business plan?

A business plan should address questions such as: What problem does the business solve? Who is the specific target market ? What is the unique selling proposition? What are the company’s objectives? How will it achieve those objectives?

What’s the difference between a business plan and a strategic plan?

A business plan focuses on the overall vision, goals, and tactics of a company, while a strategic plan outlines the specific strategies, action steps, and performance measures necessary to achieve the company’s objectives.

How is business planning for a nonprofit different?

Nonprofit business planning focuses on the organization’s mission, social impact, and resource management, rather than profit generation. The financial section typically includes funding sources, expenses, and projected budgets for programs and operations.

Image: Envato Elements

Your email address will not be published. Required fields are marked *

Find Funding
Loan Guides
Explore Business Cards
Business Card Guides
Search for Grants
Grant Guides
Hire a Grant Writer
Accounting & Finance
Sales & Marketing
Start a Business
Buy a Business
Business Discounts
Newsletters

9 Things to Consider Before Purchasing an Existing Business

by Fundid on Aug 24, 2023 8:00:00 AM

We may earn a commission from the links in this post.

Are you an aspiring business owner looking to invest in an already-existing business? Purchasing a pre-established venture can be a great way to realize your entrepreneurial goals with less strain and risk than starting something from scratch. But don’t jump headfirst into the process without doing due diligence first – there are many factors to consider before investing in a preexisting business. To help guide you as you embark on this potentially lucrative journey, here are the things that you should think about before purchasing an existing company!

How to Purchase an Existing Business

The process of buying a business should be undertaken with meticulous planning and careful consideration. Here's a general step-by-step guide to follow:

Identify Your Interests: Understand your skills, passions, and experiences. This will help you narrow down the type of business that you'd be successful in running.
Search for Businesses: Use online marketplaces, business brokers , industry publications, or networks to find businesses for sale that align with your interests.
Screen Potential Businesses: Conduct a preliminary analysis of the businesses that catch your attention. Look at factors like their financial performance, market position, and potential growth opportunities.
Due Diligence: Once you have a shortlist, dig deeper into the chosen businesses. Review their financial records, customer base, supplier contracts, and other important documents.
Valuation: Assess the worth of the business using various methods such as cash flow analysis, asset valuation, or industry multiplier techniques.
Negotiations: If the business appears promising and the valuation seems fair, negotiate terms with the seller.
Purchase Agreement: Draft a mutually agreeable purchase agreement detailing the terms of the sale, the purchase price, and the responsibilities of each party.
Obtain Necessary Funding: Make sure that you have the necessary capital, either through savings or by obtaining financing. Careful planning and thorough research are essential when purchasing an existing company to increase your odds of making a smart investment!
Closing the Sale: Once everything is in place, close the sale. This usually involves signing the purchase agreement, transferring funds, and handing over control of the business.

Remember, this is a broad guideline, and the specific steps might vary based on the size and nature of the business and the country's rules and regulations where the business is located. It's always advisable to seek professional advice from lawyers, accountants, and business brokers to ensure a successful purchase.

Related Reading: Need funding to purchase an existing business? Check out our guide, What is a Business Acquisition Loan & How to Buy an Existing Business , to get started!

The process of buying a business is complex and should not be rushed. To make sure that you're making the right decision, here are 9 things to consider before investing in an existing company.

The Reason for Sale

One of the first things you should consider when purchasing an existing business is the reason for the sale . Understanding the motivations behind the current owner's decision to sell can provide valuable insights. If the current owner is retiring or moving on to a new venture, that may be a good sign. However, if the owner is selling due to financial difficulties or poor performance, that may be a red flag. It’s important to do your due diligence and find out as much as possible about the business before making an offer.

The Financial Health of the Business

Another essential thing to consider is the financial health of the business. You should review the business’s financial statements for the past few years to get an idea of its revenue and expenses. Take a closer look at the profitability and stability of the business. Request copies of any tax returns filed by the business to gain further insights. If the business is not profitable or has a lot of debt, it may not be a wise investment.

The Condition of the Business’s Physical Assets

In addition to the financial aspects, you should also inspect the physical assets of the business, such as its equipment, inventory, and real estate. Assessing the condition of these assets is crucial as it can impact your future expenses. If these assets are in poor condition, it could cost you a lot of money to replace or repair them. Additionally, if the business leases its space, you will need to factor in the cost of a new lease when considering your purchase price.

The Business’s Reputation

The competition, existing legal liabilities, experienced employees, market entry speed.

Buying an existing business allows for quicker entry into the market. Unlike starting a new business, which requires time to develop products, conduct market research, and secure customers, buying an established business allows you to hit the ground running. This can be particularly beneficial in competitive markets where speed is of the essence.

Risk Mitigation

Starting a business can be risky, with many unknowns and variables that can affect success. In contrast, buying an existing business can mitigate some of these risks. The business has a proven model, an existing customer base, and a record of profitability, reducing the uncertainty associated with starting a new venture.

Remember, these reasons can make buying an existing business an attractive option, but it's essential to conduct thorough due diligence and consider your own entrepreneurial goals before making a decision.

Pros and Cons of Buying an Existing Business

Buying a pre-existing business is a major decision that should not be taken lightly. As with any opportunity, there are pros and cons to consider before taking the plunge. We explore some of those considerations below so that you can make an informed decision when deciding whether or not buying an existing business is the right choice for you.

Established Operations: An existing business comes with a functional infrastructure, including employees, suppliers, and operational processes, saving you the time and effort of setting up everything from scratch.
Customer Base: Acquiring a business means inheriting its existing customers. This can provide immediate revenue and a foundation on which to build.
Financial History: An existing business has a track record, which can be helpful in securing loans and attracting investors.
Hidden Problems: There may be issues not evident during the purchasing process, such as debts, poor employee morale, or a bad reputation that you'll have to deal with.
Higher Initial Investment: Buying an existing business can require more capital upfront than starting a new one.
Flexibility: While an established business provides a blueprint, it can be challenging to implement new ideas or changes as it may disrupt the existing operations or alienate customers.

Remember, the decision to buy an existing business should be made after thoroughly evaluating all the factors involved, including your own capabilities and preferences. It's often helpful to seek professional advice to ensure a good fit and a good deal.

Related Reading: 8 Essential Questions to Ask When Buying a Business

Need Funding to Make Your Purchase?

Buying a Business (6)
Acquisition (5)
Exit Strategy (4)
Selling a business (4)
October 2023 (3)
September 2023 (4)
August 2023 (3)
July 2023 (1)
June 2023 (10)

Subscribe by email

The Only Checklist You’ll Need for Buying an Existing Business

You’ve heard it here before— buying an existing business is a much better option than trying to start something on your own and scale it up.

But it’s important to know what to do (and what NOT to do) when searching businesses and making an offer.

Keeping track of all the stuff you need to get done is a lot easier when you have a checklist you can reference.

Our checklist breaks everything down into simple steps to follow as you go. And you can download a printable version here .

1. Understand Your Goals for Buying a Business

You know it’s a good idea, but go deeper.

What’s your why?

Even with an established business, you’ll face challenges and roadblocks as you go. Not only will knowing your why help you push through them, but it can also help guide your future plans for the company.

You need to know:

What kind of owner you envision yourself as (a hands-on owner, someone building the roadmap to hand over to an operator, someone who wants to systematize everything to franchise the whole thing, etc.).
How you’ll know when the company hits its goals and achieves success.
What kind of team you need to build the business.
Why you think you’re suited to manage the company.

2. Determine What Kind of Business You Want to Buy

There’s no shortage of boring businesses that make for great choices as a business acquisition. We’ve even come up with a list of the most lucrative businesses to buy for you to get the creative juices flowing.

Start by thinking about your own job history, skills, and background.

What you know and bring to the table provides powerful direction to the type of business that’s best for you. You’ll be able to get more revenue out of a business that needs the skills in your zone of genius.

For example, an operational wiz with skills in developing processes, will provide a lot of value to a business that needs an organizational shape up.

While someone with a background in marketing can get more mileage out of a business where the biggest problem is getting the message out to potential customers.

We also recommend that you buy a business that fits our SOWS (stale, old, weak, simple) framework.

These types of boring businesses are stable, simple to scale, and there’s always demand. They’re the perfect acquisition for first timers.

And don’t forget our golden rule of business buying. It’s a two-parter:

Don’t lose money.
Don’t buy a business that can bankrupt you.

It’s about so much more than finding something that interests you or the “hot thing” everyone’s promoting. Look beneath the surface to find the real hidden gems.

Sure, placing ATMs sounds easy, but for being a business all about money, it can actually take you years to make some of your own. Same with Amazon FBA and other commonly-promoted business models that face multiple problems.

3. Choose How You Will Finance Your Purchase

60% of all businesses sold use seller financing. It's one of the best levers no one talks about. You take over the business, pay the old owner over time with profits.

Contrary to popular belief, you don’t always need a lot of money to purchase someone’s business. You can get in the doors with $5,000 or less for plenty of boring businesses using seller financing.

Here’s a quick rundown of the best financing options for buying a business :

Your own cash (savings, personal loan funds, credit)
Business loans, including SBA loans
Other people’s money (investors, crowdsourcing)
Seller financing (using the owner like a bank and paying them back over time)

Your own cash is problematic because it puts all your eggs in one basket. And that’s if you have the money in the first place.

Business loans? Not as easy to get as you might think, and there will be a lot of paperwork and back and forth with the lending officer. It’s still a viable option if your other choices don’t work out, though.

Our favorite? Seller financing. You can work out your own deal terms here, such as limiting your down payment.

4. Find Businesses That Are for Sale (Including the Ones that Are Off-Market)

By now, you should already know what kind of business you’re interested in. Combine that with your funding sources, and you should have a narrowed-down list of industries to research.

A few hot spots to check for businesses on the market include:

These are just the places where an owner’s already looking to get out as soon as they can.

You can go deeper and cut out a lot of the competition by looking for off-market deals. You can use BizScout , a service we own, to find business opportunities that haven’t hit the market yet.

And if you’re still having trouble finding the perfect option, check out our guide to finding a business to buy .

5. Send a Letter of Intent to the Business Owner

Great, now you’ve found a business you want to buy. It’s time to start evaluating the business before you buy it .

Make contact with the seller and provide a letter of intent. This signals the seller that you’re a serious prospective buyer and opens the door for future sharing of pertinent info, like financial data.

This is a preliminary commitment to do business with another party and may or may not be binding. But it doesn’t mean you’re obligated to buy the company if you find a big red flag.

6. Run a Financial Health Check

Read through financial records, balance sheets, cashflow statements, and credit reports.

A few questions to ask here:

Is the business making money?
Are there concerning seasonal or cyclical issues with income?
Are expenses way out of whack with earnings?
Do tax returns match the actual financial statements?
Are there any tax liens on the company?
Are there pieces of aging equipment or other things that will require an overhaul?
How much debt does the company carry?
What are the profit margins?
What business assets does the company own?
Does the company also own any intellectual property?

7. Evaluate the Business’s Operations

If you still feel good about things after looking over the finances, move on to a deep dive into operations.

Review the existing business plan and organizational charts if the owner has them. Dig into how the company works on a nuts-and-bolts level.

Look for any red flags you can’t live with in the business.

The business needs a huge team to process work, and you don’t love being a manager? Red flag.

People putting in 80-hour weeks, and you see no chance of that changing? Red flag.

If the business is a little out of date or the marketing sucks, you can fix those kinds of business operations issues. If they have a complex process in place to systematize, you can fix that, too.

This is also your chance to discuss keeping the owner on for a transition period to work out kinks. It’s also your opportunity to vet key employees for moving up to bigger roles.

8. Run a Competitive Analysis

You can’t feel fully confident when buying an existing business if you don’t know what else is out there. Take a look and answer these questions:

What unique selling proposition are competitors leaning into?
Does the business I want to buy have a potential competitive edge I can use?
Where are the other companies falling short?
Is it reasonable to think that with my strategic insight, we can improve our competitive standing in the market?

9. Get a Professional Appraisal for all Company Equipment and Assets

Don’t take the current owner’s word for it when it comes to any physical equipment.

Get an independent evaluation from an outside expert. This will really help you when it comes time to make an offer on the business so you get a fair price.

Pay an outside expert to do this. Yes, it will cost you some cash to value all of the tangible and intangible assets. But the peace of mind and negotiation advantage you’ll get are worth it.

10. Check the Business’s Reputation and Relationships

In your list of things to work on once you take over, you might consider some easy wins, like improving the brand’s online presence.

To do this, check out current reviews, feedback, and relationships and ask things like:

Does the business have an existing customer base?
What are customers’ sentiments? Do they have positive reviews, mostly positive, mostly negative?
What relationships does the company have with vendors, suppliers, and partners?
Do they have any marketing efforts in play right now? If so, what kind and how are they doing?

11. Conduct Legal Due Diligence

meme saying "ONE DOES NOT SIMPLY LAUNCH WITHOUT DUE DILIGENCE"

Skipping the due diligence process is one of the best ways to totally f*ck up your new business .

You don’t want to step into any surprises once the deal goes through. Check things like:

Current business licenses and permits.
Any pending or past litigation.
Insurance policies (and whether these fully cover all risks and liabilities).
Existing contracts and legal documents with customers, vendors, and partners.

12. Negotiate the Deal

Now for the fun part: let’s make a deal!

Negotiating can be a challenge if you get pushback, but use all the data you found up to this point to back up your offer.

Don’t fear working through a few rounds of negotiation with the seller. You can use what you learn to come up with a purchase price and terms that work for both of you.

And don’t be discouraged if your deal falls through.

It’s very common for first time buyers to lose on their first go-round. The important part is that you have the ability to dust yourself of and go look for another (better) deal.

13. Close the Deal

Congrats! The ink is dry on the purchase agreement, and it’s time to start working in the business.

Don’t forget to do things like:

Secure any funding if you took out a loan, including details on repayment dates.
Transfer all licenses, software, and paperwork into your name.
Choose an official start date and prepare employees for the transition.

14. Make the Business Your Own

Dr. Evil doing air quotes with the word "optimize" above it

You’re finally in charge. It’s time to optimize the business now. With your due diligence complete, you probably already have a full list of things to tackle. Check out our ideas for the best tools for buying and growing a business .

That could include:

Upgrading all operations to the 21st century, like using software and automations.
Leveling up marketing.
Looking at growth opportunities.
Tweaking customer service.
Providing more training to employees.

Make the Right Moves and Buy Now

Now that you know the steps involved in buying a business and what to pay attention to in each one, you’re ready to step out there and start the process.

Knowing what you want and where you’ll shine in the company gives you an initial direction for an informed decision, but spend time researching companies for sale before drafting your first letter of intent.

If you make the right moves, you could find yourself in the owner’s shoes sooner than you expected!

One more thing. We designed this checklist as a quick reference for your first business purchase. If you feel like you need a deep dive, check out our guide to buying a business . And if you really want to drink from a firehose, check out our Small Biz Buying Course .

Free your mind. Build your bank account.

Get the free weekly newsletter that’s helping 500 ,000+ Contrarians reinvent the American dream on their own terms.

Subscribe - Contrarian Thinking - Blog Sidebar

Trending posts, start a fedex franchise: she makes $120-260k in mini-mailbox money.

Turn Your IG Obsession Into a 7-Figure Business

How to Scale a 1-Person Business to $1M

Social Dilemma + How I Got My First 10,000+ Subscribers in 30 Days

Username or Email Address

Remember Me

How to Write a Business Plan for an Existing Business

Small Business
Business Planning & Strategy
Write a Business Plan
')" data-event="social share" data-info="Pinterest" aria-label="Share on Pinterest">
')" data-event="social share" data-info="Reddit" aria-label="Share on Reddit">
')" data-event="social share" data-info="Flipboard" aria-label="Share on Flipboard">

Quick Step Process Business Plan

How to start a woman-owned company, how to create a food service business plan.

How to Create Your Own Shoe Line's Business Plan
How to Write a Startup Airline Business Plan

The business plan is not just for business startups. Business acquisitions, franchise purchases and newly developed products are just some of the events that might prompt an existing business to create a business plan. Existing businesses use the business plan to monitor their expenses, define their strategies and benchmark their progress. Unlike new business startups, the business plan creation process is often simpler for the established business because the business’ operation information is more readily available.

Create a cover page for your business plan. Include the name of your business, full address and all contact information, including fax number and email address.

Complete a general business description for your business. Provide the company’s mission in 30 words or less. Include your business’ objectives, goals and philosophies here, as well. Provide a brief description of your business’ industry and include information on the industry’s growth trends and forecasts.

Follow this information with your company’s legal business description--sole proprietorship, corporation--and expound on the company’s history, including its number of years in business, sales and profit history, and significant successes and failure. Include resolutions that your business implemented to correct any problems or failures.

Define your business’ products and services. Explain the products in depth and highlight the competitive advantages and disadvantages of your products. Identify any strategies or steps that your business has taken to overcome disadvantages in your products.

Complete a primary and secondary analysis of your industry, industry trends, target market, target market demands and competition. Use resources, such as demographic profiles and census data, to complete your secondary analysis. Refer to your own business data and analysis to complete your primary analysis.

Use your research data and analysis to complete your business’ marketing plan. Provide detailed information, including statistics and sources, to support your findings and strategies. Identify and explain the demographics of your target market. Explain the features and benefits of your products, as well as why these features and benefits appeal to your target market.

Identify your business’ major competitors, their products and locations. Compare your business’ strengths and weaknesses against those of your competitors. Identify your business competitive advantages and disadvantages and explain the strategies that your business will use to compete against the competition.

Explain the advertisement methods that your business will use to capture its target market. Define the strategies that your business will use to retain its customers, as well as generate referral business. Include price points and expenses that will generate from these strategies.

Describe your business’ operations. Include information on your business’ location and equipment. Include information on the expenses that pertain to each, such as mortgage or lease payments, utilities and equipment warranties. Provide details about your business legal requirements, such as permits, zoning compliances and environmental regulations. Explain how your business completes its operations, maintains quality, controls inventory, develop products and services customers.

Identify your personnel. List the responsibilities and functions of your executive and senior employees. List the number of employees that your company maintains and identify each department. Create an organizational chart for an easy visual reference. Identify the pay rates for each employee, along with the training methods and requirements for each employee. Identify any vacate positions and include information on the pay ranges for those positions.

Provide information on your business finances. List your business’ accounting method (cash or accrual). Explain your business’ credit terms and fees, and collection methods, if your business uses the accrual method.

Complete a personal financial statement for each owner of your business. Provide a balance sheet, income statement and cash flow statement for your business. Analyze your business’ profits and losses, and complete a 12-month profit and loss sales forecast for your business. Include a five-year projection if your company seeks to include long-term goals and projections.

Complete an executive summary for your business plan. Limit the summary to more than two pages, as recommended by SCORE. Highlight your business’ target market, specialty products and mission within the summary.

Create a table of contents and an appendix for the plan. Generate the table of contents so that it references the exact pages to where each section begins. Include supporting documents in the appendix, such as receipts, tax returns and accounts payable schedules. Label each supporting document accordingly and organize the documents so that they are organized in the order in which they are referenced.

MasterCard International: The Plan

Writing professionally since 2004, Charmayne Smith focuses on corporate materials such as training manuals, business plans, grant applications and technical manuals. Smith's articles have appeared in the "Houston Chronicle" and on various websites, drawing on her extensive experience in corporate management and property/casualty insurance.

How to write a day spa business plan, how to create a business plan & where should the executive summary be located, how to write a business plan for a restaurant or food business, how to write a business plan for an acquisition, how to write a farm business plan, how to write a business plan for a convenience store, how to write a clothing boutique business plan, how to write a wedding planning business plan, how to prepare a business plan for a window cleaning business, most popular.

1 How to Write a Day Spa Business Plan
2 How to Create a Business Plan & Where Should the Executive Summary Be Located?
3 How to Write a Business Plan for a Restaurant or Food Business
4 How to Write a Business Plan for an Acquisition

Buy Existing Businesses

Jump to Section

When you buy existing businesses, you gain advantages over starting from scratch, such as faster, more secure returns on investment. Buying existing businesses is the process of acquiring a business that is already operational, including its assets, liabilities, operations, and more. Acquiring an existing business can be an attractive strategy for entrepreneurs and investors looking to enter a new market, expand their operations, or diversify their portfolio. However, it's important to approach such transactions with careful planning and due diligence to ensure a successful outcome. Now, we will explore the key considerations and best practices for buying existing businesses.

Advantages of Buying Existing Businesses

When it comes to expanding or starting a new venture, buying an existing business can offer several advantages. Some of the key benefits of buying an existing business include the following.

Established Operations: Buying an existing business means acquiring an operation that is already up and running, with established systems, processes, and customer base. This can save time and effort compared to starting a business from scratch.
Existing Cash Flow: Acquiring a profitable business means tapping into an existing revenue stream, which can provide immediate cash flow and potentially reduce the risks associated with a startup.
Established Brand and Reputation: An existing business may already have a recognized brand and a positive reputation in the market. This can provide a head start in establishing a strong presence in the industry.
Access to Skilled Employees: Buying an existing business often comes with an experienced workforce, which can be a valuable asset in maintaining operations and driving growth.

Key Considerations in Finding the Right Business to Buy

Identifying the right business to acquire is a critical step in the acquisition process. Here are some key considerations for finding the right business for purchase.

Market Research: Conduct thorough market research to identify industries and sectors that align with your skills, experience, and investment goals. Analyze market trends, customer demand, competition, and growth prospects to identify potential acquisition targets.
Financial Due Diligence: Evaluate the financial health and performance of the business you are considering to acquire. Review financial statements, tax records, cash flow projections, and other relevant financial data to assess the business's profitability, sustainability, and potential return on investment.
Legal and Regulatory Considerations: Ensure that the business you are interested in complies with all relevant laws, regulations, and industry standards. This includes checking licenses, permits, contracts, and any legal liabilities that may affect the acquisition or future operations.
Business Valuation: Determine the fair market value of the business to ensure that you are paying a reasonable price. Consider factors such as the business's financial performance, market position, growth prospects, and intangible assets like brand value and customer base.

Essential Factors When Negotiating a Business Acquisition

Once you have identified a potential acquisition target, the next step is negotiating the terms and conditions of the acquisition. Here are some essential considerations for negotiating the acquisition.

Letter of Intent ( LOI ): Prepare a Letter of Intent (LOI) outlining the proposed terms and conditions of the acquisition. This document serves as a preliminary agreement that sets the framework for further negotiations and due diligence.
Deal Structure: Consider the structure of the acquisition, such as whether it will be an asset purchase or a stock purchase. Each structure has its own legal and tax implications, so seek professional advice to determine the most suitable option for your situation.
Purchase Price and Payment Terms: Negotiate the purchase price and payment terms, including the initial down payment , earn-outs, and contingencies. Consider factors such as the business's financial performance, market conditions, and future growth prospects.
Due Diligence: Conduct thorough due diligence to verify the accuracy of the information provided by the seller and assess any potential risks or liabilities. This includes reviewing financial records, legal documents, contracts, intellectual property , and any other relevant information.
Non-Compete and Transition Period: Consider including non-compete clauses in the acquisition agreement to protect the acquired business's goodwill and prevent the seller from competing in the same industry for a specified period. Also, discuss the transition period and any support that the seller may provide in transferring ownership and operations smoothly.

Financial Strategies to Buy Existing Businesses

Acquiring an existing business typically requires significant capital. Here are some financing options to consider for the acquisition process.

Business Loans: Explore traditional business loans from banks or other financial institutions. Prepare a comprehensive business plan , financial projections, and other supporting documents to demonstrate your ability to repay the loan.
Seller Financing: Negotiate with the seller for financing options, such as deferred payments, earn-outs, or seller-held notes. This can be a flexible and mutually beneficial arrangement for both parties.
Equity Partnerships: Consider bringing in equity partners who can provide the necessary capital in exchange for ownership stakes in the acquired business. This can also bring additional expertise and resources to support the acquisition and future operations.
Personal Savings or Other Assets: Tap into your personal savings, investments, or other assets to finance the acquisition. However, carefully assess your personal financial situation and risks associated with using your own funds for the acquisition.

How to Close the Acquisition

Once all the negotiations and financing arrangements are in place, it's time to close the acquisition. Here are some key steps to closing the acquisition.

Legal Documentation: Engage legal professionals to draft and review the final acquisition agreement, including all the terms and conditions, representations, warranties, and indemnities. Ensure that all legal requirements, including regulatory approvals and permits, are met before closing the deal.
Transfer of Ownership and Assets: Execute the necessary documents and contracts to transfer the ownership and assets of the acquired business. This may include transferring licenses, permits, contracts, intellectual property, and other assets as per the agreed-upon terms.
Employee and Vendor Relationships: Develop a plan for transitioning employees and vendor relationships smoothly to ensure business continuity. Communicate the changes to employees, customers, and vendors in a transparent and professional manner.
Post-Acquisition Integration: Develop a plan for integrating the acquired business into your existing operations, including managing finances, operations, human resources, and other key functions. Develop a strategy for realizing synergies, optimizing operations, and driving growth in the acquired business.

Key Terms for Buying Existing Businesses

Purchase Price and Payment Terms: The agreed-upon price for acquiring the existing business and the terms of payment, including any down payments, installment payments, or other arrangements.
Assets and Liabilities: The assets and liabilities included in the acquisition, such as tangible assets (e.g., inventory, equipment) and intangible assets (e.g., customer lists, intellectual property), as well as any outstanding debts or liabilities of the business.
Representations and Warranties : The representations and warranties made by the seller regarding the condition, legality, and accuracy of the business's financials, operations, and assets. These provide assurances to the buyer and may be subject to indemnification in case of any misrepresentations.
Non-Compete and Non-Solicitation: Provisions that restrict the seller from competing with the acquired business or soliciting its customers or employees for a specified period after the acquisition, to protect the buyer's interests.
Closing and Contingencies: The timeline, process, and conditions for closing the acquisition, including any contingencies, such as regulatory approvals, permits, or financing arrangements that need to be met before the deal is finalized.

Final Thoughts on Buying Existing Businesses

Acquiring an existing business can be a rewarding and lucrative opportunity for entrepreneurs and investors. However, it requires careful planning, due diligence, and negotiation skills to ensure a successful acquisition. By considering the key factors discussed in this comprehensive guide, you can increase your chances of a successful acquisition and maximize the potential of the acquired business.

If you want free pricing proposals from vetted lawyers that are 60% less than typical law firms, click here to get started. By comparing multiple proposals for free, you can save the time and stress of finding a quality lawyer for your business needs.

Need help with a Business Purchase Agreement?

Meet some of our lawyers.

I have over 25 years' experience representing individual and company clients, large and small, in transactions such as mergers and acquisitions, private offerings of securities, commercial loans and commercial endeavors (supply contracts, manufacturing agreements, joint ventures, intellectual property licenses, etc.). My particular specialty is in complex and novel drafting.

15 years for legal experience; expertise in contracts, healthcare, ERISA, physicians, financial services, commercial contracts, employment agreements, etc. I am adept at all contracts and can provide you with efficient and quality services. I have worked at a law firm, financial services company, consulting ,and non-profit.

Transactional and Employment Attorney and Small Business Owner. I do inside counsel work from the outside. I demystify the law for my clients.

Have over 40+ years of corporate and commercial law experience.

I am a business attorney with years of experience advising individual entrepreneurs and small businesses on issues ranging from entity selection/formation to employment law compliance, to intellectual property protection and exploitation. I often act as General Counsel for my clients fulfilling the legal function as part of a team of managers. I look forward to learning more about your business and how I may be of assistance.

Christopher R.

Corporate and transactional attorney in sixth year of practice. Focus areas include general corporate counsel, labor and employment law, business partnership matters, securities matters related to privately-held companies, and regulatory compliance in securities and finance matters.

Forest is a general practice lawyer. He provides legal advice regarding small business law, contracts, estates and trusts, administrative law, corporate governance and compliance. Forest practiced complex commercial litigation in Florida for eight years, representing clients such as Host Marriott, Kellogg School of Business, and Toyota. Since moving to Nashville in 2005, he has provided legal advice to clients forming new businesses, planning for the future, and seeking funding through the use of equity and/or debt in their businesses. This advice has included the selection of business type, assistance in drafting and editing their business plans and offering material, reviewing proposed term sheets, and conducting due diligence. Forest is a member of the Florida, Tennessee, and Texas Bars; in addition. Forest has held a Series 7, General Securities Representative Exam, Series 24, General Securities Principal, and Series 63, Uniform Securities Agent State Law.

Find the best lawyer for your project

Contract lawyers by top cities.

Austin Business Lawyers
Boston Business Lawyers
Chicago Business Lawyers
Dallas Business Lawyers
Denver Business Lawyers
Houston Business Lawyers
Los Angeles Business Lawyers
New York Business Lawyers
Phoenix Business Lawyers
San Diego Business Lawyers
Tampa Business Lawyers

BUY EXISTING BUSINESSES LAWYERS BY CITY

Austin Buy Existing Businesses Lawyers
Boston Buy Existing Businesses Lawyers
Chicago Buy Existing Businesses Lawyers
Dallas Buy Existing Businesses Lawyers
Denver Buy Existing Businesses Lawyers
Houston Buy Existing Businesses Lawyers
Los Angeles Buy Existing Businesses Lawyers
New York Buy Existing Businesses Lawyers
Phoenix Buy Existing Businesses Lawyers
San Diego Buy Existing Businesses Lawyers
Tampa Buy Existing Businesses Lawyers

Legal Plans

ContractsCounsel made it very easy to find a lawyer to help our company with its legal needs.

Learn About Contracts

501c3 Application
93a Demand Letter
Accelerated Clinical Trial Agreement
Acceptable Use Policy
Acceptance Agreement
Accommodation Agreement
Account Agreement
Accountability Agreement
Accounting Services Agreement
Accounts Receivable Purchase Contract

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Find lawyers and attorneys by city

Buy an Existing Business

Buying an existing business.

Buying an existing business is one way of getting your new venture up and running. Perhaps a business owner is getting ready to retire and wants to pass her shop to someone new, or you have a strong business plan that you think would reinvigorate an existing enterprise. There are many reasons why buying an existing business can be a good option, such as reduced start up costs and time, an existing customer base and pre-existing knowledge of how the business performs.

However, it’s critical to do your due diligence and make sure that the business you’re buying is foundationally sound – for instance, you may not want to buy a business that has many debts that you may owe or need to collect. Also make a clear assessment of what you are buying: does the business come with the building, or is it still being leased? What equipment and assets will be included? For instance, if it’s a restaurant, will you be able to keep the menu and use the recipes? Will you take over the website and have access to the customer mailing lists?

A business broker is a licensed professional for buying and selling businesses. Similar to a real estate broker, they can act as an intermediary between you and the business owner and help you locate a business to purchase, assess the value of the business and negotiate the purchase. Business brokers typically operate on a commission, so make sure that you find someone who you work well with and trust. Depending on the complexity of the purchase, you may also consider hiring an attorney to help you prepare an asset purchase agreement and negotiate the final terms of the transaction.

Things to Consider

There are many things you should consider before purchasing a business. Some key items include:

Inventory and Assets

Conduct an in-depth assessment of the inventory and other assets – such as furniture, fixtures, equipment and the building – so you can know its condition and value. This approach can also serve as a starting point to determine the value of the business.

Zoning and Permits

Review the zoning for the property to make sure that the business conforms to the building code and that any changes or alterations you plan to make to the building are allowed within the property’s zoning requirements. Otherwise, you may need to make expensive or time consuming changes. Depending on the business type, you may also verify that the business’s licenses and permits are up to date and review any terms or conditions attached to them. For instance, if the restaurant has a liquor license, you will want to find out if it is transferrable to a new owner.

Contracts, Legal Documents and Loan Information

Leases for the building and/or equipment
Contracts with suppliers and for equipment maintenance
Employee contracts, including information about wages and other benefits
Amounts owed to/by suppliers or other stakeholders

Reputation and Relationships

Review information that’s publicly available about the business such as whether there have been any complaints with the Better Business Bureau, and how well the business is represented online.
Talk with customers, employees and vendors to get an in-person assessment of how strong the relationships are, how well you think you would work together, and how well the business is doing.

Tax Returns, Financial Statements, and Sales Records for the Past Five Years

Request all financial documents, including financial statements, accounts payable/receivable and tax returns, for the past three to five years. This will help you determine the profitability of the business, if there are any outstanding tax liabilities, and the actual financial net worth of the business. You may need to enter into a confidentiality agreement with the business owner to obtain this information.

To protect yourself from having to pay any sales and use taxes owed by the business, you can request a certificate of tax clearance from the State of California Board of Equalization. If you do not obtain a clearance before you buy the business, and if taxes are owed and the previous owner has failed to pay those taxes, you could be required to pay any taxes, interest, and penalties that are due.

Your Business Plan

Make sure you have a clear goal and understanding of what it means to buy a business. What is your plan to ensure the business becomes or remains profitable? What is the minimum Return on Investment that would make this purchase worthwhile? How will you plan to structure the payment schedule so it's manageable, especially in the first few years when you are getting up and running? Spend the time to put together a business plan.

Once you’ve purchased the business, you'll need to begin the process of registering your business . Many permits, such as a Seller’s Permit do not transfer, and you’ll need to set them up in your name.

Are you ready to buy a house? Take our quiz and find out.

Homeownership is how many Americans accumulate wealth, and it’s an important life goal for millions. But affording a home is a growing challenge — if not out of reach entirely — for many people.

In the past three years, mortgage rates have more than doubled and are now at nearly 7 percent on a typical 30-year loan. And they are unlikely to drop significantly this year . Even those who can swing an all-cash purchase, experts say, still have plenty of other expenses to consider, including maintenance and insurance.

So, should you buy a home right now? To help you decide, take this quiz.

Question 1 of 9

What type of home are you looking to buy.

Question 2 of 9

What is your living situation.

Question 3 of 9

How would you characterize your financial situation.

Question 4 of 9

How much do you expect to have for a down payment.

Question 5 of 9

What is your credit score.

Question 6 of 9

How much debt do you have include credit cards and student, auto or personal loans, etc..

Question 7 of 9

How much are you willing to pay for a mortgage rate.

Question 8 of 9

How do you expect your mortgage payment to change your existing budget.

Question 9 of 9

How long do you plan to own this home.

You need to answer every question to see your result. You’re missing questions 1, 2, 3, 4, 5, 6, 7, 8 and 9 .

About this story

Editing by Karly Domb Sadof, Rivan Stinson, Betty Chavarria and Robbie Olivas DiMesio.

Business Today
India Today
India Today Gaming
Cosmopolitan
Harper's Bazaar
Brides Today
Aajtak Campus

Magazine Cover Story Editor's Note Deep Dive Interview The Buzz
BT TV Market Today Easynomics Drive Today BT Explainer
Market Today Trending Stocks Indices Stocks List Stocks News Share Market News IPO Corner
Tech Today Unbox Today Authen Tech Tech Deck Tech Shorts
Money Today Tax Investment Insurance Tools & Calculator
Mutual Funds
Industry Banking IT Auto Energy Commodities Pharma Real Estate Telecom
Visual Stories

INDICES ANALYSIS

Mutual funds.

Cover Story
Editor's Note
Market Today
Drive Today
BT Explainer
Trending Stocks
Stocks List
Stocks News
Share Market News
Unbox Today
Authen Tech
Tech Shorts
Tools & Calculator
Commodities
Real Estate
Economic Indicators
BT-TR GCC Listing

Flipkart drops stake purchase plan in Zepto: Report

Zepto is in talks with a private equity funds along with existing investors to close a fresh funding round, according to a report in et.

Updated Apr 19, 2024, 8:48 AM IST

Myntra x Microsoft supercharges online shopping with AI

Ecommerce major Flipkart's talks with Zepto for a potential stake purchase deal has fallen through and are unlikely to be revived, The Economic Times reported on April 19.

Zepto is in talks with a private equity funds along with existing investors to close a fresh funding round. It is expected to get a valuation of nearly $2.5 billion on the back of the momentum in the quick commerce sector in the past few months, according to the report.

Flipkart’s interest in Zepto shows its appetite in the instant-delivery segment in which it has lagged. Flipkart has plans to launch its own quick delivery service with a time limit of deliveries under 30 minutes.

The Bengaluru-based company had previously also been in talks with quick commerce player Dunzo for a significant investment but those talks didn’t progress. Techcrunch was the first to report on the Flipkart-Dunzo discussions.

Dunzo was also approached by PhonePe for its ONDC-led ecommerce business but the transaction didn’t go through as the company’s board blocked the proposal, the ET report said.

Open Network for Digital Commerce (ONDC) is an Indian government-backed marketplace for sellers and offline businesses to counter the dominance of Amazon and Flipkart.

A UBS report released this month said the quick ecommerce sector is likely to achieve a gross merchandise value (GMV) or total sales of around $34 billion by FY29 with a total addressable market (TAM) potential of $520 billion.

“We believe the three large quick commerce platforms currently have a comfortable advantage on the core infrastructure needed — rollout of dark stores and logistics infrastructure — although a more fragmented market structure over the medium term cannot be ruled out,” the report said

business plan to purchase existing business

IMAGES

VIDEO

COMMENTS

Business Plan for Buying an Existing Business

What to Include In an Acquisition Business Plan?

Why Do You Need a Business Plan Sample for Buying an Existing Business?

Executive Summary

Company Overview

Industry Analysis

Marketing Plan

Operations Plan

Organization and Management

Financial Plan

Income Statement

Get Expert Help with Your Acquisition Business Plan

Frequently Asked Questions

How do you create an acquisition plan?

How do I prepare my business for acquisition?

What should be included in an acquisition plan?

Add comment

Comments (0)

Search the site:

You’re our first priority. Every time.

How to Buy a Business: Everything You Need to Know

Buying an existing business checklist

1. Figure out what type of business you want to buy

How much do you need?

2. Search for businesses that are for sale

3. Understand why an existing business is up for sale

4. Narrow in on a business that aligns with your budget, goals and resources

5. Do your due diligence

Business licenses and permits

Organizational paperwork and certificate of good standing

Zoning laws

Environmental regulations

Letter of intent

Contracts and leases

Business financials

Organizational chart

Status of inventory, equipment, furniture and building

Other important documents

6. Evaluate the price of the business with the earnings, assets or market approach

Earnings approach

Assets approach

Market approach

7. Secure capital to make the purchase

Use personal or family money

Seller financing

Sell stock to employees

Start by leasing the business

Debt financing

8. Close the deal with the appropriate documents

Bill of sale

Adjusted purchase price

Vehicle documentation

Patents, trademarks and copyrights

Franchise paperwork

Non-compete agreement

Consultation/employment agreement

Asset acquisition statement

Bulk sale laws

Reasons to buy a business

Pros of buying a business

Lower operating costs

Easier to obtain financing

Intellectual property is on the table

Cons of buying a business

Unfamiliarity with the details

Risk of a hidden problem

Business Plan for Existing Company

Business Plan for an Existing Business

Benefits of Having a Business Plan for an Existing Business

How to Write a Business Plan for an Existing Business

Original text

Sections of this business plan include:

A Complete Guide to Buying an Existing Business in 2023

Plan ahead – see what you qualify for today

State of the “Businesses for Sale” Market

Pros and Cons of Buying an Existing Business

Where to Find Existing Businesses

Online business marketplaces

Business brokers

Professional networks and associations