Buying Into An Existing Business
Have you ever thought of buying into a business; that is, buying a part of a business? People do it all the time. They buy minority stakes (less than 50% ownership), even stakes (50/50) and majority ownership (more than 50%). Why would someone buy a part of a business? Though it requires some specialized transaction knowledge, there are many reasons for doing so and many methods of accomplishing such a transaction.
buying into an existing business
Buying into a business comes with much lower risks than starting one from scratch. A successful, established business already has a cash flow, a good reputation and a trained staff. It has a track record you can use to figure out how much your investment is worth. However, investing in a percentage of a business means you'll be dealing with co-owners, possibly for years. That brings its own challenges.
Buying into a business can be an exciting and rewarding experience. In many cases, buying into a business can be a lot less risky than starting up your own. The business is already operating and can provide many benefits, including established:
To ensure that you buy into the right business, the first step is choosing the right business type for your needs. To start, you will want to look at the industries you have some familiarity with and have an idea of what you are looking for. You will likewise want to choose a business that will match well with your skillset and knowledge. You will also want to be sure to choose a business that is the right size and is in a preferable geographic location with a strong labor pool and customer base.
Whether you employ a broker to help you close your deal or decide to handle it yourself, you will need to put together a team. Including a banker, an accountant, and an attorney to help you take a closer look at the company, will ensure that you are making a sound investment. This team will be the group that will work together to perform your due diligence before you buy into the company. During your due diligence, you will answer some of the basic questions you will need to know about the business.
If you need help with buying into a business, 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.
Equity is a concept that can prove difficult to pin down when a partner buys into a business since it holds different importance for different parties. Some partners value equity very highly because they see it as a way to have some control over the business. Other partners do not concern themselves with equity and focus on other things.
These questions hopefully will provide the start to some in-depth thought and reflection and some helpful and constructive dialogue with your partner. Remember, instead of jumping into a business partnership without any preparation, take the time to ask yourself and your prospective partners some questions. Then, proceed confidently but carefully, conduct your research, communicate, and be honest with your colleagues and yourself. If you are able to do these things, you will have a long, successful career ahead of you.
Please contact our attorney for legal questions about buying into an existing business. Our California business lawyers are skilled, licensed professionals who can provide advice and counsel to existing or prospective partners. With our help, you will be ready to form a new, promising business partnership and achieve greater success. Good luck in all of your business pursuits.
If you think you have the chops to be an entrepreneur, but would rather not start with a new idea -- or just plain don't have a new idea worth starting -- you may be a great candidate to buy an existing business instead.
While buying an existing business typically involves more upfront cost, it also presents less risk than starting from scratch. Financially, you're looking at actual profit and loss records rather than rough estimates, and there's a clear history of sales to point to. You may also acquire valuable patents or copyrights, or have the opportunity to drive a stagnant business in an exciting direction with your expertise.
In reality, founders sell their businesses for a myriad of reasons. They may be in a different life stage, and the needs of the business no longer match their lifestyle. Or maybe they've grown bored with the existing business model, or they're excited about a new idea. The business they started may be a great one, just not one they are passionate about running day-to-day anymore.
But even when a founder is ready to move on, the decision to let go of something they built from the ground up isn't an easy one. By finding the right buyer -- someone with the passion to take the business to new heights and the strategic mind to make the business perform well into the future -- a founder can move on comfortably, knowing the business they built is in good hands.
When you find a business that's a good match, a true entrepreneur will be immediately itching to dive head-first into purchasing the business and moving it forward. Before you get too excited, slow down and do your homework. A business that looks great at first glance could have serious issues hiding underneath that would make it a poor choice for sale.
While there are many benefits to purchasing an existing business, it can certainly be an expensive option. Unless you're independently wealthy or have a financial backer, you'll likely need funding to make the sale.
Business loan: Alternatively, you could take out a term loan to purchase the business through a traditional bank or an online alternative lender. The good news here is that lenders are often more open to loans for purchasing existing businesses with a known revenue history. Even so, your personal financials will play a big role in your ability to qualify.
Choosing to buy an existing business is a valuable entrepreneurial feat that will impact your life, your community and the lives of your employees for years. With the right connection and a lot of hard work on the transition, you may be the perfect person to turn a good business model into great future for all involved.
Conventional, SBA, and online lenders typically instruct small business owners to submit financial documents for the existing company, including cash flow, operating expenses, and physical assets. You should work with the current owner to get business valuation details and financial statements.
Having your own business is great. Building one from scratch? Really hard. Which is why some entrepreneurs opt to buy an existing business outright. There are other reasons to buy a business too, like acquiring an up-and-coming competitor, or just building your investment portfolio.
Most small businesses rely heavily on key personnel and you need to know who those key people are and, if necessary, incorporate a provision in the Agreement to cover their continued employment situation. Enthusiastic and experienced employees can make or break a business. If staff members leave soon after you purchase the business, ensure that you factor into your purchase price recruitment and training costs required to get new staff members up to speed. Getting employment clauses right in a business sale and purchase agreement will also help you avoid difficult problems if there are any employees involved. Come and see us if this might apply to the business you are purchasing.
You should consider establishing a new entity to run the business to minimise the risk of inheriting company debts, contracts and liabilities that may not have been disclosed to you. This also separates out your business venture from any existing companies that you own. The cost of incorporating a company is relatively small and enables you to tailor the constitution and ownership to your own needs. If the company name is the business name you want to retain, you should negotiate for the vendor to change their company name and free up that name for your use.
Before you commit to buying you should determine the current value of the business and its potential growth. You may also want to get a professional valuation of the business's assets and liabilities.
Franchising is another option to consider if you want to buy an established business. Franchising allows a business to operate under the name and brand of an existing business, and sell their products or services.
Starting a business involves so many different types of tasks that the business owner, especially in the beginning, has to wear a lot of hats. This is why many people who wish to start a business consider franchising, or purchasing the right to open a branch of an existing business.
If you're going to buy into a franchise (becoming a franchisee), you may be waiting for after the deal is finalized to incorporate, not wanting to jump the gun or rush unnecessarily. But Alkap says that waiting is a risk in two respects. First, it's better for the business to do business as an entity than for you to be personally liable. Second, prospective franchisors will be reassured by your incorporation and know you mean serious business.
Be careful, Do research. If you are buying a franchise headquartered in another state -- and even if you are not -- make sure you are aware of your own state's laws and the ways they intersect with the other's laws and requirements. You must be in compliance and you must carefully review any business in which you plan to invest. Don't rely on the franchise for legal advice.
While it's true that buying into a franchise means a lot less will be up to you than if you were choosing everything in a new business. But you should still get help before you sign the dotted line. Find counsel who can guide you on the best corporate structure for your business, file necessary paperwork and review any deals you do before you finalize them. 041b061a72