If you’re a small business owner, 2020 will be a year that will be obviously remembered for the wrong reasons. The outbreak of COVID-19 pandemic made small businesses to revisit their way they do business. Buying a small business is in every way different from that of an established one, considering its scale, revenue and market. In some cases, it may require a careful consideration of all the factors mentioned below:
# Identify what you want:
This is the most important step: identifying what you, as a business buyer, want. The best opportunities lie in purchasing small companies earning between $1 million and $10 million a year in revenue. You need to make your priorities right: go for something that you’re really passionate about or select a high-revenue sector with the help of an external consultant.
# Find motivated sellers:
It is not easy to find business owners that are motivated sellers. If you are a buyer, it is important to filter out prospective sellers who don’t put profitability alone at the heart of any business traction. Therefore, it is important to align the vision of the buyer with that of the seller before deal closure.
# The simple math matters
It is important for the buyer to check the sales and profitability records. In some cases, it is necessary for the buyer to sign a non-disclosure agreement with the seller for confidentiality. Check if the revenue of a business is greater than the expenses. This simple math holds the key to buying a small business.
# Financing the deal
Most financing options do not require your own capital upfront. There are several financing options which the buyer can make use of: securing a loan from a financial institution specializing in acquisitions or getting angel investors or venture capitalists (VCs) onboard in exchange for equity. It is not uncommon to pay no more than 30 per cent of the buying price at the time of closing sales.
# Money matters…brand reputation too
Though money is the driving force behind most business trading, most sellers also care for the brand and reputation of their business. Therefore, devising a proper brand strategy to maintaining the status quo of the business with an emphasis on shaping the future strategic direction is important from a branding and operation perspective.
# Other factors
Due diligence through consultation with accountancy and legal experts, setting up a robust succession plan and leveraging the business owner through the transition play a major role in the buying decision of a small business.