• There are many opportunities to buy an existing business, offering an excellent way to break into entrepreneurship without starting from scratch.
• The positives of buying an existing business include inheriting a customer base and operational plan, while the negatives include a potentially high purchase price and perhaps having to deal with problems that may not be disclosed.
• Find out 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 to purchase an existing business.

State of the “Businesses for Sale” Market

The “businesses for sale” market refers to the sector that deals with selling and buying businesses already in operation. 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, including:

• 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. On 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 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:

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 from a business valuation expert, 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:

• Consulting
• Construction or landscaping companies
• Vending machines
• Personal training
• E-commerce
• 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.

What Are the 7 Steps To Buying an Existing Business?

Though the exact steps may vary somewhat,  most buyers will want to incorporate the following 7 steps into the process of buying a business. 

1. Decide what you want. 

Running a business is hard work, so you want to carefully choose the kind of business you want to own. The right business should combine your skills and/or interests with the potential to build a profitable business. Everyone wants a high cash flow business, but if you really don’t like the business you may find it hard to stick with it or grow it. 

You’ll want to research the business model and industry, as well as the company itself. 

2. Prepare financially. 

How much money can you afford to put toward the purchase price? What are your credit scores, and how much will you be able to borrow for a business acquisition loan? How long will it take before you can pay yourself a salary, and how will you survive financially until then? 

3. Find a business to buy. 

If you’ve ever bought a house, you know that sometimes things fall together quickly and sometimes it takes a long time to find the right house, get your offer accepted, and close. Patience at this stage can pay off. Rather than rushing into a less-than-ideal business, be willing to take time to find the right deal using the resources in this article. 

4. Make your offer. 

Here’s where you decide how much you think the business is really worth. Like buying a house, it may involve some back and forth negotiations. A broker can prove very helpful here. Contingencies can protect you if the seller wasn’t completely truthful and you uncover issues during the next step of the process. 

Another option is to sign a letter of intent that will allow you to proceed to the next step before making a formal offer. 

5. Do due diligence

Thoroughly vet the prospective business, and enlist the help of professionals to minimize expensive surprises. (See more details about the due diligence process below.) 

6. Secure financing

If you need financing, and if the seller is willing to wait for you to get financing, you can apply for a loan at this stage. If you have already been preapproved, this step can go more quickly though that’s not always possible. 

7. Close the deal

You legally purchase the business and transition to full ownership.

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:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.

Financial Requirements and Funding Options for Buying a Business

When you buy a business, you may need a significant amount of money to cover startup costs like the purchase price and the down payment. You may also need working capital if the cash flow of the business isn’t currently strong, or if you want to introduce new products or services.

There may be a variety of sources for this capital, including private funding (from investors, personal savings, and/ or loved ones) or from lenders, including traditional banks or lines of credit. 

Some of the best business acquisition loans include term loans and SBA loans. Retirement funds ROBS accounts are also popular for this purpose. It may also be possible to buy a business with a business credit card if the price is right and your credit limits are large enough.

Most lenders require good credit, a down payment (or strong collateral), and will scrutinize financials carefully. 

You also may be able to use seller financing for some or all of the purchase price. Seller financing is an agreement between the buyer and the current owner to pay for the business over time. When structured properly, seller financing can benefit both parties. The seller may get a broader pool of buyers. The buyer may have time to ramp up revenues before getting a traditional loan. 

Examples of sources for business acquisition loans include:

How Nav Can Help

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.

Frequently Asked Questions

Is it smart to buy an existing business?

Buying an existing business can be a very smart move, as long as you do your due diligence to understand any weaknesses and problems the business may be facing. It can often be easier to improve an existing business that’s doing OK, compared to starting a new business from scratch. 

How do I take over an existing business?

If you’re serious about buying a business, take the time to thoroughly research your options, and to investigate the type of business you want to buy as well as looking at specific opportunities. Avoid getting too emotionally invested in a specific business early on; make sure you thoroughly research how financially viable it is. 

It’s also a mistake to gloss over financial data or to make a “handshake” deal. Buying a business is a big investment of your time and money: do it correctly. Work with a business broker and/or an attorney with experience in business acquisitions.

What are disadvantages of buying an existing business?

Cost can be one disadvantage of buying a business. If a business is successful, the owners will want to sell for an attractive price. That may require the buyer to dig deep and exhaust personal resources or take on a significant loan to purchase the business. 

Undisclosed problems are another potential pitfall. If the buyer isn’t careful they could end up with financial or legal problems the seller didn’t share. 

An existing business may be set in its ways and easily challenged by startups with more innovative products or services. 

A new owner may find it necessary to change operations, or staff. They may find it necessary to create new revenue streams to make the company more competitive. Employees may resent those changes, even if they are necessary.

Equipment may be nearing the end of its useful life, and require new equipment leases or equipment financing that add to operating costs.