Do you want to buy a business? There are many factors to consider to ensure you buy a suitable and proven business.

When purchasing a business, there are some key questions you should ask:

What is the history of the company?

Since when has the business been running?

What made you decide to sell the business now?

Would you mind telling me more about the business model?

How much revenue or profit did the company generate in the past 2-3 years?

When valuing the business, what factors did you consider? How was the value determined? Was a qualified, independent expert used?

Are you flexible with the asking price?

The asking price includes what assets and liabilities (debts)?

Would you prefer to structure the sale in a particular way?

What are the terms and rates for seller financing, and if it’s available? Usually 10-25% of the purchase price is covered by seller financing, which shows the seller’s confidence in both the business and the buyer.

Would you be willing to wait while I seek external financing?

You need to show them the money

A seller will want to know how you plan to pay for the business, which is likely to be through a bank loan and a sufficient down payment from personal resources. However, they’ll also be looking for a passion for the business and a sincere interest in it.

It is important to provide evidence of your ability to pay for a business when you inquire about and make a firm offer on a business for sale. The most obvious option is a bank loan, but there are other options as well.

Depending on the type of business you want to sell as well as your personal circumstances, the best course of action will be determined.

You will not need to sacrifice a share of the profits of the business to investors or loan repayments if you can afford to buy the business outright without borrowing or outside investment.

Financing through debt

Commercial loans are a type of debt financing provided by building societies or credit unions. A person or business borrows money from a lender, then repays it with interest within a specified period of time.

You’ll find different interest rates, repayment terms, and other terms depending on the lender and how risky your proposal is seen to be. The loan can be secured with any asset you own, typically a house, for better terms.

You can probably borrow more from personal savings if you have more money to contribute.

Take a moment to put yourself in the seller’s position and consider what they would like to achieve.

You may be upfront about what they want and they may make this easy for you. Others may keep their cards close to their chest.

You’ll be able to meet both parties halfway if you know what their objectives are from the negotiation.

Trust is the most important factor for the seller. Assert your trustworthiness and your sincerity in your interest in the business the seller has worked hard to build.

If you’re honest and upfront about what you want, the chances of them returning the favor will increase. Don’t make the seller feel like you are trying to take advantage of them.

What are your goals?

Bring your negotiation preparedness to the table so that you can discuss all the options. Decide on your ideal outcome at the outset.

If the seller wants to cross certain “red lines”, be willing to compromise, but also be firm. Suppose, for example, the business is heavily reliant on the owner that is leaving, and you decide to insist the owner stay on for a period of transition.

It is tricky to strike the right balance between not backing down too easily and not seeming stubbornly against compromise.

The process of buying a business is complex and involves a number of steps. 

During the buying process, every business faces specific challenges. As a result, it’s important you familiarise yourself with the general process, so you know what steps to take.

In our guide we provide you with a comprehensive resource that provides you with tips and information on how to navigate the three most important phases of buying a business. 

The first step of the buying process is to determine your budget 

Buying a business begins with preparation. It is important to perform several tasks in order to determine if you have the ability to run a company, if the market for your venture exists, and if the right business can be purchased. 

In order for a business to succeed, it must meet the needs of its target audience and occupy a carefully considered position in its market. 

The first step is to conduct research to determine the market, customers, and their needs. It’s imperative to determine whether or not there is sufficient demand for the product or service – and then be realistic about it. 

Consider speaking to a market research specialist about the industry you’re thinking of buying into. 

By reviewing your plans and comparing them to the market, a specialist can help you determine if the business you want to buy has an audience.

Formalize your offer

Many people begin to feel the reality of owning a business when they make a formal offer. You have a business plan, financing, and representation. All you have to do now is become the business owner. 

You should be aware that the asking price for a business is typically negotiable before submitting your offer. It may not hurt to make a lower offer than the asking price, even if the seller pushes back on your initial offer. 

Prepare to explain why you think your offer should be accepted when you make your offer. If possible, emphasize your willingness to move quickly through the process as an incentive for the seller. 

If your projected numbers show that you’ll be able to recuperate the costs quickly, you can also offer more than the asking price to get the job. 

There are times when you may find yourself in a bidding war with other buyers, and you should not get caught up in the excitement. Using your financial calculations again, determine the maximum amount you are prepared to pay and stick to it.

You typically enter into what’s known as a ‘heads of terms’ agreement with the seller once you have agreed upon a price, structure, and terms of the transaction. It represents the agreement between the parties on the price, the basic terms, and the fundamental principles governing the transaction.