Buying an established business is a great way to save on startup costs and avoid the growing pains associated with new ownership, such as product launches and customer acquisition. It’s not without its risks, however, and closing deals isn’t always easy. Here, we’ll show potential owners how to buy an existing business.

Find a Likely Candidate

How to buy an existing business? Even when you’re working with the best business brokers in Austin, deciding which type of company to buy is the first and most important step. For instance, boutiques and shops are a great fit for those with retail experience.

It can be tough—if not impossible—to succeed in certain industries without passion and experience. Buyers who go in with basic knowledge start at an advantage because they are more likely to understand the industry’s challenges, opportunities, and trends.

Look at the Company’s Reports

Next, potential buyers should determine whether a business is worth its asking price. There are multiple valuation methods based on balance sheets, projections, and earnings, including:

• Asset-based. These valuations involve adding up the market value of the company’s assets, including certain intangible assets, such as patents, and deducting liabilities like lines of credit, mortgages, and other debts. The asset-based valuation method is well-suited for distressed companies, not necessarily those companies that will remain as going-concerns.
• Market. The market valuation approach looks at past sales of other companies in the same industry, setting a price based on those numbers. Market valuation only works if a buyer or broker can find comparable companies that sold recently and made their terms public.
• Income. An income-based valuation requires an estimate of the business’s expected cash flows over a predetermined period, as well as the terminal value of annuity-like cash flows. Income-based valuation strategies are best used when it’s easy to forecast a company’s future earnings.

Some valuators combine multiple methods, such as income- and market-based approaches. In any event, valuing a business is a complex process, and buyers would be well-served to consult a valuation company or a business brokerage that focuses on valuations.

Submit a Letter of Intent

In the business world, letters of intent are non-binding agreements that convey a purchaser’s intention to buy a business. When these letters are submitted, the issuer usually gets refusal rights, which means they get the first chance to buy a company—even if other buyers come along through an exclusivity term. Letters of intent show business owners that buyers are serious, which makes them more likely to share in-depth legal, tax, and financial information.

Perform Due Diligence

As part of the purchase process, buyers should research their targets to ensure that there are no expensive surprises after closing. Known as due diligence, the process gives potential purchasers an opportunity to examine a company’s financials, tax records, operations, and legal records. Before committing, look at the company’s:

• Permits and licenses. Check with state and federal agencies to determine whether the company is in good standing and which types of permits and licenses the government requires.
• Tax and bank records. Ask for copies of recent income, property, payroll, sales, and excise tax returns, along with bank statements. Then, verify whether the seller’s documents match reported banking and tax activity. Finally, ensure that there are no tax liens on the company.
• Environmental and zoning rules. If you’re buying a brick-and-mortar business, ensure that it complies with zoning laws and environmental requirements.
• Status of assets. Review the company’s loan and lease agreements to ensure that it owns all the assets included in the sale, that those assets are valued accurately, and there are no hidden liabilities included.
• Contracts. Read all business contracts to learn how they’ll affect the transition. For instance, if the company’s profit predictions were based on a single vendor or customer contract, is the agreement transferable? If a building is under lease, ensure that the lease’s terms won’t change. It is a good idea to ask the seller to sign a non-compete agreement.
• Organizational structure. A company’s organizational structure outlines workflows, the chain of command, and the ways in which information is passed down through the hierarchy. Do some management team members face excessive reporting requirements? Are some parts of the company overstaffed while others are stretched too thin? Who is responsible for financial reporting, business development, sales, and other crucial functions? Getting the answers to these questions will leave you with an idea of what to expect as the new owner.

Finally, business buyers should consider the legal ramifications of their purchases. When working with a brokerage to close a sale, be sure to investigate any pending or threatened litigation involving the company or its current owner.  While this is why most deals are asset purchases, as opposed to stock purchases, being knowledgeable about pending litigation is a must.

Find Financing

Once you’ve found a business to buy and learned all about it, there are several ways to pay for the purchase.

• SBA or Small Business Administration loans. The SBA’s 7(a) lending program allows business buyers to borrow a maximum of $5 million to buy a company, secure working capital, and purchase fixtures, furniture, and equipment. While these loans are backed by the US government, they’re available from approved lenders.
• Term loans. Some financial institutions offer loans to help aspiring entrepreneurs acquire businesses, but qualifying can be a challenge. Term loans are typically only available to business buyers who have great credit, a history of success, and plans to buy companies with sizable holdings. Despite these difficulties, term loans are still a worthwhile option for buyers who want to buy a business with more than $2 million of EBITDA or greater.
• In-house financing. In some cases, a company’s current owner may loan a potential buyer the money to make some of the purchase.  Usually this is 0% -30% of the purchase price, but not 80%-90%.
• Partnerships. Do you have the knowledge to run a business, but lack the funding to get started? Consider finding a partner who can make the investment. Partnerships come in various forms. For example, a silent partner will provide funding but stay out of day-to-day decisions, while a private equity sponsor will provide support, guidance, and professional connections.
• Personal funding. If you’ve held onto some money, tap into those savings to cover the purchase.

Many business buyers combine one or more of these funding sources to close deals. For example, it’s possible for buyers to use their own money along with a bank or SBA loan.

An Extra Step: Closing the Deal

After performing due diligence, agreeing to a price, and securing financing, it’s time to close the deal. Most business sales are structured in one of these two ways.

• Asset purchases. Here, the buyer starts a new entity but transfers the DBA, while the buyer gets all the company’s assets, including inventory, intangibles, equipment, customer lists, and patents.
• Stock purchases. In this type of takeover, a buyer acquires a business’ stock, along with its liabilities, contracts, and assets.

Each method has its benefits and disadvantages, and it’s best to discuss your chosen transaction type and its tax, financial, and legal consequences with your legal team before signing a purchase contract. An attorney can help by updating leases, contracts, agreements, and other documents after the sale has been finalized.

The Benefits of Buying an Established Business

While there are a few pitfalls to consider, the benefits of buying a business typically outweigh the risks. Advantages include:

• Simplified customer acquisition. Existing businesses come with established customer bases, so new owners don’t have to spend all their time testing products, trying new services, and generating new leads. Rather, they can focus on retaining the customers they’ve acquired.
• Easier financing. In most instances, buyers of existing businesses find it easier to get financing than they would if they were running a startup, simply because these businesses already have histories.
• A greater chance of survival. Many new companies fail within the first several years. Corporate takeovers, however, come with much higher survival rates than startups.
• A shorter launch. While buying a company comes at a significant upfront cost, it’s easier to turn a fast profit because there’s no need to purchase inventory, find vendors, and hire employees.
• Experienced and trained workers. Like buying existing equipment and inventory, acquiring a trained workforce is an asset to a new business owner, especially if they’re getting into a new industry. These workers will know how the business operates, which will save money and time on hiring and onboarding.
• Cash flow. Because existing businesses have their customer bases, staffing, and processes established, a new owner can generate positive cash flow on the first day. By comparison, a startup owner may take several months—or even years—to see a profit.
• Brand recognition. Another reason to buy an existing company is that it already has a market presence and a brand. This will help a new owner save energy, time, and financial resources that they’d otherwise spend building a brand and putting their products and services in front of customers.

Whether you’re looking to branch out into a new industry or gain ground in an area where you already have experience, buying an existing business is an excellent way to achieve your goals. Count on the team at CGK Business Sales for the advice, expertise, and help needed for a successful purchase. Hopefully this article has been helpful as to how to buy an existing business!

Owning a business is an attractive prospect for many Americans. It’s apparently becoming even more appealing considering almost half of Americans plan to start their own companies during the coming years. Of course, the landscape of the business world is constantly changing, and not all businesses are in a position to be as profitable as their owners might hope.  These are the 15 most valuable types of businesses in 2022.

On the other hand, certain industries are gaining steam at this point. Businesses that are part of those fields could see serious profits moving forward. Whether you hope to sell your business for the best possible price or want to purchase a company with exceptional value, business brokers in Austin can help make it happen. Take a look at 15 of the most valuable business types per current market reports.

1. Daycare Centers

Some people may be surprised to see the child daycare industry on this list. It’s definitely there, though. For one, the days of being able to survive as a single-income household have long passed. That means families with children will always need child care services. That’s only part of the picture.

During the Great Lockdown brought on by the pandemic, schools and daycare centers across the globe closed their doors. Since many parents either lost their jobs or became part of the ever-growing mobile workforce, the need for daycare declined. Now that things are starting to return to pre-COVID norms, the demand for child care is on the rise again.

At this point, though, families are finding daycare isn’t quite as readily available as it was before the pandemic. Many daycare centers that were forced to shut down haven’t reopened. One report from Child Care Aware of America points to a deficit of more than 16,000 child care programs throughout the country.

In addition to the surging demand and significant deficiency of available daycare, another factor enters the mix. It seems the cost of child care is on an upward trend. Though the costs of operating a daycare center are also on the rise, the increases in demand and premiums can easily balance the scales.

2. Trucking Companies

Trucking companies can be decisively prosperous at this point. After all, there’s currently a deficit of more than 80,000 drivers and trucks on the roads, and that number continues to grow. On top of that, the need for goods to be delivered to warehouses, store shelves, and other locales is climbing exponentially.

All that being said, maximizing the profits from a trucking company requires a certain amount of finesse. Because of the driver shortage, finding and holding onto qualified employees is a bit of a challenge. Keeping rates competitive, vying for contracts, remaining in compliance with regulations, and other matters can also be stressful. Additionally, the costs of purchasing and maintaining a fleet tend to add up.

Trucking companies offer valuable services that are going to become even more essential. Those with optimal management strategies in place can be incredibly profitable. In the years to come, this may be even more true for those that offer their own in-house driver training programs.

3. Home Maintenance Businesses

Home repair, maintenance, and improvement services are likewise in high demand. In fact, a recent write-up indicated more than 16 home services projects are completed per second in the United States, and the market has been steadily growing over the last several years. It’s showing no signs of slowing, either.

Some reports say that a growing number of American homeowners are leaning toward do-it-yourself projects. Others point out that many of those projects ultimately end in failure, leading to the need to hire professionals despite homeowners’ best intentions. It’s also worth mentioning that certain projects are becoming increasingly complicated with technology continually evolving and building codes constantly changing.

Due to those factors, this is another industry that provides a great deal of job security and room for growth and profitability. Property owners will always need help keeping their homes up to date and in good repair. Furthermore, home renovations are on the rise. As such, home maintenance businesses, handyman services, and similar companies are extremely valuable.

4. Food Service Businesses

It’s no secret that the food service industry is seeing monumental gains. Many restaurants struggled during the pandemic for obvious reasons. Some were forced to close their doors whereas others say the rise of the food delivery sector was their saving grace. With dining rooms reopening, though, businesses in this industry that are capable of delivering exceptional meals and customer service are quickly gaining value.

Now, the demand for dine-in opportunities, takeout meals, food trucks, caterers, and other members of the industry has surpassed even their pre-pandemic glory. As of last year, the food service industry even reached record highs of more than $876 billion. Consumers lead busy lives and enjoy new dining experiences, so they’re on an ongoing mission to seek out new establishments. Surprised to see food service businesses on the 15 most valuable types of businesses in 2022 list?

5. Financial Services

Businesses in the financial sector are also among the most valuable. That may seem like an obvious statement, but matters are a bit more complex than many people realize. Quite a few factors are driving growth and change in this industry, and businesses that can accommodate those aspects are certainly in a position to succeed.

Some of the most valuable businesses in this category are wealth management firms, accounting services, investment management agencies, and financial consultancies. People are paying closer attention to their money these days. They want to build wealth, and they’re realizing the importance of setting themselves up for a comfortable retirement.

This spans beyond individuals’ needs as well. Businesses increasingly need accountants, financial consultants, and related professionals to help keep their spending on track and maximize their profits.

With all this in mind, businesses that provide such services are in high demand. Helping people manage their money and achieve financial gain is a lucrative field in its own right. Considering the growing need for companies like these, they’re bound to become even more valuable moving forward.

6. Fitness-Oriented Businesses

Fitness centers were faced with major hurdles during the pandemic. As was the case in so many industries, numerous privately-owned facilities closed their doors for good. Even some national chains were forced to permanently close some of their branches.

This industry is regaining steam now, though. For quite some time, people have been taking their health and fitness more seriously. Many saw the pandemic as a wake-up call to ramp up their efforts to adopt healthier lifestyles.

That has led to an increased need for fitness centers. Boutique gyms are gaining popularity.  Facilities that offer one-on-one personal training and online fitness classes are seeing significant profits. From both the consumer point of view and the business perspective, companies in this arena are extremely valuable right now.

7. Cleaning Companies

Cleaning companies are likewise among the most valuable businesses at this point. Both homeowners and businesses are turning to professional cleaning services. They’re looking for standard housekeeping as well as in-depth disinfection to help keep germs at bay. Businesses in this industry offer services that are sure to continue gaining value.

8. Event Planning

During the lockdown resulting from the pandemic, people began to realize just how much they’d been taking spending time with friends for granted. At the same time, celebrations of milestone events were largely put on hold or held via virtual means. While the events themselves held no less meaning, being unable to celebrate in person with friends and family detracted from the festivities.

People are now making up for lost time now. They’re planning birthday parties, weddings, baby showers, anniversary celebrations, graduation parties, and other events. They’re also turning to professional event planners for help. Because of that, the value of these types of businesses is growing.

9. Website Design Services

Website design agencies are highly valuable, too. With e-commerce on the rise and the majority of consumers looking online to find the goods and services they need, all businesses need a website. Keeping websites up to date and continually revamping them to meet visitors’ expectations is recommended. Since website design requires a great deal of creativity and technical expertise, businesses in this realm are extremely valuable.

10. SEO Businesses

Along those lines, businesses that provide search engine optimization services are continually gaining value. Though website design is important, many business websites would never be seen by the public without SEO. SEO businesses help companies boost their online presences and keep their websites at the tops of consumers’ search results, so they’re certainly in high demand and will continue to be in the years to come.

11. Auto Repair Shops

Auto repair is an exceptionally important industry. Based on the latest reports from the automotive sector, there are almost 290 million registered vehicles in the United States alone. In contrast, repair technicians are becoming more scarce. Shops that have the equipment and skilled workforces to meet consumers’ auto repair needs are set up for unprecedented success.

12. Tutoring Services

It seems the need for tutoring services is also on an upward trend. Lessons are becoming more difficult even for elementary-level students, and the struggle only grows through high school and college. Many parents are finding they can no longer help their children with their studies and homework. The growing need for tutors is also being fueled by the rise of online education. All that means tutoring services are gaining considerable value.

13. Logistics Companies

Logistics is yet another increasingly valuable industry. Though we’ve already mentioned trucking companies, those are only one piece of the logistics puzzle. Logistics companies cover many more essential bases, like warehousing, packaging, and order processing.

Many manufacturers and e-commerce companies have found all those aspects to be overwhelming. They can also be unnecessarily expensive without the right resources to manage each phase of the logistics process and mitigate the costs. Companies that step in to provide comprehensive logistics services are in high demand and held in high regard by the businesses they serve.

14. IT Businesses

IT businesses are undeniably valuable, and they’ll continue to gain profitability in the coming years. With technology inundating almost every aspect of our lives, the need for IT specialists is sure to grow. This is also a vast field that encompasses numerous services.

From aiding businesses in keeping their hardware and software up and running to helping consumers overcome problems with their phones and laptops, the possibilities are endless. As technology becomes more prominent and the IoT continues to gain ground, this industry will inevitably rise to new heights. Businesses that offer IT services will build value proportionally

15. Real Estate Agencies

People will always need to buy and sell homes. At the same time, rental property owners and potential tenants will always need real estate agents to connect them to one another. Though the real estate market has its ups and downs and varies from one city to the next, consumers’ need for professional intervention will never decline. It’ll only grow. That lands real estate agencies on the list of most valuable businesses.

Making the Most of These Valuable Businesses

If your business falls into one of these categories, you could be in a position to see unprecedented gains. In the event you’re ready to sell, this may be the perfect time to do so. Anyone who’s looking for a profitable business to purchase may want to consider this list of the 15 most valuable types of businesses in 2022.