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A 10-Step Guide to Buying an Existing Business and Becoming an Entrepreneur

If you want to become a business owner without starting from scratch, buying an existing business in North Carolina can be a smart move. Acquiring an established company allows you to bypass the risks and costs of launching a startup. Instead, you take over a business with existing cash flow, customers, employees, systems, and assets.

However, buying a business is a big decision that requires careful planning and research. Follow this 10-step guide to learn everything you need to purchase a small business in North Carolina successfully.

Step 1: Decide What Type of Business to Buy

The first step is identifying what business best matches your skills, interests, and goals. Buying a business in an industry you have experience in will make the transition smoother. Consider your background and passions to determine the ideal type of company to acquire.

For example, buying an existing restaurant or cafe could be a good fit if you’ve worked in restaurants for years. Or, if you want to take over a business you’re already familiar with as an employee, buying the company you work for may make sense.

Although the financial return is important, it’s also key that you align with the company’s service, products, brand, and mission. Your existing industry knowledge will allow you to innovate and improve the business once you take over.

Step 2: Search for Businesses for Sale in North Carolina

Once you decide what kind of business to buy, the next step is finding options on the market.

Here are some ways to search for businesses for sale in North Carolina:

  • Online marketplaces that list businesses for sale nationally.
  • North Carolina business brokers who represent sellers.
  • Classified ads in local newspapers and on Craigslist.
  • Asking other business owners in your network.
  • Attending small business meetups and conferences.
  • Checking listings from the North Carolina Business for Sale Database.

Working with a qualified business broker who can help you identify and negotiate the purchase.

Step 3: Understand Why the Business is for Sale

It’s important to understand exactly why the seller is offering the business for sale. Is the owner retiring or wanting to pursue other opportunities? Is the company struggling financially? Are there underlying problems with the business model or strategy?

Discuss the business history frankly with the seller. Ask about past and present challenges and what solutions they attempted. This will help you evaluate if you can improve the business by addressing issues differently once you take over.

Step 4: Make Sure the Business Fits Your Budget and Goals

Once you’ve identified some potential acquisition targets, narrow your focus to the businesses that best fit your financial budget, personal goals, and available resources.

Determine your ideal budget for purchasing and operating the company. Factor in costs like inventory, equipment, employees, and renovations you may want to make.

Also, consider the time commitment needed to manage the business. For example, will you be hands-on in daily operations? Or take a high-level, delegative approach? This will impact how much you can take on.

Choose a business that aligns with your vision, capacity, and risk tolerance. Buying an existing cash flow stream can reduce startup risks, even if profits are low currently.

Step 5: Conduct Due Diligence

Now, it’s time to take a deep dive into the company’s finances, operations, and legal standing before committing to buying.

This due diligence process should involve the following:

  • Reviewing Financials: Examine past tax returns, sales records, profit/loss statements, debts, and other financial data. Make sure books are audited professionally.
  • Checking Legal Compliance: Confirm the business is properly registered and in compliance with licenses, permits, zoning regulations, and other requirements for its location and industry.
  • Evaluating Operations: Assess inventory, equipment condition, manufacturing processes, company policies, and day-to-day workings.
  • Interviewing: Talk to employees, customers, and vendors to gain insight into company culture and reputation.

A lawyer and accountant can help analyze records and identify liabilities or issues. The seller may also require you to sign a non-disclosure agreement protecting confidential information revealed during due diligence.

Step 6: Value the Business Fairly

Determining a fair valuation is key when negotiating the purchase price. There are three common valuation methods, including:

  • The earnings approach: Values the company based on historical and projected profitability.
  • The asset approach: Totals the fair market value of tangible assets like property and equipment.
  • The market approach: Benchmarks value against recent sales of similar businesses.

Work with a professional valuator to conduct an objective appraisal. The purchase price depends on your valuation method and what price you and the seller ultimately agree to.

Step 7: Finance the Acquisition

There are several routes you can take to obtain financing to buy the business. One option is seller financing, where the seller carries a note you repay over time. Another avenue is getting a business or SBA loan through a bank or alternative lender based on the financial track record of the company. Bringing on an investor or partner to share ownership and help fund the purchase is also a possibility.

If you have the means, you could self-finance part of the purchase price in cash. Some owners may also be open to retaining a stake in the company to offset purchase costs for you. If you do go the loan route, you’ll likely need 20-25% as a down payment. Lenders will thoroughly review your credit, business plan projections, and ability to repay before approving financing. Carefully explore all these options to find the best funding solution to buy the business.

Step 8: Make an Offer and Negotiate Price

Once you’ve settled on a business to buy and arranged financing, it’s time to make an offer. The initial offer will begin negotiations to reach an agreed-upon purchase price and terms acceptable to both parties.

Important deal terms to work out include:

  • Exactly which assets and liabilities are included in the sale
  • The transition timeline
  • Financing details
  • Who owes outstanding business debts?
  • Whether the owner will stay on temporarily to help transition
  • Contingencies if certain milestones aren’t met

Work with a lawyer and accountant to ensure offer terms protect your interests before signing the final paperwork.

Step 9: Close the Deal

The final step in acquiring a business is closing the deal and completing all necessary paperwork. Several key documents should be included to finalize the purchase and transfer ownership from seller to buyer. A bill of sale outlines the assets changing hands. An adjusted price agreement accounts for any prorated expenses in the final amount owed. If applicable, equipment and vehicle titles need to be transferred.

Any licenses, permits, leases, and vendor contracts will need assignments noting the new ownership. Of course, loan and financing agreements will need to be signed. And it’s wise to have a non-compete clause preventing the previous owner from opening a competitor. Having an attorney review the closing paperwork ensures no detail is missed to fully complete the business purchase transaction. Taking care to get all these documents in order will allow the deal to end smoothly.

Step 10: Transition the Business

Once you close the deal, focus on a smooth transition into ownership. Key steps include:

  • Meet with staff to introduce yourself as the new owner
  • Make any necessary organizational changes.
  • Implement your business growth strategy.
  • Review vendor contracts
  • Communicate with customers
  • Address any pending legal issues.
  • Review insurance needs

With careful planning and research, buying an existing business in North Carolina can allow you to become an entrepreneur without the risks of a startup. Follow this guide to set your new business up for success. An accountant and attorney are key advisors to support you through the acquisition process.

Weighing the Pros and Cons of Buying a Business

Buying an established business has many advantages over starting from scratch, but there are also downsides to consider.

Pros of Buying an Existing Business:

  • Lower startup costs: You save on initial expenses like branding, staffing, equipment, etc.
  • Established cash flow: Take over a revenue stream immediately.
  • Existing customer base: No need to build a clientele from zero.
  • Turnkey operations: The business model, systems, and processes are in place.
  • Easier financing: Banks view buying an existing business as lower risk than a startup.
  • Gain intellectual property: Acquire useful IP like patents, copyrights, and trademarks.

On the flip side, some cons of buying an existing business, include:

  • High upfront investment: The purchase price may be more than a new business.
  • Learning curve: You’ll need to learn the business operations and industry.
  • Hidden issues: Even with due diligence, you may uncover problems post-purchase.
  • Inflexibility: Changing systems and processes can be challenging.

Weigh the pros and cons carefully when deciding whether buying a business is the right move for you. While rewarding, acquiring an existing company is complex. Seek support from legal, accounting, and financial professionals during the process.

You Own a Business — Now What?

Purchasing an existing business can help you become an entrepreneur without the risks and costs of a startup. However, acquiring a company requires meticulous financial and legal due diligence to ensure it is poised for future success.

If you are considering buying or already own a business in North Carolina, proper estate planning is essential. The attorneys at Cary Estate Planning have extensive experience with estate and business succession planning. They can help you map out a customized plan to:

  • Protect your personal assets if the business fails
  • Minimize gift and estate taxes when passing the business to heirs
  • Ensure a smooth leadership transition upon retirement or death
  • Avoid family conflicts through clear succession documents
  • Provide liquidity for estate taxes without selling the business
  • Facilitate valuation discounts for estate tax purposes

Don’t go it alone when buying or owning a company – partner with Cary Estate Planning for strategic estate planning guidance. Their team will ensure your business acquisition or ownership aligns with your legacy goals.