Your Guide to Buying an Existing Business
Buying an existing business, instead of constructing a start up from scratch, buys you immediate cash flow, customers with consistent revenue, and a skilled and seasoned organizational chart. It is a big decision and must include exhaustive research, long term planning, and experienced support.
The SMP Capital buyers guide will guide you through the entire process of buying an existing business from start to finish.
Who’s Your Competition in the Buyer World?
- Professionals exiting the 9-to-5 corporate grind
- Investors building a portfolio of small businesses
- Veterans or career changers using SBA loans to launch their next career
Why Buy an Existing Business Instead of Starting from Scratch?
Business startups are enticing but come with high risks, costs, time investments, and a lot of unknown variables. Buying an existing business provides:
- Immediate brand recognition
- Proven revenue and cash flow
- A loyal customer base
- Tenured employees
- Established operational systems
Key Steps in the Business Acquisition Process
Buying an existing business can be a long and emotional experience if you have gaps in your process. Here’s how to begin:
Define Your Acquisition Criteria
Be broad in your search. We may see one out of ten buyer candidates land on their first inquiry. Many end up buying operations they would’ve never considered prior to their initial search. Take the following into consideration:
- Industries
- Geography and travel
- What’s your realistic living wage needs
- How will you be involved in daily operations
- Operational growth potential
- Add-on acquisition opportunities
Evaluate Listings and Pre-Vetted Deals
There are a ton of business acquisition opportunities out there for sale. Online marketplaces, local small market business brokers, and word of mouth are generally where buyer candidates gravitate. Often times the best deals aren’t advertised to the general public.
The difference with SMP Capital is that we help match buyers to vetted, valuable, and unique off-market opportunities carefully customized to their business requirements, without making them sift through generic listings that kind of fit.
Submit an LOI (Letter of Intent)
After landing on a winner, it’s time to take the leap: Letter of Intent submission. This letter must state the purchase price offer, the proposed deal structure, and any key conditions to close (i.e.: financing, due diligence, transition expectations).
A Letter of Intent is not binding, but it shows that you are serious and opens the door to the more substantive part of the process.
Complete Due Diligence
The seller will provide access to the company’s full financial disclosure documents, including tax records, contracts, customers, vendors, etc.. Quality of Earnings reviews evaluate revenue trends and profit margins, customer mix, recurring revenues, competition, market positioning, and the seller’s daily operational responsibilities. This review will prove out the numbers and will give you confidence and validate that you’re making a well informed decision.
Secure Financing (SBA, Seller Notes, Etc.)
Various options are available for financing business acquisitions:
- SBA 7(a) loans, perfect for qualified buyers
- Seller financing, where the seller finances the sale, allowing you to pay in installments over time
- Private capital or limited investor partnerships
The SMP Capital team has decades of experience finding creative financing options that fit a buyer’s needs while providing capital necessary to grow the business long term.
Closing the Deal and Transition Planning
Once you close the books on the quality of earnings review and you’re satisfied w/books and records, it’s time to document the transaction with a purchase agreement and supporting schedules that tell the business story. In conjunction with legal documentation you’ll coordinate transition w/the seller and negotiate transition, training, consulting, learn about the org chart, and get a feel for how the day-to-day operation works.
If managed well, by professional intermediaries like the SMP team, the pre-close transition process will ease the stress of employee and customer retention.
What Are Those Red Flags You Should Notice When Having a Look at a Business?
Not every deal is a good deal; here are typical warning signs:
- Unorganized, inconsistent, or unclear financials
- Over-reliance on one customer or vendor that can’t easily be replaced
- Owner is responsible for multiple job roles
- Legal difficulties: pending, threatened, or past litigation
- Obsolete, beat up equipment or minimal online presence
Questions to Ask Potential Sellers or Brokers
Asking the right questions often uncovers latent and valuable operational insight:
- Why are you selling?
- What difficulties have you encountered lately?
- If you had a longer runway w/unlimited resources w/no obstacles in the way; what would you do next?
- Who are the key employees and what makes them valuable?
- What separates you from your competition?
Post-Acquisition Tips for Success
The transaction is the easy part. The post-closing transition and long term planning are when the lights go on. Here’s how to set up your new business for long-term success:
- No big changes right now- be observational at first
- Learn the industry from the org chart who’s been in the weeds every day for years
- Make sure your customer base experience is status quo
- Identify small easy wins at first which improve margins or systems
- Set operational goals and measure progress
Great new owners greet their new business with curiosity, clarity, and steadiness.
How SMP Capital Helps Buyer Success
At SMP Capital, entrepreneurs, investors, and neophyte buyers, our make smart, confident sustainable acquisitions. Our team offers:
- Access to quality, pre-vetted deals
- Deal evaluation and guidance
- Help with financing strategy
- Support throughout the transaction process & beyond transition
- Post-acquisition coaching
We don’t just help you buy–we help you succeed after the deal is finished.
Ready to buy a business? Get matched with opportunities that fit your goals and budget.
Start with a free discovery call with the team at SMP Capital.
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