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How to create a business plan: examples & free template.

Whether you’re a seasoned entrepreneur or launching your very first startup, the guide will give you the insights, tools, and confidence you need to create a solid foundation for your business.

Table of Contents

How to Write a Business Plan

Executive summary.

It’s crucial to include a clear mission statement, a brief description of your primary products or services, an overview of your target market, and key financial projections or achievements.

Our target market includes environmentally conscious consumers and businesses seeking to reduce their carbon footprint. We project a 200% increase in revenue within the first three years of operation.

Overview and Business Objectives

Example: EcoTech’s primary objective is to become a market leader in sustainable technology products within the next five years. Our key objectives include:

Company Description

Example: EcoTech is committed to developing cutting-edge sustainable technology products that benefit both the environment and our customers. Our unique combination of innovative solutions and eco-friendly design sets us apart from the competition. We envision a future where technology and sustainability go hand in hand, leading to a greener planet.

Define Your Target Market

Market analysis.

The Market Analysis section requires thorough research and a keen understanding of the industry. It involves examining the current trends within your industry, understanding the needs and preferences of your customers, and analyzing the strengths and weaknesses of your competitors.

Our research indicates a gap in the market for high-quality, innovative eco-friendly technology products that cater to both individual and business clients.

SWOT Analysis

Including a SWOT analysis demonstrates to stakeholders that you have a balanced and realistic understanding of your business in its operational context.

Competitive Analysis

Organization and management team.

Provide an overview of your company’s organizational structure, including key roles and responsibilities. Introduce your management team, highlighting their expertise and experience to demonstrate that your team is capable of executing the business plan successfully.

Products and Services Offered

This section should emphasize the value you provide to customers, demonstrating that your business has a deep understanding of customer needs and is well-positioned to deliver innovative solutions that address those needs and set your company apart from competitors.

Marketing and Sales Strategy

Discuss how these marketing and sales efforts will work together to attract and retain customers, generate leads, and ultimately contribute to achieving your business’s revenue goals.

Logistics and Operations Plan

Inventory control is another crucial aspect, where you explain strategies for inventory management to ensure efficiency and reduce wastage. The section should also describe your production processes, emphasizing scalability and adaptability to meet changing market demands.

We also prioritize efficient distribution through various channels, including online platforms and retail partners, to deliver products to our customers in a timely manner.

Financial Projections Plan

This forward-looking financial plan is crucial for demonstrating that you have a firm grasp of the financial nuances of your business and are prepared to manage its financial health effectively.

Income Statement

Cash flow statement.

A cash flow statement is a crucial part of a financial business plan that shows the inflows and outflows of cash within your business. It helps you monitor your company’s liquidity, ensuring you have enough cash on hand to cover operating expenses, pay debts, and invest in growth opportunities.

Tips on Writing a Business Plan

4. Focus on your unique selling proposition (USP): Clearly articulate what sets your business apart from the competition. Emphasize your USP throughout your business plan to showcase your company’s value and potential for success.

FREE Business Plan Template

To help you get started on your business plan, we have created a template that includes all the essential components discussed in the “How to Write a Business Plan” section. This easy-to-use template will guide you through each step of the process, ensuring you don’t miss any critical details.

What is a Business Plan?

Why you should write a business plan.

Understanding the importance of a business plan in today’s competitive environment is crucial for entrepreneurs and business owners. Here are five compelling reasons to write a business plan:

What are the Different Types of Business Plans?

Using Business Plan Software

Upmetrics provides a simple and intuitive platform for creating a well-structured business plan. It features customizable templates, financial forecasting tools, and collaboration capabilities, allowing you to work with team members and advisors. Upmetrics also offers a library of resources to guide you through the business planning process.

Business Plan FAQs

What is a good business plan.

A good business plan is a well-researched, clear, and concise document that outlines a company’s goals, strategies, target market, competitive advantages, and financial projections. It should be adaptable to change and provide a roadmap for achieving success.

What are the 3 main purposes of a business plan?

Can i write a business plan by myself, is it possible to create a one-page business plan.

Yes, a one-page business plan is a condensed version that highlights the most essential elements, including the company’s mission, target market, unique selling proposition, and financial goals.

How long should a business plan be?

What is a business plan outline, what are the 5 most common business plan mistakes, what questions should be asked in a business plan.

A business plan should address questions such as: What problem does the business solve? Who is the specific target market ? What is the unique selling proposition? What are the company’s objectives? How will it achieve those objectives?

What’s the difference between a business plan and a strategic plan?

How is business planning for a nonprofit different.

Learn to Build a Better Business Plan

Sample Business Plan Gallery

Browse our library of over 550 free business plan examples to kickstart your own plan.

Browse our library of over 550 free business plan examples.

How to Write a Business Plan

Step-by-step guide to establish the foundation of your business quickly and efficiently.

Step-by-step guide to establish the foundation of your business.

Business Plan Template

Build your business using the proven planning template designed by the experts at Bplans.

Use the planning template designed by the experts at Bplans.

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Stay up to date with the latest business planning, management, growth, and funding trends from bplans..

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Popular Downloads

SWOT Analysis

Easily evaluate your competitive position and develop effective growth strategies.

Refine your competitive strategy using a SWOT analysis.

Cash Flow Forecast

Improve the health of your business by easily estimating your business’s financial future.

Estimate and improve the financial health of your business.

Lean Business Plan Template

Fast, simple, and shareable. Start with a one-page plan to grow alongside your business.

Start with a simple one-page plan to grow alongside your business…

Start Your Business

Business Startup Guide

Get everything in order to start your business and write your business plan.

Get everything in order to start your business.

How to start a business with no money

Is it possible to start a business with no money? Check out this proven process to get your business…

Is it possible to start a business with no money? Check out this.…

Startup Checklist

Break down the startup process and check all the necessary boxes.

Estimating Startup Costs

What will it cost to start your business? These are the expenses you will need to consider.

Do you know what it will cost to start your business?

Write Your Business Plan

Business Planning in Under an Hour

Learn how to write your business plan in under an hour.

1-Page Business Plan Template

A faster, more efficient way to develop your business strategy.

Perfect Your Elevator Pitch

Pitch Guide

Learn how to create a winning elevator pitch deck and speech that will impress investors.

Impress investors with a winning pitch deck and elevator pitch.

Elements of the Elevator Pitch

If you're pitching to investors or building a pitch deck, here are the 7 things you need.

Here are the 7 things you need to include in your elevator pitch.

Components of a Pitch Deck

Here are the 11 slides you must have in your pitch deck.

Investor Pitch Template

Start your pitch off right with a proven pitch deck template.

Get Your Business Funded

Funding Guide

Learn how to prepare your business plan and pitch to secure funding for your business.

Prepare your plan and pitch to secure funding for your business.

Ways to Fund Your Business

When it comes to funding, there isn't a one-size-fits-all method. Here are your options.

Find out what funding options are available for your business.

Grow Your Business

How to Grow Your Business

Growing your business can be just as difficult as starting. Here are proven ways to grow.

Try these proven methods to continue growing your business.

Grow Using Your Business Plan

Turn your business plan into a growth-oriented business strategy.

Set Clear and Actionable Goals

Grow your business by setting clear goals and establishing key metrics for success.

Learn to set clear and actionable goals to grow your business.

How to Forecast Cash Flow

Create a cash flow forecast to help keep your business healthy and plan for the future.

Keep your business healthy using a cash flow forecast.

Tim Berry Blog

Learn from renowned business planning expert and founder of Bplans, Tim Berry.

Business Glossary

Definitions for common terminology and acronyms that every small business owner should know.

The quickest way to turn a business idea into a business plan

Fill-in-the-blanks and automatic financials make it easy.

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Why Buy a Business Plan?

The ultius difference.

There are only a few important things you should be looking for when you purchasing a custom business plan online . The first is talented writers who have been highly educated and have experience in writing in the area. Secondly a company that provides original work and is willingly to work with you to perfect the finished product. Finally a company that is willing to put their customer first and provide them unlimited access to their personal writer. Ultius is the only company that ticks all these boxes. So why wait, buy an essay today!

How To Purchase

To purchase a custom business plan from Ultius simply follow these easy guidelines.

• Fill out Order
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Our easy form is easy to fill out. You just need to make sure you include all the important information that will be needed to authentically create a business plan. If you feel that you need to add any extra information to make your business plan individual and perfect this is where you enter the information. Once you are happy with the information simply click ‘submit’.

The next step is to process you payment. All online companies only accept pre payment. If you do have any questions about this process feel free to contact our friendly staff. It is important that when you buy a business plan online from our essay writing service  that you are happy. That is what are staff are here to do. 

When your payment is processed you will receive a notification that you order has been assigned to a writer. The writer will contact you introduce themselves and let you know they have started work on your order. The writer will then complete the business plan in the time that you have determined.

In order to make it easier to speak and keep in contact with your writer, we have created a messaging system that links you directly to them. When you purchase a custom business plan from Ultius we like you to know that you are taken care of. We connect you directly with your writer so if you need to ask questions or look at a draft our messaging system allows you to do that.

Mobile Site

For clients who are always on the go we have set up our easy to use mobile site. You can access this site from your tablet or mobile device. This sites lets you check on orders, ask questions or even submit an order from your device. So when you buy a business plan online you can keep an eye on the process 24/7.

We offer you unlimited revisions at Ultius because we are completely confident in the work that we produce. If you would like a revision of your document there are only a couple of simple steps. First, when you receive your business plan contact us within seven (7) days if you would like a revision. Secondly, your writer is then allocated to have it back to you in three (3) days with all changes made. By offering you the options of revisions when you purchase an original business plan we are letting you know how much we believe in the quality of our work. So why not use a company that gives you this kind of power when it comes to creating a solid business plan?

• American Writers

The other benefit we offer are the fully qualified American writers we employ. These writers have been through strict guidelines in order for Ultius to hire the best. Our writers have graduated from prestigious universities and colleges and speak English as their native language. You are also only assigned a writer who has extensive experience in the area of your order. S when you buy a business plan online you know that a getting a highly qualified person who specializes in the creation of quality business plans. 

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Crafting Quality Business Plans

Writing a business plan can be overwhelming, especially if you don't know how to write a business plan . The document needs to be perfect in providing the correct information as well as being set out correctly. Whether you are looking for an investor or are a start-up business looking for a loan this document in critical for your business. It is the first part of a business that is shown and has to reflect you as a company. This plan will be seen by many people so it must always have the correct information. Purchasing a custom business plan with Ultius will guarantee you the perfect start when it comes to expanding or starting your business. Our professional writers have extensive experience in this area and we know what goes into the perfect business plan. We know how to make sure you executive summary provides all the necessary information so the investor is aware at the start the benefits of backing your company. With extensive experience in all areas of business writing why would you looking anywhere else than Ultius. So if you are thinking of buying a business plan online why not orders with us today.

Highest Quality Available

We understand that the documents have to be of the highest quality. The executive summary is the first part of the plan that your company will see. When we are writing the document we will leave the executive summary to last so that the best information is shown. The plan will contain a company description, market analysis, organization, product, marketing and financials. Purchasing an original business plan online is the best option because we can use our extensive experience to write the document effectively. It is important that we sell your business to the readers and we let them know why the need to be a part of your company and their future endeavors. All the areas of the plan will be not only well written but thoroughly research so that every figure and facts is correct. We pride ourselves on coproducing flawless work and work hard to produce only the highest quality documents. So if you need to buy a business plan online look no further than Ulitus, where perfect business plans are our specialty.

After you have submitted your order we assign you an experienced writer. It is important to remember in your application that you provide all additional information. When we are creating a business plan all the information must come from you. This document is unlike others as we can research to find the information. The benefit with Ultius is that due to you having constant contact with your writer through our messaging system any changes can be made at any time. After you have purchased a custom business plan online and we have received the information we go to work in setting out the perfect business plan for you. Once we have decided what the correct way is, we will use the information you have given us to write it. After we have finished writing the executive summary we then edit it thoroughly. It is at this time that we upload you finished product to the messaging system where you are able to have a look at it. We pride ourselves on using the right words to get the message of your company across to your readers. The work we produce is unlike any other company. So why buy a business plan online from anywhere else?

Authentic Business Plans

There are several main reasons that Ultius is the right company for you in producing authentic business plans. We only assign you writers with extensive experience in producing documents for businesses so you are getting the professionals. Our messaging system lets you keep in constant contact with your writer and keep an eye on the ongoing process. We know that creating the best business plan is the key to giving you a brighter future and we take you success very seriously. Purchasing an original business plan with us gives you a personal service that you won’t find anywhere else. The satisfaction of our clients is the most important thing. We work hard because we are personally working for you. So if you are looking for a company that you can recommend to your friends and that produce the best quality business plans you have ever seen look no further than us. We are the best choice when buying a business plan online because we always put you first. 

Buy Ultius, Buy American!

As we have shown, Ultius works hard to provide you with everything you need when you buy a business plan online . This includes qualified writers, extensive messaging system and a mobile site for the customer on the go. We tailor the business plan to you making sure it portrays your tone and gets the best points across. So now you know why we are the best people for the job and all you need to do is purchase today!

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Where to Find Hundreds of Business-Plan Examples

These samples will be incredibly helpful to you as you begin writing your own business plan..

Whether you want to create the next unicorn startup  or lay the groundwork for a successful and sustainable business, the process starts with your business plan .

Every business plan should include the following elements:

• Executive Summary:  Start off with an overview of your company's purpose and goals, and why you believe it will be successful. 
• Company Overview and Objectives: Now you can take a deep dive into the problem your company wants to solve, how it will do so, and any competitive advantages it has. 
• Market Opportunities:  This is the evaluation of your target market, target audience, market trends, and competition.
• Marketing and Sales:  Explain how you plan to grow and market your company.
• Management Team and Operations:  Here's where you explain who will lead your company and how it will be structured.
• Financial Analysis: Include forecasted expenditures, income, cash flow, etc. Break your projections down by quarter or month. If your business is already running, include things like your balance sheet, income statement, cash-flow statement, operating budget, etc.
• Funding Request:  If you're going after funding, explain how much you'll need and what you'll need it for, in detail. Clarify how far in terms of months or years this funding will carry you. Don't forget to include how you plan to pay back this debt down the road. 
• Appendix:  This is where you include supporting materials such as résumé?s, images, credit history, patents, permits, licenses, letters of reference, etc. 

While knowing what to include is incredibly helpful, what can be even more helpful is seeing some examples of actual business plans.

Examples can give you the inspiration you need as you start writing your own business plan.

Here are my favorite resources that showcase really good business plans. 

At Bplans , you'll find more than 500 business-plan samples tailored to specific industries, including:

• Online and offline retail stores
• Medical and health care
• Restaurants, cafés, and bakeries
• Pet services
• Beauty salons and day spas
• Manufacturing
• And many more

2. LivePlan

LivePlan is another place you can find some inspiration to write your own business plan.

It has hundreds of examples across industries.

It  also  have 10 professionally designed themes that you can use to make your business plan look extra polished. 

3. ACCA Global

ACCA Global has three downloadable, fictional business plans.

You'll find one for an airport café, another for a stone-importing business, and a third for a fuel-efficiency business.

4. U.S. Small Business Administration

The U.S. Small Business Administration offers a complete guide to business plans, as well as a deep dive into the difference between a traditional business plan and a lean-startup business plan. 

Discover a traditional business plan for a consulting firm, and a lean-startup business plan for a toy company.

The U.S. Small Business Administration also connects you with free business-plan counselors if you need further guidance. 

There's only one sample business plan here, but it's a good one.

Shopify  created a sample business plan for a fictional organic denim and apparel company, and it's definitely worth a look. 

Now that you've got some ideas and inspiration, you can make a unique business plan for your company by communicating your unique vision for your product, your target audience, and your go-to-market strategy.

A refreshed look at leadership from the desk of CEO and chief content officer Stephanie Mehta

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How To Write a Business Plan

We are committed to sharing unbiased reviews. Some of the links on our site are from our partners who compensate us. Read our editorial guidelines and advertising disclosure .

Starting a business is a wild ride, and a solid business plan can be the key to keeping you on track. A business plan is essentially a roadmap for your business — outlining your goals, strategies, market analysis and financial projections. Not only will it guide your decision-making, a business plan can help you secure funding with a loan or from investors .

Writing a business plan can seem like a huge task, but taking it one step at a time can break the plan down into manageable milestones. Here is our step-by-step guide on how to write a business plan.

Table of contents

• Write your executive summary
• Do your market research homework
• Set your business goals and objectives
• Plan your business strategy
• Describe your product or service
• Crunch the numbers
• Finalize your business plan

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Step 1: Write your executive summary

Though this will be the first page of your business plan , we recommend you actually write the executive summary last. That’s because an executive summary highlights what’s to come in the business plan but in a more condensed fashion.

An executive summary gives stakeholders who are reading your business plan the key points quickly without having to comb through pages and pages. Be sure to cover each successive point in a concise manner, and include as much data as necessary to support your claims.

You’ll cover other things too, but answer these basic questions in your executive summary:

• Idea: What’s your business concept? What problem does your business solve? What are your business goals?
• Product: What’s your product/service and how is it different?
• Market: Who’s your audience? How will you reach customers?
• Finance: How much will your idea cost? And if you’re seeking funding, how much money do you need? How much do you expect to earn? If you’ve already started, where is your revenue at now?

Step 2: Do your market research homework

The next step in writing a business plan is to conduct market research . This involves gathering information about your target market (or customer persona), your competition, and the industry as a whole. You can use a variety of research methods such as surveys, focus groups, and online research to gather this information. Your method may be formal or more casual, just make sure that you’re getting good data back.

This research will help you to understand the needs of your target market and the potential demand for your product or service—essential aspects of starting and growing a successful business.

Step 3: Set your business goals and objectives

Once you’ve completed your market research, you can begin to define your business goals and objectives. What is the problem you want to solve? What’s your vision for the future? Where do you want to be in a year from now?

Use this step to decide what you want to achieve with your business, both in the short and long term. Try to set SMART goals—specific, measurable, achievable, relevant, and time-bound benchmarks—that will help you to stay focused and motivated as you build your business.

Step 4: Plan your business strategy

Your business strategy is how you plan to reach your goals and objectives. This includes details on positioning your product or service, marketing and sales strategies, operational plans, and the organizational structure of your small business.

Make sure to include key roles and responsibilities for each team member if you’re in a business entity with multiple people.

Step 5: Describe your product or service

In this section, get into the nitty-gritty of your product or service. Go into depth regarding the features, benefits, target market, and any patents or proprietary tech you have. Make sure to paint a clear picture of what sets your product apart from the competition—and don’t forget to highlight any customer benefits.

Step 6: Crunch the numbers

Financial analysis is an essential part of your business plan. If you’re already in business that includes your profit and loss statement , cash flow statement and balance sheet .

These financial projections will give investors and lenders an understanding of the financial health of your business and the potential return on investment.

You may want to work with a financial professional to ensure your financial projections are realistic and accurate.

Step 7: Finalize your business plan

Once you’ve completed everything, it's time to finalize your business plan. This involves reviewing and editing your plan to ensure that it is clear, concise, and easy to understand.

You should also have someone else review your plan to get a fresh perspective and identify any areas that may need improvement. You could even work with a free SCORE mentor on your business plan or use a SCORE business plan template for more detailed guidance.

Compare the Top Small-Business Banks

Data effective 1/10/23. At publishing time, rates, fees, and requirements are current but are subject to change. Offers may not be available in all areas.

The takeaway

Writing a business plan is an essential process for any forward-thinking entrepreneur or business owner. A business plan requires a lot of up-front research, planning, and attention to detail, but it’s worthwhile. Creating a comprehensive business plan can help you achieve your business goals and secure the funding you need.

Related content

• 5 Best Business Plan Software and Tools in 2023 for Your Small Business
• How to Get a Business License: What You Need to Know
• What Is a Cash Flow Statement?

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How to Write a Business Plan: Beginner’s Guide (& Templates)

Written by: Chloe West

Thinking about starting a business? One of the first steps you’ll need to take is to write a business plan. A business plan can help guide you through your financial planning, marketing strategy, unique selling point and more.

Making sure you start your new business off on the right foot is key, and we’re here to help. We’ve put together this guide to help you write your first business plan. Or, you can skip the guide and dive right into a business plan template .

Ready to get started?

Here’s a short selection of 8 easy-to-edit business plan templates you can edit, share and download with Visme. View more templates below:

8-Step Process for Writing a Business Plan

What is a business plan, why is a business plan important, step #1: write your executive summary, step #2: put together your company description, step #3: conduct your market analysis, step #4: research your competition, step #5: outline your products or services, step #6: summarize your financial plan, step #7: determine your marketing strategy, step #8: showcase your organizational chart, 14 business plan templates to help you get started.

A business plan is a document that helps potential new business owners flesh out their business idea and put together a bird’s eye view of their business. Writing a business plan is an essential step in any startup’s ideation process.

Business plans help determine demographics, market analysis, competitive analysis, financial projections, new products or services, and so much more.

Each of these bits of information are important to have on hand when you’re trying to start a business or pitching investors for funds.

Here’s an example of a business plan that you can customize to incorporate your own business information.

We’re going to walk you through some of the most important parts of your business plan as well as how to write your own business plan in 8 easy steps.

If you’re in the beginning stages of starting a business , you might be wondering if it’s really worth your time to write out your business plan. 

We’re here to tell you that it is.

A business plan is important for a number of reasons, but mostly because it helps to set you up for success right from the start.

Here are four reasons to prove to you why you need to start your business off on the right foot with a plan.

Reason #1: Set Realistic Goals and Milestones

Putting together a business plan helps you to set your objectives for growth and make realistic goals while you begin your business. 

By laying out each of the steps you need to take in order to build a successful business, you’re able to be more reasonable about what your timeline is for achieving everything as well as what your financial projections are.

The best way to set goals is using the SMART goals guidelines, outlined below.

Reason #2: Grow Your Business Faster

Having a business plan helps you be more organized and strategic, improving the overall performance of your business as you start out. In fact, one study found that businesses with a plan grow 30% faster than businesses that don’t.

Doesn’t that sound reason enough alone to start out your business venture with a solidified plan? We thought so too, but we’ve still got two more reasons.

Reason #3: Minimize Risk

Starting a new business is uncharted territory. However, when you start with a roadmap for your journey, it makes it easier to see success and minimize the risks that come with startups.

Minimize risk and maximize profitability by documenting the most important parts of your business planning.

Reason #4: Secure Funding

And finally, our last reason that business plans are so important is that if you plan to pitch investors for funding for your new venture, they’re almost always going to want to see a detailed business plan before deciding whether or not to invest.

You can easily create your business plan and investor pitch deck right here with Visme. Just sign up for a free account below to get started. 

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The executive summary is a brief overview of your entire business plan, giving anyone who reads through your document a quick understanding of what they’re going to learn about your business idea.

However, you need to remember that some of the people who are going to read your business plan don’t want to or have time to read the entire thing. So your executive summary needs to incorporate all of the most important aspects of your plan.

Here’s an example of an executive summary from a business plan template you can customize and turn into your own.

Your executive summary should include:

• Key objective(s)
• Market research
• Competitor information
• Products/services
• Value proposition
• Overview of your financial plan
• How you’re going to actually start your business

One thing to note is that you should actually write your executive summary after the rest of your business plan so that you can properly summarize everything you’ve already created.

So at this point, simply leave a page blank for your executive summary so you can come back to it at the end of your business plan.

The next step is to write out a full description of your business and its core offerings. This section of your business plan should include your mission statement and objectives, along with your company history or overview.

In this section, you may also briefly describe your business formation details from a legal perspective.

Mission Statement

Don’t spend too much time trying to craft this. Your mission statement is a simple “why” you started this business. What are you trying to achieve? Or what does your business solve?

This can be anything from one single quote or a paragraph, but it doesn’t need to be much longer than that. In fact, this could be very similar to your value proposition.

What are your goals? What do you plan to achieve in the first 90 days or one year of your business? What kind of impact do you hope to make on the market?

These are all good points to include in your objectives section so anyone reading your business plan knows upfront what you hope to achieve.

History or Overview

If you’re not launching a brand new business or if you’ve previously worked on another iteration of this business, let potential investors know the history of your company.

If not, simply provide an overview of your business, sharing what it does or what it will do.

Your third step is to conduct a market analysis so you know how your business will fit into its target market. This page in your business plan is simply meant to summarize your findings. Most of your time should be spent actually doing the research.

Your market analysis needs to look at things like:

• Market size, and if it’s grown in recent years or shrinking
• The segment of the market you plan to target
• Demographics and behavior of your target audience
• The demand for your product or service
• Your competitive advantage or differentiation strategy
• The average price of your product or service

Put together a summary of your market analysis and industry research in a 1-2 page format, like we see below.

Your next step is to conduct a competitive analysis. While you likely touched on this briefly during your market analysis, now is the time to do a deep dive so that you have a good grasp on what your competitors are doing and how they are generating customers.

Start by creating a profile of all your existing competitors, or at the very least, your closest competitors – the ones who are offering very similar products or services to you, or are in a similar vicinity (if you’re opening a brick and mortar store).

Focus on their strengths and what they’re doing really well so that you can emulate their best qualities in your own way. Then, look at their weaknesses and what your business can do better.

Take note of their current marketing strategy, including the outlets you see a presence, whether it’s on social media, you hear a radio ad, you see a TV ad, etc. You won’t always find all of their marketing channels, but see what you can find online and on their website.

After this, take a minute to identify potential competitors based on markets you might try out in the future, products or services you plan to add to your offerings, and more.

Then put together a page or two in your business plan that highlights your competitive advantage and how you’ll be successful breaking into the market.

Step five is to dedicate a page to the products or services that your business plans to offer.

Put together a quick list and explanation of what each of the initial product or service offerings will be, but steer clear of industry jargon or buzzwords. This should be written in plain language so anyone reading has a full understanding of what your business will do.

You can have a simple list like we see in the sample page above, or you can dive a little deeper. Depending on your type of business, it might be a good idea to provide additional information about what each product or service entails.

The next step is to work on the financial data of your new business. What will your overhead be? How will your business make money? What are your estimated expenses and profits over the first few months to a year? The expenses should cover all the spending whether they are recurring costs or just one-time LLC filing fees .

There is so much that goes into your financial plan for a new business, so this is going to take some time to compile. Especially because this section of your business plan helps potential cofounders or investors understand if the idea is even viable.

Your financial plan should include at least five major sections:

• Sales Forecast: The first thing you want to include is a forecast or financial projection of how much you think your business can sell over the next year or so. Break this down into the different products, services or facets of your business.
• Balance Sheet: This section is essentially a statement of your company’s financial position. It includes existing assets, liabilities and equity to demonstrate the company’s overall financial health.
• Income Statement: Also known as a profit and loss statement (P&L), this covers your projected expenses and revenue, showcasing whether your business will be profitable or not.
• Operating Budget: A detailed outline of your business’s income and expenses. This should showcase that your business is bringing in more than it’s spending.
• Cash Flow Statements: This tracks how much cash your business has at any given point, regardless of whether customers or clients have paid their bills or have 30-60+ days to do so.

While these are the most common financial statements, you may discover that there are other sections that you want to include or that lenders may want to see from you.

You can automate the process of looking through your documents with an OCR API , which will collect the data from all your financial statements and invoices.

The next step is coming up with a successful marketing plan so that you can actually get the word out about your business. 

Throughout your business plan, you’ve already researched your competitors and your target market, both of which are major components of a good marketing strategy. You need to know who you’re marketing to, and you want to do it better than your competition.

On this page or throughout this section of your business plan, you need to focus on your chosen marketing channels and the types of marketing content you plan to create.

Start by taking a look at the channels that your competitors are on and make sure you have a good understanding of the demographics of each channel as well. You don’t want to waste time on a marketing channel that your target audience doesn’t use.

Then, create a list of each of your planned marketing avenues. It might look something like:

• Social media ( Facebook, Instagram, Pinterest)
• Email newsletter
• Digital ads

Depending on the type of business you’re starting, this list could change quite a bit — and that’s okay. There is no one-size-fits-all marketing strategy, and you need to find the one that brings in the highest number of potential customers.

Your last section will be all about your leadership and management team members. Showcasing that you have a solid team right from the start can make potential investors feel better about funding your venture.

You can easily put together an organizational chart like the one below, with the founder/CEO at the top and each of your team leaders underneath alongside the department they’re in charge of.

Simply add an organizational chart like this as a page into your overall business plan and make sure it matches the rest of your design to create a cohesive document.

If you want to create a good business plan that sets your new business up for success and attracts new investors, it’s a good idea to start with a template. 

We’ve got 14 options below from a variety of different industries for you to choose from. You can customize every aspect of each template to fit your business branding and design preferences.

Template #1: Photography Business Plan Template

This feminine and minimalistic business plan template is perfect for getting started with any kind of creative business. Utilize this template to help outline the step-by-step process of getting your new business idea up and running.

Template #2: Real Estate Business Plan Template

Looking for a more modern business plan design? This template is perfect for plainly laying out each of your business plans in an easy-to-understand format. Adjust the red accents with your business’s colors to personalize this template.

Template #3: Nonprofit Business Plan Template

Creating a business and marketing plan for your nonprofit is still an essential step when you’re just starting out. You need to get the word out to increase donations and awareness for your cause.

Template #4: Restaurant Business Plan Template

If your business plan needs to rely heavily on showcasing photos of your products (like food), this template is perfect for you. Get potential investors salivating at the sight of your business plan, and they’re sure to provide the capital you need.

Template #5: Fashion Business Plan Template

Serifs are in. Utilize this template with stunning serif as all the headers to create a contemporary and trendy business plan design that fits your business. Adjust the colors to match your brand and easily input your own content.

Template #6: Daycare Business Plan Template

Creating a more kid-friendly or playful business? This business plan template has bold colors and design elements that will perfectly represent your business and its mission. 

Use the pages you need, and remove any that you don’t. You can also duplicate pages and move the elements around to add even more content to your business plan.

Template #7: Consulting Business Plan Template

This classic business plan template is perfect for a consulting business that wants to use a stunning visual design to talk about its services.

Template #8: Coffee Shop Business Plan Template

Customize this coffee shop business plan template to match your own business idea. Adjust the colors to fit your brand or industry, replace photos with your own photography or stock photos that represent your business, and insert your own logo, fonts and colors throughout.

Template #9: SaaS Business Plan Template

A SaaS or service-based company also needs a solid business plan that lays out its financials, list of services, target market and more. This template is the perfect starting point.

Template #10: Small Business Plan Template

Every startup or small business needs to start out with a strong business plan in order to start off on the right foot and set yourself up for success. This template is an excellent starting point for any small business.

Template #11: Ecommerce Business Plan Template

An ecommerce business plan is ideal for planning out your pricing strategy of all of your online products, as well as the site you plan to use for setting up your store, whether WordPress, Shopify, Wix or something else.

Template #12: Startup Business Plan Template

Customize this template and make it your own! Edit and Download  

This is another generic business plan template for any type of startup to customize. Switch out the content, fonts and colors to match your startup branding and increase brand equity.

Template #13: One-Page Business Plan Template

Want just a quick business plan to get your idea going before you bite the bullet and map out your entire plan? This one-page template is perfect for those just starting to flesh out a new business idea.

Template #14: Salon Business Plan Template

This salon business plan template is easy on the design and utilizes a light color scheme to put more focus on the actual content. You can use the design as is or keep it as a basis for your own design elements.

Create Your Own Business Plan Today

Ready to write your business plan? Once you’ve created all of the most important sections, get started with a business plan template to really wow your investors and organize your startup plan.

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About the Author

Chloe West is the content marketing manager at Visme. Her experience in digital marketing includes everything from social media, blogging, email marketing to graphic design, strategy creation and implementation, and more. During her spare time, she enjoys exploring her home city of Charleston with her son.

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How to Buy a Business: Everything You Need to Know

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Buying a business is a big decision — but when you pull the trigger on buying an existing business, you get the opportunity to become an entrepreneur without starting a small business completely from scratch. Every year, more than 500,000 businesses change hands, and that number is expected to skyrocket in the next several years as millions of baby boomers begin retiring and selling their businesses.

Buying an existing business is so popular because it lets you skip past some of the pain points and costs of starting a new business. But the journey from finding a business for sale to closing the deal can be long and complicated.

Before you begin the journey of buying a business of your own, find out everything you need to know to avoid buyer’s remorse. Our buying an existing business checklist will give you a step-by-step guide. We'll also cover the pros and cons of buying a business when you’re still just thinking about the idea, and end with how to buy a business when you're ready to close the deal and get the keys.

Buying an existing business checklist

If you’re set on the idea of buying a business, then it’s crucial to make sure you pick the right business for you . The easiest way to set yourself up for success is buying a business that you’re passionate about improving and taking to the next level. But passion alone isn’t enough — experience and knowing which questions to ask when buying a business are also important when making your choice.

Here is your buying an existing business checklist:

1. Figure out what type of business you want to buy

Narrow down your passions, interests, skills and experience. You’ll be happier if you buy a small business that dovetails with what you already like and have some experience in.

For example, if you’ve been a line cook at a restaurant for several years, maybe you’ve decided you’d like to own your own restaurant. Or maybe you’ve been an employee for a long time at a company that’s now on the market. In that case, who better to buy the business than someone who knows it as intimately as you?

Although you might just want to buy a business for the financials alone — by its expected return on investment — it’s also important to align yourself with the business's immaterial goals. After all, the more knowledgeable and familiar you are with the business's model, products or services, customers, industry and trends, the more innovative and successful your new ideas will be.

How much do you need?

with Fundera by NerdWallet

We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

2. Search for businesses that are for sale

There are plenty of ways to find the right business for sale that fits the criteria you’ve decided on. These include:

Online business marketplaces such as bizbuysell.com, the largest site of its kind with more than 45,000 active listings.

Craigslist ads.

Classified newspaper ads under the “Businesses for Sale” category.

Asking people in your network of small-business owners.

Going to meetups or industry conferences to ask other business professionals.

Working with a business broker.

Business brokers legally represent the seller, so you should be careful about conveying certain information to them (such as how far you’re willing to go in negotiations). However, a broker can help you understand what kind of business you want, prescreen businesses to cut out all the failing companies, keep negotiations civil and smart and help you with all the necessary paperwork. Brokers do earn a commission when a sale goes through, but it’s typically paid by the seller.

3. Understand why an existing business is up for sale

There are plenty of reasons a business owner might put their business up for sale, including something as simple as an innocuous lifestyle choice like retirement. Or, there might be a more worrisome reason, like a fundamental problem with the business. If you’re about to buy a business, you’ll want to know exactly why the businesses you're considering are no longer working for their current owners.

You should ask the current owners what challenges they've encountered, what they’ve done to try solving those problems and how those attempts fared. During every conversation with the current owner, you should ask yourself, “Do I have what it takes to meet these challenges with different or better solutions?”

Be on the lookout for:

A poorly conceptualized business plan (there’s just not a market for the product or service).

Competitors that are far ahead.

Existing business debts.

Location problems.

A brand issue.

Inventory difficulties (the cost of production is too high, low quality is losing the business customers, storage is difficult, there’s no supply and demand balance, etc.).

Bad equipment (it’s outdated and too expensive to upgrade).

Make sure you know as much as you can about the existing business's successes, failures, challenges and future opportunities. In addition to speaking with the owner about these concerns, also talk to existing customers, existing employees, locals in the area, neighboring businesses and so on. They’ll give you an honest view of how the business is doing, without the bias of the seller trying to convince you to buy.

4. Narrow in on a business that aligns with your budget, goals and resources

Until now, you might have been considering several different businesses, but now it's time to hone in on the best option. The best option is the business that aligns with your budget, goals and resources.

Calculating the ideal size, location, sales, staff and so on of your prospective business is an important step in your plan of buying a business, since it will give you a scale to keep in mind when you’re shopping around. Figure out how much you’d ideally want to change a business, and assess how much that will cost you.

Money isn’t the only thing you’ll be spending. Look at the time and energy commitments you’re planning to invest to make the business your own. Some managers prefer to be “on” at all times, in the weeds with their employees, while others prefer to delegate and, one day, own multiple businesses.

The amount of resources you’ll have to invest depends in large part on the people and processes already in place and on the experience you have in the industry. For example, if you’re buying a tech company but lack technical expertise, you’ll need to invest time learning the ropes or hiring people who have the experience.

5. Do your due diligence

Due diligence is the process of gathering as much information and intel as you can before buying a business, and it is a critical step in your journey to becoming a business owner. During this period, you should work with an accountant and lawyer to make sure you have all the information you need to move forward.

As the buyer, you’ll want to have a good accountant on your side to review the business's financials. It's also beneficial to have a good business attorney to represent you in negotiations and to help you understand how the transaction will be structured.

Before you can begin your due diligence, the seller will most likely ask for a signed confidentiality agreement or nondisclosure agreement. By signing, you agree not to disclose any confidential information about the business that’s uncovered during the due diligence process. This protects the seller in case you decide buying the business is not for you after reviewing all the documents.

There are many business documents, files, agreements and statements that you’ll want to collect and analyze, ideally with the help of a lawyer and accountant. Here are some of the must-have documents when doing due diligence in the process of considering whether to buy a business:

Business licenses and permits

First up is to make sure that the business you’re looking at has all the business licenses and permits it needs. If you’re buying a business, you want to make sure that the current owner hasn’t run afoul of any local business licensing laws. Businesses in certain industries, particularly highly regulated ones like food services and childcare, need a valid permit to stay open.

Organizational paperwork and certificate of good standing

If the business you’re buying is a sole proprietorship or partnership, there may not be official “founding” paperwork. However, a registered business entity, such as an LLC or corporation, will have organizational documents on file with the state. For an LLC, this is the articles of organization. For a corporation, this is the articles of incorporation.

The secretary of state in your state should also be able to produce a certificate of good standing for the business you’re interested in buying. This certifies that the business is approved to operate in the state.

Zoning laws

Check with your area’s local zoning laws to make sure that you're buying a business that isn’t violating any restrictions. While some localities allow mixed-use commercial and residential zoning, others have tight restrictions on where businesses can be located. This especially goes for businesses like bars and nightclubs that may not be desirable in a residential area.

Environmental regulations

Has this business been secretly dumping chemicals into the nearby reservoir or violating other environmental laws? Make sure the answer is a firm no before moving forward with buying the business. Double-check that this business abides by all of the area’s small business environmental regulations .

Letter of intent

As you move forward with buying a business, the seller issues a letter of intent, or LOI, to the buyer when both sides have agreed on a price point and about which business assets and liabilities will be included in the transaction. The price proposal, along with the terms and conditions of the business sale, should all be included in the seller’s LOI.

The LOI is an indication from the seller that they are serious about seeing the deal through to the end. Once you have it in hand, you can feel more comfortable forging ahead with the remainder of due diligence.

Contracts and leases

Half the fun of the decision to buy a business is all the stuff it comes with. Whether that means a lease for the location, equipment or something else, you’ll want to make sure the landlord is alright with transferring over these legal documents to your name. Otherwise, you’ll need to negotiate a new lease, which can significantly add to your expenses.

You’ll also want to review any outstanding agreements that the owner has with vendors or customers. This can be very revealing. For example, if your review indicates that 90% of the business's revenue comes from a single client, you’ll want to think twice before buying. If that client parts ways with the business, it could put a serious dent in the business's potential.

Business financials

Before buying a business, make sure to examine its past few years of financials, including:

Tax returns.

Balance sheets.

Cash flow statements.

Sales records and accounts receivable.

Accounts payable.

Debt disclosures.

Advertising costs.

Double-check that the tax returns and financial statements have passed an audit by a certified public accountant; don’t accept those financials from the sellers themselves.

Use the business's financials as an opportunity to analyze its income stream. The business you purchase doesn’t necessarily have to be profitable yet (particularly if it’s a young business), but there should be a clear path to profitability.

Be in the know on whether the business's debts and liabilities will be included in the transaction or not, and be wary of taking these on. For example, if some of the outstanding receivables the ex-owner was dealing with are too old — 90 days or more, for example — then they’ll be pretty tough for you to collect on. You might be better off asking the seller to insure them or contact the customers themselves.

Organizational chart

If you buy a business with employees, make sure you understand how they rank and relate to one another by asking for a business organizational chart. This should also include compensation data, management practices and processes, benefit plans, insurance and vacation policies.

Status of inventory, equipment, furniture and building

Make sure to critically analyze these aspects of the businesses, since their values will directly impact the cost of the business. You’ll want to check:

What’s on hand.

Its quality.

How sellable it is, both in terms of market viability and its condition.

How fast and for how much each type of inventory has sold in the past.

The present condition of equipment and furniture versus its original selling price.

Whether it was maintained well or needs repairs.

Whether the furniture will be useful to you or if you’ll need to replace it to be operational or for aesthetic reasons.

If you’ll need to make larger modifications to the building.

And other similar questions.

Sites like whayne.com can be used to look up equipment and obtain price estimates.

Other important documents

This list of documents will tell you a lot of information about the business, but there’s probably more you’ll want to examine. Your attorney or accountant should be able to identify additional documents specific to the business you’re interested in.

For example, ask the seller for property documents, equipment/asset listing, brand assets for advertising materials, an account of intellectual property assets, business insurance coverage, employee policies and contracts, incorporation information and customer lists.

Once due diligence comes to a close, you’ll need to make your final decision about whether buying the business is right for you. If you decide to go ahead, the sales agreement is what ties it all together.

The agreement will enumerate the final purchase price and everything you’re purchasing, including:

Tangible assets (inventory, equipment, furniture, building).

Intangible assets (goodwill, brand value, etc.).

Intellectual property (patents, copyrights, etc.).

Customer lists.

Have a lawyer help you put this document together or, at the very least, review it carefully before you sign.

6. Evaluate the price of the business with the earnings, assets or market approach

This is where many deals fall apart because buyers and sellers often place very different values on the same business, and several factors affect a business's value.

Buyers and sellers usually use some kind of pricing model to get a ballpark number and frame negotiations. During this process, it can be very helpful to call in an independent business valuation professional to make an objective determination of value. Valuation services, which can be found online or through word of mouth, cost around $3,000 to $5,000, but they can save you thousands more in the long run by coming up with a good estimate.

Whether you do this yourself or hire someone, it’s helpful to have some knowledge of different business valuation method s. To get some insight, we spoke with Mike Bilby, CPA and certified valuation analyst, at Concannon Miller.

Bilby said small businesses should understand three main approaches to valuing an existing company when they're considering how to buy a business:

Earnings approach

Best used for : buying existing businesses that are already turning a profit or have a positive forecast of earnings.

The earnings approach values a business based on its historical, current, and projected profits. Specific methods you may come across that fall into this approach include the capitalized earnings method and discounted cash flow method.

For businesses with a history of fairly stable profits, that history can be used to anticipate future earnings and value the business. Even if a business hasn’t generated a profit yet, earnings models can be used to predict how much the business might earn in the future. The disadvantage of the earnings approach is that it relies on a prediction of future earnings, which may not be accurate.

Assets approach

Best used for : buying capital-intensive businesses, such as manufacturing and transportation businesses, and businesses that aren’t profitable yet.

The assets approach measures the value of a business's tangible and intangible assets minus debts and liabilities. Tangible assets include things like equipment and real estate, and intangible assets include things like patents, trademarks and software. The assets approach considers the current fair-market value of the business's assets but also the future return on investment that the owner could get from those assets.

Market approach

Best used for : accounting for local factors or confirming a price that you arrived at based on one of the other two approaches.

The market approach measures the value of a business based on how much comparable businesses have sold for. It’s a good way to get a ballpark range for a business's value and to account for local factors that the other approaches may miss, such as the business's location in a particular neighborhood.

It might be confusing to get all these approaches straight in your head, but the point of all of them is to assess the current financial health of the business, as well as its growth potential. In reality, Bilby says, none of these methods exists in isolation. All three of these approaches can be used to arrive at a fair price for a business, and the final price will always be the one that both the buyer and the seller agree on.

7. Secure capital to make the purchase

Once you and seller agree on a number, the next step in buying a business is to get the money. There are a few different ways you can gather the capital you’ll need to purchase a business — some specific to buying an existing business, others pretty standard.

Here are some of the ways to finance a business acquisition:

Use personal or family money

If you’re able to cover the costs of buying an existing business, that’s always an option. This is more likely if you're buying a small business rather than a chain. Of course, you’ll want to consult your accountant before ponying up a large lump sum of your own cash. Also, make sure that you’re not using all your money buying a business because running a business takes capital, too.

Many businesses are also funded with money borrowed from family. If you go this route, you should understand the tax implications for gifts and family loans. Make sure that you and your family member put the exchange of money in writing and follow IRS rules for family loans.

Seller financing

Some sellers will agree to holding a note, or accepting staggered payments — sort of like a lender. This way, they get guaranteed income for the coming months (or years, depending on your plan).

There are rules around seller financing, particularly if you plan to use another form of debt financing as well. For example, sellers have to be on “standby” if you’re also getting an SBA loan, meaning they have to agree that they won’t be paid back until you pay off the SBA loan.

Some sellers might also be willing to trade in some assets, like some furniture they really loved or the company car, for a lower price.

By turning to a partnership instead of buying a business solo, you can divide the payments you’ll be making while still owning that company.

Taking on a partner when buying a business isn’t only useful to cut costs, though: You can also bring someone on board with more specific experience or a different skill set. Just don’t forget to draw up a partnership agreement, so co-ownership doesn’t cause any problems down the line.

Sell stock to employees

By selling company stock to your employees, you can get a big discount — making up 50% or even 90% of the business price by some measures. You’ll probably want to sell non-voting stock, if possible, to retain ownership over the business. In order to issue stock, you’ll have to organize the business (or re-organize it) as an S corporation or C corporation.

Start by leasing the business

It might be possible for you to lease the business instead of buying it outright — with the option to make the big purchase down the road once you’re able to afford it.

Understandably, not all sellers will be open to this option, since they more likely than not want to wash their hands and walk away from the sale. However, if leasing is something you’d be more comfortable with — even though it may cost more money in the long run — you might as well ask.

Debt financing

Buying a business will give you tons of documents to approach a bank or alternative lender with for financing: financial histories, tax returns, employee records, cash flow analyses, inventory and equipment valuations, and much more. This wealth of data makes business acquisitions a good candidate for loans because lenders aren’t working with a risky blank slate.

If you’re looking for a small-business loan , here are a few potential financing options that might help in buying a business:

Asset-based financing.

Getting a business acquisition loan is typically easier because the lender has a history to assess. But just like with any business loan, lenders will scrutinize all of the following:

Borrower’s personal credit score.

Business credit report and score.

Annual revenue.

Time in operation.

Balance sheet.

Outstanding debts.

For term loans and SBA loans for when you buy a business, banks typically require buyers to put down a 20% to 25% down payment on acquisition loans. However, the SBA recently made some changes that make it easier for buyers to obtain SBA 7(a) loans for buying a business. Now, the SBA requires the buyer to put down just 10%, and only half of that (5%) has to come from the buyer's own cash. The rest can come in the form of a seller's note as long as the seller agrees to be on full standby — meaning that the seller won't be paid back on their note until after the bank is paid.

When getting a business acquisition loan to help with buying a business, you’ll also have to provide a formal business valuation (like we discussed before), explain your relevant experience, offer an updated business plan, and show financial projections for the business under your command. In short, you’ll want to tell a story of how you'll improve the business.

» MORE: Compare the best business acquisition loans

8. Close the deal with the appropriate documents

The last step in our buying an existing business checklist is to close the deal.

When you’ve finally found the right business, done your due diligence, agreed on a fair price and gathered the capital you need, make sure you (or a broker) have all of these documents, notes and agreements in place before you officially buy a business:

Bill of sale

When buying an existing business, this document will prove the actual sale of the business, officially transferring ownership of the business's assets from the seller to you.

Adjusted purchase price

This is the final count of the cost of your purchase, including all prorated expenses—like rent, utilities, and inventory.

If you’re taking over the business's lease, make sure your future landlord is in the know. On the other hand, if you’re negotiating a new lease, double-check that everyone understands its terms.

Vehicle documentation

Does the business you're buying come with any vehicles? If so, you might have to transfer ownership with the local DMV — make sure to get the right forms completed by the time of sale.

Patents, trademarks and copyrights

Similarly, when buying an existing business, all patents, trademarks, and copyrights might require certain forms to get transferred to you, the new owner.

Franchise paperwork

Check the SBA’s Consumer Guide to Buying a Franchise to see if you’ll need to file any franchise documents.

Non-compete agreement

It’s standard practice — and generally a good idea — to ask for a non-compete from the former owner. This way, the previous owner won’t set up a competing shop right across the street.

Consultation/employment agreement

This document should be drafted in the case that the seller is staying on as an employee. Make sure to file this agreement if so.

Asset acquisition statement

The IRS Form 8594 will list the assets you’ve acquired, and for how much. This document is pretty important in the "buying an existing business" checklist for your tax returns, so don’t forget it.

Bulk sale laws

Bulk sale laws have to do with the sale of business inventory and are designed to prevent business owners from evading creditors by transferring ownership of the business to someone else. To comply, prospective buyers usually have to notify the local tax or financial authority about the pending sale.

And that's everything you need to know about how to buy a small business. But knowing how to do it is one thing, knowing why you're doing it is another. So let's talk about reasons for buying a business.

Start Your Dream Business

Reasons to buy a business

Buying a business is kind of like being in the market for a home. Although some people like the history and character that comes with an older home, others don’t want the baggage that can saddle an older home and prefer something turnkey. Similarly, there are plenty of advantages when you buy a business that’s already been around for a while, but there are drawbacks, as well.

Pros of buying a business

Proven business concept.

When launching a brand-new business, the bulk of your time will be spent on the planning phase. You’ll have to write a business plan and figure out how to turn that plan into a reality.

But when you buy a business that's already up and running, you’ll typically have all of this in place:

A building or office space.

Inventory and equipment.

An established brand and business brand identity (whether or not you want to change it, people know it).

Customer base.

Vendor and supplier base, plus manufacturing resources.

Existing employees who can share their knowledge and expertise.

Management processes and policies.

An understanding of your competition and market.

Granted, each of these things may not be in great condition, and the business might not be turning a profit yet. However, buying an existing business means it has some structure already in place, which will save you time upfront, letting you quickly see what you need to zero in on. Particularly if you’re testing a new market or entering an industry that you don’t have much experience in, zipping past the difficult startup phase can be a huge advantage.

Lower operating costs

One of the major benefits of buying a business is that the operating costs are lower. For example, startup costs for a brand-new restaurant can run upward of $450,000 for initial supplies, food and beverage, signage and a customized kitchen design. With an existing business, your initial operating costs are lower because — unless your acquisition is pretty atypical — many parts of the business are already in place and ready to go once you’re at the helm.

You don’t need to spend as much of your budget on hiring employees, developing marketing strategies or building a customer base because those come with the transaction. Instead, you can pour more cash into expanding the business and adapting it to your vision.

Easier to obtain financing

While the move to buy a business isn’t always a safe bet, lenders and investors see it as lower-risk than launching a new company. This is because there’s a history of financial performance that a lender or investor can use to gauge how the business has performed to date and to predict future performance. Plus, there’s also existing data around the company’s market position, competitors, brand recognition and customer base.

All this makes investors more likely to invest in the business and can make lenders more comfortable in giving you a business acquisition loan. The current owners can even participate in financing the transfer of ownership by giving you a loan.

Intellectual property is on the table

If your business-to-be has patented their products or has a copyrighted slogan or trademarked logo that wins over customers, then that intellectual property value will probably transfer over to you in the acquisition. That means when you buy a business, you sometimes buy more than what the eye can see.

This isn’t on the table with every business acquisition, but it could be critical if you’re dealing with something that you think could be expanded even more. What if you turned this small business into a national franchise? All of a sudden, that patent and copyright becomes a lot more valuable. Patents, copyrights and trademarks are often included in sales of software companies, tech businesses and creative businesses (e.g., music, design and art).

Cons of buying a business

Higher upfront purchasing costs.

By buying an existing business, you’ll be able to save money on operating costs, such as inventory and equipment. However, you’ll probably face some pretty sizable purchasing costs. In fact, those purchasing costs might be greater than what it would take you to start a new business.

That’s because, in addition to the obvious assets, you’re also buying ownership over the following:

Built-out brand.

Design work, from logo to store interior.

Business concept and plan.

Time, effort, and money spent testing out products.

Refined processes, procedures and policies.

Income stream (if the business is already profitable).

Assets and equipment.

Intellectual property, such as copyrights, patents and trademarks.

All of these items will be the subject of negotiations between the buyer and seller and factor into the final purchase price when buying an existing business.

Unfamiliarity with the details

If you’re buying a business you didn't start, you’ll understandably be a bit less familiar with its inner workings and the details of its products, processes, employees and financials than if you built the business yourself. This could be a bit of an obstacle, especially when you’re just starting out. This is especially true if you are entering an industry that you lack experience in. You’ll need to spend a lot of time learning the ropes, and prepare for the learning curve to be steep.

Risk of a hidden problem

As a prospective business buyer, you’ll go through a fairly intensive due diligence process, where you’ll gather information about the business and the current owner. But no matter how much information you uncover, you always run the risk of taking on an issue that you’re not aware of or that’s worse than it appeared. For example, equipment could be damaged, or the brand might have a bad reputation. Once you buy a business, you buy those issues, like it or not.

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How to Buy a Business in 8 Steps (+ Due Diligence Checklist)

There are several paths to becoming a business owner. The most popular one is building a business from scratch. It is also one of the hardest routes to owning a business.

You have to come up with a product or service from scratch, conduct market research , find the right employees, attract customers, build cash flow, and so on.

If you don’t want to go through all this, an easier and less risky option is to buy an already existing business .

An existing business already has existing products or services, existing customers, employees who are knowledgeable about the company and its products, existing cash flow, and so on.

It’s good to note, however, that buying a business is not as simple as finding a business that’s on sale and paying the asking price. There are several things you have to keep in mind if you don’t want to end up making the wrong decision.

Below, let’s check out the 8 step process of buying an existing business.

Table Of Contents

How To Buy An Existing Business Checklist

Step 1: decide what type of business you want to buy.

If you go to BizBuySell and search for all businesses that are on sale, you’ll find thousands of businesses from a wide range of industries.

For instance, if you search for on-sale businesses in California, there are over 1,500 businesses that you can buy. The first three results show how varied the businesses are – the first business is in the tax preparation industry, the second in the food industry, and the third in the cannabis industry.

It is very unlikely that these three businesses across very different industries would all be suitable for you.

Therefore, before you begin searching for an existing business to buy, you have to start by thinking about the kind of business that you want to buy, one that would be suitable for your unique needs, characteristics and financial goals .

Some of the things you need to look at when deciding what type of business you should buy include…

1. Location

Most businesses operate within a specific location, and therefore, when buying a business, this is something you need to think about. Ideally, it is a good idea to look for a business that is within your locality .

If you are looking to buy a business in a different geographical location from where you live, this could require you to move, so it’s something you should be ready to do.

Apart from the convenience of being able to closely monitor your new business, the location of a business also affects other things such as taxes, labor costs, the cost of leasing rental premises, and so on .

All these have an impact on the business’s performance, so it is important to consider them before deciding to buy a business.

It’s good to note that if you’re looking to buy a business that operates online, location will not be such a huge factor to consider, since you can operate the business from anywhere.

2. Your Passion, Skills, Talent, And Experience

When buying a business, it is always a good idea to go for something that is well aligned with your passion, as well as your skills and experience . This is because these factors affect your ability to properly run the business and keep it profitable.

For instance, let’s say you have always worked as a marketing executive in a marketing agency, and have always dreamt of owning your own digital marketing agency.

If you go ahead and buy an existing digital marketing agency, you have enough skills and experience in the industry to successfully run the marketing agency you just bought.

Now, imagine that with your experience in the marketing industry, you go and instead buy a business that deals in mountain biking gear.

You have never ridden a mountain bike all your life, you have no idea which gear is popular among mountain bikers, you have no mountain biker in your network.

Without the experience, skills, and passion in the industry, it would be very difficult for you to keep the business profitable, even if the business was making money before you acquired it.

Note that this doesn’t mean that it is impossible to achieve success with a business in an industry you have no prior experience with. However, the more knowledgeable you are about the industry, the more likely you are to be successful .

3. Market Outlook

Just because an industry is performing well today, this doesn’t mean that it will do the same in future. And just because an industry is not doing well today, this doesn’t mean that it won’t do well in future.

Therefore, before making the decision to buy a certain type of business, take the time to do some market research and consider the long term forecast for the industry. Is there potential for growth within the industry?

Another important thing to think about is the size of the business you are interested in buying . Are you looking for a small business that you can run by yourself? Do you want a large company with dozens of employees and revenue that runs into the millions?

5. Lifestyle

Being a business owner is more than a job; it is a lifestyle. This is because running a business is a demanding venture that will have a huge impact on your lifestyle .

Before you decide to buy a business, therefore, you have to consider how it will affect your life, and if you are ready for such changes.

For example, if you are a solitary person who likes spending their time alone and doesn’t enjoy interacting with strangers in person, it would be advisable to buy a business that allows you to make money online , without the need to interact with customers in person.

Similarly, if you buy a business that will involve lots of travel, yet you do not like traveling, this could take a toll on your lifestyle, making it difficult for you to keep the business running successfully.

With this in mind, we recommend choosing a business that is well aligned with the kind of life you’d want to lead .

Finally, before you start looking for a business to buy, you have to consider how much you are willing to spend on purchasing the business .

You could find a well-performing business in an industry you are passionate about, a business that is well aligned with your lifestyle, and in a location that is convenient for you, but if it costs more than you can afford, you’ll have no other choice but to let it go.

You should keep in mind, however, that you don’t need to have all the money in cash in order to buy a business . You can still afford a business through other innovative financing options, such as seller-financing, debt financing, and so on.

Step 2: Search For Businesses That Are For Sale

Once you have determined the kind of business you want to buy, you can now start looking for businesses that are available for sale and that meet your criteria.

At this point, you want to identify as many businesses as possible that fall within what you are looking for, so you should look in as many places as possible. Some of the places and methods you can use to search for on-sale businesses include…

1. Online Platforms

The easiest way to find businesses that are for sale is to use the internet. There are several websites that list businesses that are for sale. The beauty of using online platforms is that they allow you to quickly identify thousands of businesses that you can buy .

Many of these platforms also allow you to filter available businesses by criteria such as location, industry, price, cash flow, gross revenue, how long the business has been in operation, and so on.

Another advantage of using online platforms is that they allow you to set up email alerts . This way, if a business that meets your search criteria is listed, you get notified. This is a lot easier than having to come back to the listings website to search for businesses every few days.

One of the best online platforms for finding businesses that are for sale is BizBuySell . With over 100,000 for sale businesses listed at any one time, you have a very high chance of finding a business that is perfect for you.

Other online platforms and websites where you can search for on-sale businesses include…

• BizQuest.com : Best for finding small businesses and local business brokers.
• BusinessBroker.net : Over 30,000 listings at a time, and offers finance and loan options.
• BusinessMart.com : Best for finding business using advanced search and filtering options.
• BusinessForSale.com : Over 70,000 listings from across the world.
• DealStream.com : Has a database offering over 40,000 businesses and investment options at a time.

2. Reach Out To Local Businesses

Very often, business owners that are selling their businesses don’t put up signs on their door advertising that the business is for sale, since this can easily push away employees and customers.

So, how do you tell that such a business is up for sale? By talking to actual business owners.

To use this method, start by identifying suitable local businesses in your preferred industry that you’d be interested in buying, then reach out to the owners and let them know that you are looking to buy a business in that industry .

If you are lucky, you’ll get in touch with a business owner who is looking to sell their business. Even if they are not selling, however, they probably know another business owner who would be interested in selling their business.

With this method, you’re basically tapping into the network of business owners within your locality and using it to identify businesses that could be looking for a buyer .

One thing to keep in mind when using this method is that you are not looking for an immediate yes or no answer. If the person you are talking to doesn’t know anyone who is selling their business, ask them to be on the lookout and notify you if they happen to hear about a business that is for sale.

3. Hire A Business Broker

Hiring a business broker is one of the most effective ways of finding a business that you can buy . Business brokers are always in contact with business owners looking to sell their business, and therefore, it is very easy for them to find a business that meets your needs.

It’s good to note that brokers will charge you a commission to help you find a suitable business . However, this commission is usually paid if you find a business you like. Working with a broker can also provide you with several other benefits, including…

• Screening the business for you : Any broker worth their salt will usually screen a business before recommending it to their clients. Many will check to make sure that things like the business’s financials and price are okay before recommending the business to you.
• Paperwork assistance : If you have no prior experience buying a business, a business broker can help you with the required paperwork and ensure that you are compliant with all necessary laws and regulations.
• Negotiation : A good broker also knows the ideal price range for different kinds of businesses and can help you negotiate a good deal.
• Help you avoid pitfalls : Good business brokers know what kinds of businesses you should avoid and the mistakes to watch out for when buying a business, and can help steer you from buying a business you’d later come to regret.

4. Watch Out For Advertisements

Business owners looking to sell their business will sometimes put up advertisements in local newspapers, industry journals, publications and newsletters, and even classifieds sites like Craigslist. By keeping an eye out for such ads, you might find a business that fits the bill of what you are looking for.

You can also take matters into your own hands by putting out your own ads letting business owners know that you are looking for a business to buy.

Someone who is looking to sell their business but doesn’t know how to find a buyer could spot your ad and reach out to you with just the right kind of opportunity you were looking for.

5. Talk To Professionals That Work With Business Owners

Another way to identify businesses that are up for sale is to talk to professionals that work with business owners, such as lawyers, insolvency guys, M&A firms, auditors , and so on.

These guys will often know if a business owner is looking to sell their business, and by asking them for leads, you can easily identify business buying opportunities that you’d not have known about otherwise.

Step 3: Shortlist The Companies You Would Want To Own

The aim of the previous step was to identify all businesses that fit the criteria of the kind of business you are looking for. However, all the businesses you identified in that step will not be suitable for your needs, and after all, you cannot buy them all.

What you need to do next is to take a more detailed look at the businesses you identified in step 2 and come up with a shortlist of 2 or 3 businesses that are best aligned with your goals, your budget, and your resources.

When shortlisting the most suitable businesses, here are some of the factors you need to look at.

When identifying businesses that fit your criteria in Step 2, you looked at the cost and your ability to afford them. Now, it’s time to take a second look at each of the businesses you identified and determine which ones are comfortably within your budget.

Here, you should look not just at the initial cost of purchasing the business, but also the working capital needed to keep the business running once you take over . You don’t want to buy a business and then run it to the ground simply because you spent all the money on the purchase and don’t have the money to keep the operations going.

As part of evaluating how much you’ll need to keep the business running, you have to think about what you intend to change about the business, and how that will affect operation costs .

For instance, if you intend to focus on new marketing channels to help you grow the business, confirm whether your budget allows you to do this, in addition to paying the purchase price.

2. Expected Return On Investment

Take a look at things like the products or services offered by each of the businesses you identified, their customer base, and their annual revenue to help you estimate how much returns you can expect once you take over the business. Generally, the higher the expected return from the business, the more suitable it is .

3. Think About The Required Time Investment

All the different businesses you identified will require different levels of time investment. For instance, if one of the businesses is in an industry you don’t have a lot of experience in, you’ll need to spend a lot of time learning about the industry and the market.

An online business in an industry you are experienced in, on the other hand, might not require such a huge time investment from you, especially if it is a business that you can easily automate.

What you need to do here, therefore, is to go through the list of businesses you identified and determine the kind of time investment you’ll need to put into each business, compared to the time that you can actually put in realistically . The less time you need to invest in order to make the business successful, the better.

4. Understand Why The Owner Is Selling

A lot of times, business owners sell their businesses for very valid reasons. They could be relocating to a different place, they might be looking to retire, or they might have undergone a lifestyle change, making it impossible for them to continue running the business.

All the above reasons have something to do with the owner, rather than the business, and therefore, you can easily take over the business and continue running it successfully.

Sometimes, however, people will put up their businesses for sale because there is something wrong with the business . This is a huge red flag, since it will affect your ability to earn returns from the business once you take it over.

Some of the negative reasons why someone could be selling their business include…

• Poor business concept
• Declining market
• Business debts
• A product or service that does not have any market
• Poor business location
• Negative brand reputation
• Outdated, costly equipment
• Excessive competition

If the owner is selling the business for some of these reasons, they’re just trying to dump it on some unsuspecting investor. Note, however, that the seller won’t tell you this is why they are selling, so you need to do your homework to identify the owner’s motivations for selling.

If you feel that the business owner is being untruthful about their reasons for selling the business, strike it off your list.

5. Steady Income Stream

Just because a business has been operational, this doesn’t necessarily mean that the business has been making any profit, or even sustaining itself.

Therefore, it is important to check whether the business has been providing enough cash flow to pay for its expenses, and whether it has been making any profit for the owner.

Go through each business in your list and strike off any business that has been in existence for a significant amount of time but has not been generating sufficient income to keep things running smoothly.

Such businesses could end up being a money pit for you without delivering any returns, even in the long run.

6. Potential For Improvement

Sometimes, a business that is up for sale might not be performing optimally. However, upon closer inspection, you realize that there are some opportunities you can potentially exploit to significantly improve its performance .

Such businesses are some of the best that you can buy. Due to the sub-optimal performance, you will be able to negotiate for a significantly low price. Once you take over the business, you can then exploit the opportunities you spotted and rake huge returns from the business.

When evaluating a business, always try to see if there’s anything that can be done to improve the business. If there is no potential for improvement, strike it off your list.

7. Competition

Finally, make an evaluation of the market each business is operating in and the level of competition it is facing . What percentage of market share does the business control? Who are its biggest competitors? What do the competitors excel in? Does the business have any edge over the competition?

Generally, the less the competition a business is facing, and the greater the advantage it has over the competition, the more suitable it is .

By the end of step 3, you should have narrowed down your list to about 2 or 3 businesses that present the best opportunity for you.

Step 4: Complete Your Due Diligence

Now that you have 2 or 3 businesses you are really interested in owning, it’s time to conduct proper due diligence into each of these companies. This allows you to determine whether the assumptions you have so far about the business are accurate, and whether the business presents a good opportunity for you.

To do this, you need in-depth access to the company’s information, so you’ll first need to sign a letter of intent .

The letter of intent is drafted after you have spoken to the business owner and expressed your interest in purchasing their business.

The letter of intent defines your proposed buying price (subject to valuation), the tentative list of assets and liabilities that you intend to purchase as part of the acquisition, and the terms and conditions that will govern the sale.

The letter of intent is a demonstration to the seller that you are serious about your interest in purchasing their business , and that if everything meets the conditions agreed upon, you’ll go ahead with the deal.

Once you’ve signed the letter of intent, the seller can now allow you to access any legal or financial information that you need in order to perform a thorough analysis of the business. It is advisable to go through these documents with the help of an accountant to help make sure everything is in order.

During the due diligence stage, some of the things you need to look at include…

1. Financial Statements

These give you a detailed look into the business’s finances. How much money is flowing into and out of the business every month? Is the business generating enough money to keep itself running, or is it spending more money than it is making? How do the company’s assets compare to its liabilities?

Checking the financial statements will allow you to determine the financial health of the company and decide whether it is a worthy purchase .

The financial statements will also help you identify any opportunities that can be exploited to grow the business . For instance, you might identify expenses that can be reduced to generate more profits, or revenue opportunities that the business is not taking full advantage of.

2. Sales Records

Even though the financial statements have a record of the sales, you should still go through the sales figures individually. If possible, check the monthly sales figures for the last three years or more.

When evaluating the sales, check which products generate the most sales, whether most of the sales are made in cash or credit, whether most of the sales come from a single client or multiple clients , and so on.

This will give you a good idea of current business activity and help you make more accurate projections of what to expect once you take over the business.

3. Business Structure

How is the business legally structured? Is it a sole proprietorship, a partnership, or a corporation? This information is important because it will affect things like taxes, as well as your liabilities once you take over the business.

4. Brand Recognition

Branding is a very important factor in business. When a lot of customers know about the business you are interested in purchasing, you can easily achieve results without having to invest so much into marketing. It is also easier to benefit from things like word of mouth marketing.

It’s good to note that brand recognition can sometimes be negative, which is something you want to avoid. You are better off trying to build a little known brand than trying to do damage control for a brand with a negative reputation .

You can evaluate the kind of reputation a business has by checking feedback from past customers on the company’s social profiles, BBB ratings, and other online reviews.

5. Business Operations

These are the processes that the business undertakes every day in order to deliver products and services to customers. How are products manufactured? How does the business facilitate sales? What distribution channels does it use?

The point of evaluating business operations is to help you determine whether you’ll be able to keep these operations up once you take over the business, and identify any opportunities to make the business more efficient once you acquire it.

6. Marketing Strategies

How does the business promote its products and services to customers? What kind of image does the business project to customers? Are these marketing strategies working?

Taking a look at the marketing strategies the business is applying and their effectiveness will help you determine if you can grow the business by improving how it markets itself.

7. Inventory

If the business deals with physical products or supplies, check the level of inventory that the business is holding at the moment.

Find out the condition of the inventory, where they are stored (and whether you’ll have access to the storage area following the purchase), the company’s inventory management processes , and whether you’ll get the inventory as part of the purchase.

8. Existing Contracts

Since the business is already in operation, there is a high chance that it already has some existing contracts with clients, partners, suppliers and vendors, and so on.

Go through these contracts and determine how they will affect business operations once you take over the business .

For instance, some contracts could prevent you from bringing in new vendors, which means you won’t be able to lower some expenses.

If the business has existing contracts with clients, on the other hand, this is a good sign, because it means you’ll have clients even after you take over the business.

9. Employee Details

A business is as good as the employees working for it. Therefore, before purchasing a business, take the time to dig into the existing team. How skilled and qualified are they? How productive are they? Are there employees who are redundant?

If the business has a good team in place, it will be easier for you to take over the business without any significant impact on business operations .

Similarly, if you find that the business has some redundant roles, you can reduce costs by letting go of the employees in these roles.

10. Location

In the shortlisting stage, you only looked at the general location in which the business is located and how that affects your ability to run the business. During the due diligence stage, you need to look at the specific location of the business and how it affects the performance of the business .

For instance, if you are interested in buying a restaurant business, look at the specific area where it is located and ask yourself questions like,

• “Is there enough foot traffic to sustain the business?”
• “Are there other restaurants around the area?” “
• “What kind of people frequent this area?”

In addition to helping you determine how the location affects revenue, you should also consider the costs that come with maintaining a business in that location .

For instance, if the business you want to buy is a manufacturing business that doesn’t rely on foot traffic, you can reduce expenses by moving the business to a cheaper location.

Does the business own any assets, such as buildings, property, equipment, furnishings, vehicles, and so on? Will these be sold together with the business, or does the owner intend to retain ownership of some of these?

Generally, purchasing a business together with its assets will be costlier, but it could still be beneficial, especially when these assets are crucial to business operations . However, take the time to evaluate the condition of some of these assets, such as equipment and furniture.

12. Liabilities

With the help of an accountant, go through the list of all liabilities owed by the business and determine how they affect the business .

For instance, if the business owner has used some of the business assets to secure loans, this is something you’ll want to know.

Similarly, if there are any unrecorded liabilities, such as out of court settlements that the business is paying off, or employee benefit claims, you’ll want to be aware of them, since they could be transferred over to you once you purchase the business.

13. Customer Patterns

If the business has been keeping track of customer data, go through this data to gain a better understanding about customer patterns.

Here, you want to answer questions like:

• “Do most sales come from existing customers or first time buyers?”
• “What is the customer churn rate?”
• “Which seasons attract the highest number of first time or repeat buyers?”
• “Which products are the most popular with customers?”

The more you understand about the business’ customers, the easier it will be for you to give them what they want and grow the business.

14. Seller-Customer Ties

Sometimes, you’ll find that there is some special tie between the business owner and some customers. In such situations, the exit of the business owner could result in the loss of such customers .

To avoid finding yourself in a situation where the business loses major customers following your purchase, try to identify any relationships between the seller and customers .

Who are the biggest customers? How long have they been customers of this business? Do they have some special agreements with the business? Do you have any reason to believe that these customers could leave once you take over the business?

Step 5: Brainstorm On What Marketing, Product, And Organizational Changes Could Increase Your Enterprise Value

While it is important to consider the past performance of a business before acquiring it, greater attention should be paid to its potential performance in future .

Now that you have done your due diligence and have a good idea of where the business you want to buy stands, both in terms of finances, legal and organizational structure, and business operations, it is time to brainstorm on ideas that you can use to grow the enterprise and increase its value.

The more ideas you can come up with on how to grow the business once you own it, the more suitable that business is, and the higher chances you have of achieving success after you buy the business.

Below are some marketing, product and organizational changes that you can make to grow the value of the business once you own it.

1. Create Additional Income Streams

If you have noticed some opportunities for earning the business new income streams that the current owner has not been taking advantage of, implementing them can be a great way to grow the business following the acquisition.

For instance, let’s say the business you want to buy is an online sports store. During the due diligence stage, you noticed that the business’s only source of revenue is selling sporting equipment.

However, based on your experience in the industry, you feel that the company is sitting on an opportunity to make money selling digital workout programs that your customers can do using your sporting equipment.

By implementing such new income streams, you can grow the company’s revenue without any significant increase in recurring expenses, leading to increased profitability .

2. Get Rid Of Unprofitable Products And Services

Sometimes, a company could be generating good revenue, but then a huge chunk of this revenue goes to producing and maintaining products and services that are not profitable.

By getting rid of such products, you can quickly increase the company’s profitability, while at the same time freeing up your employees to work on more productive tasks that contribute to the company’s bottom line.

Steve Jobs provides a great example of how this works. In 1996, Apple was producing dozens of products, but the company was on the brink of bankruptcy, with over $1 billion in losses in 1996.

When Steve Jobs came back to the company in 1997, he realized that the company was supporting too many products that were not making any profit.

When Jobs took over as the new CEO , he got rid of 70% of Apple’s existing products at the time, and only retained four of the company’s most profitable products . By the end of 1998, Apple had made over $300 million in profits.

Just like Jobs, if you notice that a business is spending resources producing and maintaining unprofitable products and services, you can increase the company’s profitability by simply getting rid of these products and services.

3. Improve Product Quality

Another easy way to grow a business after acquisition is to improve the quality of its products and services.

For instance, if you are buying a restaurant, and you think that the reason it has not been maximizing its revenue is because the food was average, you can hire a skilled chef after acquisition to improve the quality of the food, which will lead to more clients patronizing the restaurant.

4. Invest In Better Marketing

After doing your due diligence, you might have noticed that the business has great products at a great price point, but is still not making enough sales. In such a situation, the problem could be the marketing strategy.

Once you take over the business, you can increase the company’s revenue by investing in better, more effective marketing channels , such as Facebook marketing or webinar marketing .

5. Review The Current Pricing Structure

A business’s pricing strategy has a huge impact on its ability to make profits . While raising prices immediately after acquiring a business can be a risky move, it can still make a huge impact on the company’s profits, especially if the price increase is accompanied by an increase in quality.

6. Increase Operational Efficiency

Very often, businesses are unable to achieve peak performance not because they don’t have the right resources, but because they are not using these resources in the most efficient manner.

For instance, unnecessary red tape and departments that operate in siloes can easily lead to increased delivery times and loss of productivity.

If you identified such inefficiencies during the due diligence stage, you can make a significant impact on the organization’s bottom line by reducing the inefficiencies .

Some of the things that you could do to improve operational efficiency include getting rid of policies and workplace procedures that introduce bottlenecks, breaking down siloes between teams and departments, and ensuring that all teams are aligned with the needs of the business.

7. Reduce Expenses

Another low hanging fruit for anyone looking to improve a company’s bottom line following an acquisition is reduction of expenses. By reducing business expenses, you can achieve an immediate increase in profitability without implementing any other strategy.

Some of the things you can do to reduce expenses include shifting to low cost production processes, finding cheaper vendors and suppliers or negotiating for discounts, letting go of redundant employees, moving the business to new premises with lower rent costs, digitizing processes to reduce paper and stationery costs, and so on.

You can easily identify excessive expenses that present the opportunity for reduction during the due diligence stage by looking at documents like the cash flow statement .

8. Take Advantage Of Technology

Adopting new technology is another very effective way of increasing the value of an enterprise after acquiring it and making an impact on the bottom line.

For instance, by taking advantage of artificial intelligence software and tools , you can automate various business processes and increase productivity without the need to increase your staff.

Aside from increasing productivity, adoption of new technology after you take over the business can also help you increase the quality of your products or services and give you a competitive edge over the competition.

Step 6: Evaluate The Price Of The Business

Having done your due diligence on the business, and with a clear idea of the changes you’ll make to improve the business and grow its value, it’s now time to evaluate the current value of the business, which will help you determine a reasonable price for the business.

In most cases, the seller will often try to get as much as possible for the business , and will sometimes use unconventional valuation methods that give them the greatest advantage. This is why it is very important to conduct your own valuation.

You can evaluate the price of the business by yourself or hire a professional to do it for you. Whatever option you opt for, below are some of the most common methods used to determine the price of a business that is on sale.

1. Using Multipliers

This is a simple way of evaluating the price of a business, where you take a certain business value, such as after tax profits, seller discretionary earnings (SDE) , or monthly gross sales, and apply a predetermined multiplier to this value .

For instance, let’s say you are using monthly gross sales as the basis of your valuation. The business you want to purchase registered average monthly gross sales of $100,000 over the last 12 months, and the industry multiplier for this type of business is x3.

In this case, the price of the business would be:

$100,000 x 3 = $300,000

While using multipliers is often the simplest way of determining the price of a business, it has one major weakness – multipliers are subjective .

Multipliers will often vary depending on factors like the industry the business is operating in, the level of competition in the industry, how diversified the business is, post-closing expenditure, how well-established the business is, how closely related the business is to the owner, whether the business owns any intellectual property, and so on.

With all these, deciding which multiplier to use can be confusing, and there’s a chance that the seller will prefer using a different multiplier that gives them the greatest advantage.

That said, using multipliers can still give you a quick estimate of what you should pay for the business .

2. Assets Approach

This is one of the most accurate ways of evaluating the value of a business. With this method, you determine the price of the business by subtracting its liabilities from its assets, then multiplying the difference by a predetermined number , usually one or two.

You can easily determine the difference between assets and liabilities by checking the company’s balance sheet.

The assets to consider when using this method include any property owned by the business, equipment, furniture, fixtures, leasehold improvements, unsold inventory, supplies, accounts receivables, trademarks, patents, and so on.

Liabilities include tall unpaid debts, bad investments, liens, uncollected taxes, lawsuits and judgments, and anything else that can potentially take money away from the business.

Asset based pricing evaluation is the best approach when you are purchasing a business that is capital intensive, as well as those that have not started making profit .

3. Discounted Cash Flow

This method allows you to estimate the current value of a business by looking at its projected cash flows in future .

In other words, the DCF method tries to determine the current value of a business based on the return on investment you will receive from the business in future, adjusted for the time value of money.

The DCF method assumes that the value of a dollar today is higher than the value of the same dollar tomorrow , because today’s dollar can be invested to yield more money tomorrow.

When using this method to value a business, you need to calculate the projected cash flows from the business for a certain period of time, then use a discounted rate to calculate the present value of those earnings .

While the DCF method is a great way to evaluate the appropriate price of a business based on your expected returns, it has one major weakness. The accuracy of your valuation depends on the accuracy of your predictions . If you come up with inaccurate cash flow projections, you’ll end up with an inaccurate valuation.

When evaluating the price of a business , it is always advisable to work with a professional who is well conversant with valuing businesses , otherwise you can easily end up paying more than the business is worth.

Step 7: Secure The Required Funding To Finance The Purchase

After valuing the business, you now know how much money you need in order to complete the purchase. If the seller is in agreement with your valuation and has agreed on the amount you are offering, it’s now time to put together the money you need to acquire the business.

It’s good to note that buying a business can be a costly affair, so you need to have given some thought to your source of funding even before you start looking for businesses to buy.

Fortunately, you have several options when it comes to raising funds to finance a business acquisition. Let’s check out some of them below.

1. Personal Funds

This is the simplest way of funding a business purchase. Here, you are basically using your own money to cover the cost of purchasing the business .

The problem with this financing option is that you need to have a lot of money saved up, which often makes it a not viable option, especially when you want to acquire a large business.

However, y ou can easily use personal funds to finance the purchase of a small business that has a relatively low price tag.

2. Debt Financing

This is one of the most common ways of financing the purchase of a business. With debt financing, you are purchasing the business with money borrowed from a bank or other lending institution.

The beauty of debt financing is that you can then use proceeds from the business to clear the loan over the agreed period of time.

What makes debt financing such an attractive option for financing the purchase of an existing business is the fact that the existing business provides you with tangible proof of the ability of the business to pay back the loan .

By providing the lender with documents like cash flow statements, the company’s tax returns, financial histories, valuations of the company’s equipment and inventory, employee records, and so on, you give lenders the confidence that they are not funding something that could end up being an expensive gamble.

If you decide to use debt financing, some of your options include…

• Traditional bank loans : This involves approaching a bank for a loan. The bank gives you money that has to be repaid plus interest within a certain time, usually ranging from 1 to 5 years. Bank loans work best when you are purchasing a business with substantial assets. You also need to have an exceptional credit score.
• Online loans : This involves financing the business acquisition using funds borrowed from online lenders. They are similar to bank loans, but they usually have lower qualification requirements compared to traditional bank loans. However, these loans often charge higher interest since they are usually unsecured. Some examples of good online lenders that you can borrow from include Fundera , Lendio , Fundbox , Funding Circle , BlueVine , and OnDeck .
• SBA Loans : This is one of the best options for borrowing money to purchase a business. SBA loans are guaranteed by the U.S Small Business Administration , which makes SBA loans easily accessible and very affordable, with very low interest rates.

3. Seller Financing

This is a unique way of financing the acquisition of a business by borrowing money from the seller.

In simpler terms, you pay the seller an initial sum of money, take control of the business, then continue paying them over time until the whole purchase amount has been cleared . In most cases, you pay off the seller using money generated from the business.

It’s good to note that finding a seller who’s open to this option can be very difficult , since most sellers want to get their money and hand over the business entirely. However, there is no harm in asking, you might come across a seller who is comfortable with this option.

4. Asset Based Financing

Also known as a leveraged buy-out, this is where you use the assets owned by the business you are buying as collateral to secure a loan, and then use this loan to fund the acquisition of the business .

Some of the business assets that you can use to secure funding include the company’s property, equipment and machinery, inventory, and unpaid invoices.

It’s good to note that with this kind of financing, you won’t be able to raise the whole amount required to purchase the business. Therefore, this option is typically used with another financing option, such as use of personal funds or seller financing.

5. Find A Partner

If you are unable to raise the funds to purchase the business on your own, another suitable option is to find a partner to help you purchase the business.

With this option, you have two options. The first one is to find a co-owner . In this case, you own the business together, and each one of you will be involved in the day to day running of the business.

If you opt for the co-owner route, it is advisable to find someone who has some skill set or experience that is beneficial to the business .

If you don’t have someone who’d be interested in partnering with you in mind, ask the business owner to give you a list of any other people who had expressed interest in purchasing the business but couldn’t afford the purchase price.

You can then approach these people and propose a partnership deal. Remember to always prepare a partnership agreement with the help of your lawyer before bringing on board a partner.

The second option is to find a venture capitalist or an angel investor . In this case, the investor is not involved in the day to day running of the business. Instead, they only give you the money and get a share of the profits until they recoup their investment plus interest.

6. Selling Stock To Employees

Another innovative way to finance the purchase of a business is to sell stock to the company’s employees.

With this route, you pay a percentage of the purchase price, while the employees raise the remaining percentage , which gives them some ownership of the company.

If you opt for this route, it is advisable to sell non-voting stock. This way, you get to retain total control over how the business is run. The employees only get a share of the business profits in the form of dividends.

7. Decline Receivables Or Assume Liabilities

You can also lower the initial purchase price of the business by declining the company’s receivables or assuming its liabilities.

When you decline the receivables, any money owed to the business before you took over will be paid to the seller . This means that you can deduct this amount from the purchase price.

When you assume the business’ liabilities, you are agreeing to pay off the debts that the business owed before you acquired it .

Note that while this will reduce the initial purchase price, you’ll still have to spend money to cover the debts. The only difference is that you will not be required to spend this money immediately, and can therefore pay off the debts using money generated by the company after you take it over.

Step 8: Close The Deal With The Right Documents

If everything is in order, and you have secured the funds you need to finance the purchase, it’s now time to do the final thing in the process – closing the deal and taking ownership of the business.

Closing the deal is a complicated process that sometimes involves various legal and financial traps, so you should always go into this step with the guidance of your lawyer.

Your lawyer will ensure that you meet all your contractual rights and obligations, and help you scrutinize all the necessary documents.

Below is a list of the documents that need to be present before you can finalize the deal, pay the seller, and officially take ownership of the business.

1. Confidentiality Agreement

During the sale of a business, a lot of confidential information is exchanged – details about business assets, debts, and finances, details about how the business runs its operations, details about you (the buyer) and how you intend to finance the purchase, and so on.

All these are very sensitive details that both you and the seller might want to keep away from the public – whether the deal goes through or not. To prevent such details from leaking to the public, it is a good idea to always have a confidentiality agreement.

2. Bill Of Sale

This is a very important document that proves that the sale occurred and that the business, as well as its assets have been transferred from the seller to the buyer.

3. Adjusted Purchase Price

This document gives the final purchase price of the business , and takes into account the cost of everything that contributed to the final purchase price – including the cost of things like assets, inventory, goodwill, and so on.

4. Acquisition Agreement

This is a legal document that covers all the terms that govern the purchase . It defines all the details of everything that the seller and the buyer have agreed upon, including the price of the acquisition , the assets and liabilities that are to be transferred as part of the purchase, and the time frame within which the acquisition needs to be completed .

The acquisition agreement also anticipates and describes what needs to be done in case things do not go as planned – for instance, if the buyer discovers that the seller misrepresented some information. The aim of this is to protect you (the buyer) and ensure you get what you are paying for.

5. Asset Purchase Agreement

If you are assuming ownership of the business’s assets as part of the purchase, you will need an asset purchase agreement. This document describes, in detail, the exact assets that you are purchasing, and those that you are not purchasing .

The information in the asset purchase agreement is usually covered by the IRS form 8594 , which you must complete before acquiring a business.

The asset purchase agreement typically covers the following:

• Inventory : A list and value of all inventory currently held by the business.
• Plant and machinery : a list and value of the plant and machinery owned by the business, as well as the lease or purchase agreements for these assets.
• Goodwill : This gives the value of intangible assets like customer base, brand and reputation, and intellectual property.
• Creditors/debtors : Unless you have agreed to decline receivables or assume liabilities, the seller will be responsible for paying creditors and collecting debtor payments until the transfer is officially completed.
• Employees : This describes whether the employees will be automatically transferred with the purchase of the business. This is usually governed by the TUPE regulations , and usually applies when the business is being transferred as a ‘going concern.’
• Contracts : Any current contracts will be listed here. You might want to review the contracts and protect yourself from potential liabilities by adding some clauses to these contracts.
• Assignment deeds : In the event that you are taking over lease or hire purchase contracts, you have to get the consent of the lessor or the hire purchase company before the contracts are transferred to you.
• Property transfer documents : If you are acquiring the business premises as part of the transfer, you’ll need to fill and sign the formal transfer documents.
• Landlord consents : In situations where the business has leased the business premises, you’ll need to get the consent of the landlord to have the lease transferred to you. As part of getting the landlord’s consent, you might be required to provide some personal guarantee.
• Vehicle transfer documents: If the business owns any vehicles that you are purchasing as part of the business acquisition, you’ll need to get the proper forms and have the ownership of the vehicles transferred with the local DMV.

6. Intellectual Property Transfer Documents

If the business you are purchasing owns any copyrights, trademarks, and patents, make sure that these are transferred to you before you take over the business.

7. Non-Compete Agreement

Imagine a situation where someone sells their business to you, then sets up a similar business next door. By doing so, they take away the customer base, as well as any goodwill they had built in the business they just sold to you.

To avoid such situations, it is always recommended that you ask the seller to sign a non-compete agreement.

The non-compete agreement restricts the seller from setting up a business, or from being employed or consulting for a business that would be a competitor to your business within a given radius from your business premises.

A good non-compete agreement will also have a clause to restrict the seller from engaging in similar business with the customers of the business for a given time frame following the purchase.

The non-compete agreement should also restrict the seller from encouraging the employees of the business to quit from their positions in your business and take up employment in a competing business.

8. Employment/Consultation Agreement

In the event that you intend to have the seller remain in the business, either as an employee or a consultant, you’ll need to create this document to define the terms of this agreement.

9. Bulk Sale Laws

Bulk sale laws are laws that were created with the aim of protecting creditors of a business by giving them a notice whenever a company that owes them is selling most or all of its assets . This way, business owners cannot sell their businesses with the aim of escaping their liabilities to creditors.

Before closing the deal, you’ll need to notify the local tax office about your intention to purchase the business.

If all the above documents are in order, you can now go ahead to make the payment to the seller and assume control of the business.

Quick Due Diligence List For Buying A Business

Collecting as much information as you can about a business before you decide to acquire it, which is also known as due diligence, is a very important part of the process of buying a business.

If you don’t do it right, you could potentially find yourself in various financial or legal problems shortly after taking ownership of a business.

To help you avoid finding yourself in such problems, here is a quick list of everything you need to look at when doing your due diligence before buying a business. You should go through everything in this list with the help of your lawyer and accountant.

1. Organization And Good Standing

Here, the aim is to determine the legal structure of the business and find out whether it is in good standing with state authorities .

Some of the documents and paperwork you need to look at here include:

• The articles of incorporation for the company, and any amendments that have been made since incorporation.
• All company bylaws, as well as amendments of the same
• Copies of the company’s minutes for the duration it has been in operation
• A list of shareholders showing how much shares each shareholder holds
• Certificate of good standing
• A list of all states and countries where the business is legally authorized to do business, as well as states and countries where the business does business, has employees, and holds or leases property.
• The company’s annual reports for the last 3 years

2. Financial Information

A company’s financial information plays a key role in helping you determine whether a business is worth buying, as well as how to value the business . When evaluating a company’s financials, some of the documents you need to look at include…

• The business’s audited financial statements for at least 3 years
• The company’s most recent unaudited statements
• Auditor’s reports, letters, and replies for at least 3 years
• Sales records for the last 3 years
• A schedule of accounts receivable and accounts payable
• The company’s capital budgets, projections, and strategic plans
• The company’s analyst reports
• The company’s credit report
• The company’s general ledger
• An analysis of the company’s gross margins, if available
• An analysis of the company’s expenses, both fixed and variable
• A schedule of the business’s advertising costs

3. Inventory, Equipment, And Other Assets

T he assets owned by a business you want to purchase will have a direct impact on the amount you are going to pay for the business , so it is important to know what they are, their actual value, and their condition, as well as whether you’ll actually need them once you take over the business.

Some of the documents to ask for here include…

• Copies of purchase documents on equipment owned by the business
• All leases on equipment not owned by the business
• A schedule of the business’ fixed assets and where they are located
• A schedule of all major capital equipment purchased or sold by the business in the last three years
• A schedule of all inventory held by the business
• All U.C.C filings

4. Real Estate

If the business owns some property, you need to know about the property, and whether it will be part of the transfer or not. If the business owns real estate, you’ll need to ask for the following documents…

• A schedule of all business locations maintained by the company
• Copies of all deeds, title policies, mortgages, leases, variances, surveys, and use permits

5. Intellectual Property

Where the business you are interested in holds some intellectual property rights, copyrights, and trademarks, you should ask to see the following documents…

• A schedule of copyrights
• A schedule of trade names and trademarks
• A schedule of all patents held, both domestic and foreign, as well as any pending patent applications
• Any “work for hire” agreements
• A description of how the business protects its know-how and trade secrets
• A description of all technical know-how held by the business
• Copies of consulting agreements the business has with third parties
• A list of all intellectual property claims or threatened by or against the business

6. Employees And Employee Benefits

When purchasing a business that employs staff, it is important to know the number of staff under employment and how much they get paid , especially if you intend to retain the employees after acquiring the business.

Here are the employee-related documents you’ll want to check as part of your due diligence…

• A detailed list of all staff, including their positions and roles, their salaries and benefits, how long they’ve been working for the company, and all salaries and benefits paid out for at least 3 years.
• All agreements between the business and its employees, including employment, consulting, non-competition, non-solicitation, and non-disclosure agreements.
• The company’s employee handbook and schedules of all employee policies
• Resumes of key employees
• Copies of any existing collective bargaining opportunities
• Copies of all stock purchase plans and stock options available to employees
• A description of existing employee health and welfare insurance policies and the benefits accorded under these policies
• A list and description of all labor disputes the business has faced within the last 3 years – whether settled or pending

7. Business Permits And Licenses

It is also important to know whether the business you want to purchase has all the permits and licenses it needs to operate, and that it is not in violation of any state or city laws. The permits required will depend on the nature of the business and the industry it operates in.

8. Environmental Regulations

Imagine buying a business, only to discover that it is facing fines and penalties because it has been illegally disposing of hazardous chemicals into a nearby river? To avoid such situations, you need to make sure that the business is in compliance with all environmental laws .

• Any available environmental audits for all properties leased or owned by the business
• A list of the business’s environmental licenses and permits
• A list of all hazardous substances the business uses in its operations, as well as how they are disposed
• Copies of all correspondence between the business and any environmental regulatory agency
• A list of all environmental disputes, investigations, or litigations the business has been involved in

9. Zoning Laws

Next, you need to check whether the business you intend to buy is in compliance with any zoning restrictions.

In some cities, you might find that certain businesses, such as bars, nightclubs, and manufacturing businesses, are not allowed in certain neighborhoods. You don’t want to buy a business that could end up being closed for violating zoning laws.

Has the business you are interested in buying been diligently filing its taxes, and is it compliant with all tax laws and regulations? Here, ask to see the following documents…

• All sales and income tax returns filed for the last 3 years
• All employment tax filings for the last 3 years
• All recent tax settlement documents
• Any tax liens

11. Contracts And Leases

It is important to find out all the contracts and leases held by a business before you acquire it. This way, you can determine whether to maintain the contracts and leases or whether to negotiate new ones, as well as how canceling any of these contracts will affect the sale .

When reviewing contracts and leases, you’ll need to look at the following:

• Contracts and agreements between the business and its vendors and suppliers
• Contracts and agreements between the business and its customers
• Any lease agreements for properties occupied by the business or equipment
• All installment sale agreements
• All loan or credit agreements to which the business is a party
• All non-competition and non-disclosure agreements the business has signed with other parties
• Any other contracts and agreements that apply to the business

12. Product And Service Lines

Ask for a list of all products and services currently offered by the business, as well as those that are under development. If there are any evaluations, studies, tests, surveys, or customer complaints regarding the products or services, get a copy of these as well.

13. Customer Information

Your due diligence would be complete without information about the company’s customers. When reviewing customer information, ask for the following…

• A list of the company’s biggest customers for the last 3 years
• Any existing supply or service contracts between the business and customers
• A description of any credit agreements between the business and its customers
• A list of all pending customer orders
• A list of all key customers lost over the last 3 years, and the reasons behind the loss
• A description of the business’ current marketing strategies
• A list and description of the business’s main competitors

14. Litigation

If you purchase a business that is facing legal disputes, you could easily end up assuming liability for these disputes.

To avoid this, you need to make sure that the business is under no legal threat . To do this, ask to see a list of all pending and threatened litigations, as well as documents relating to any settlements, consent decrees, or injunctions to which the business is a party.

15. Professionals

If the business has engaged any professionals over the last 3 years – such as consultants, external accountants, and law firms – ask for a list of these professionals, as well as their contact information.

16. Articles And Publicity

Finally, ask for copies of all of the business’s press releases, articles, or any other form of publicity that the business has been featured in over the last 3 years. This can help you evaluate the company’s brand and reputation.

Pros Of Buying A Business

Now that you are conversant with the step by step process of buying a business, is it better to buy an existing business or build your own business from scratch? Let’s go over some of the advantages of buying a business that is already in existence.

1. Market Tested Concept And Products

When starting a new business from scratch, you are taking a very big gamble. You don’t know whether your business concept will work, or whether there is a ready market for your products and services .

Things like creating a business plan and conducting market research will help you reduce the risk, but you’ll ultimately know whether there’s demand for your products once they hit the market.

With an existing business, the risk is less, because you can check how the business has been performing to determine whether the business concept is working, and whether there is demand for the products and services.

2. Reduced Startup Time

Getting a new business off the ground takes a significant amount of time and effort , because there are lots of things to be done.

You have to find office space or business premises, purchase equipment and inventory, find the right employees and train them, come up with management policies and processes, build relationships with vendors and suppliers, develop a distribution network, and so on.

With all these activities that need to be done, it could be a while before you actually open your doors to the public and start selling.

When buying an existing business, most of this work has been done for you . You can literally finalize the purchase today and open shop tomorrow.

However, this is not to say that there’ll be no work on your part. You also have to put in work to improve the business and take it where you want it to be.

3. Established Brand And Customer Base

Building a brand is no small task, especially if you are starting a business in a crowded industry. It could take a few years to get people to know about your brand and your products and services, and a few more to build a loyal customer base.

With an already existing business, the brand is already established, and the business already has an existing customer base , thus making things a lot easier for you.

4. Securing Business Funding Is Easier

Raising funds to start a new business is not an easy thing to do. This is because you are borrowing money against an idea that is only in your head.

This presents a huge risk for investors and lenders, because the only tangible thing is your business plan, and there is no guarantee that you will be able to successfully implement the business plan.

With an existing business, securing funding is a lot easier because you are not borrowing against projections that may never materialize. Lenders and investors can look at revenue figures, profit margins, and the company’s assets and lend you money against something tangible.

This is not to say that it is impossible for an existing business to fail. However, financing an existing business presents a lower level of risk to lenders and investors compared to financing a new venture.

Sometimes, the business you are buying could have copyrighted slogans, patents, trademarks, and other intellectual property.

Once you acquire the business, this intellectual property could be transferred over to you, and could give you a competitive edge that you would not have had by starting your business from scratch. Note, however, that you may be required to pay for this intellectual property as part of the purchase.

Cons Of Buying A Business

Despite having all the above advantages, buying an existing business is not all smooth sailing. Some of the drawbacks of buying an existing business include…

1. Higher Upfront Costs

With a new business, you can acquire various assets gradually as the company grows, which allows you to keep the cost of starting the business manageable. When buying an existing business, however, y ou’ll be expected to pay for these assets all at once .

In addition, when acquiring an existing business, y ou’ll also be paying for other intangible assets , such as the brand and reputation of the business, the customer base, intellectual property, business policies and procedures, income streams, and so on.

While all these are negotiable, having to pay for them at once can push the cost of acquiring an existing business way higher than the cost of starting a new business and growing it gradually.

2. Risk Of Unidentified Problems

Sometimes, business owners will decide to sell their business because there’s an issue with the business that could affect its long term success . However, many of them will try to hide this information from potential buyers.

While an intensive due diligence process can help you identify such red flags before you commit your money to buy the business, it is possible to miss an issue or two, or underestimate an issue that seems insignificant.

Once you have bought the business, there’s no going back. If you discover any red flags at this point, the only thing you can do is try as much as possible to rectify the issue, though this might not be possible in some cases.

For instance, if you just bought a business in a market that is declining, there’s not much you can do to revive the market.

3. Unfamiliarity With The Business

When you build a business from scratch, you’ll have an extensive knowledge of how that business works, how it makes its profits, and the inner workings and processes that make the business successful.

When you buy a business that was built by someone else, you don’t enjoy the privilege of such knowledge, even if you have experience in the industry . This means that you’ll have to go through a steep learning curve in order to continue running the business successfully.

Sometimes, someone who bought an existing business might be unable to discover the unique thing that made the business successful under the previous owner, and faces the risk of running the business into the ground.

4. Making The Business “Your Own” Can Be A Huge Challenge

When someone starts a business, they have a goal and vision for that business. When you buy the business, you’re essentially stepping into the founder’s vision.

Since you don’t have the same vision as the founder, you have to work on developing your own vision for the business, which calls for changes to the business.

For instance, you might want to introduce new products and services, or change the business model. However, instituting such changes to the business can be detrimental to its performance, and can sometimes lead to loss of customers or key employees .

Ready To Buy A Business And Start Your Entrepreneurial Journey?

If you want to become a business owner, but don’t want to go through the challenging process of building a business from scratch, you can start your entrepreneurial journey by choosing to buy an existing business instead.

While buying a business can be a complicated process that requires its own specialized knowledge, we’ve furnished you with all the required information and broken the process into 8 easy to follow steps.

Here’s a recap of the steps:

• Step 1: Decide what type of business you want to buy
• Step 2: Search for businesses that are for sale
• Step 3: Shortlist the companies you would want to own
• Step 4: Complete your due diligence
• Step 5: Brainstorm on what marketing, product, and organizational changes could increase your enterprise value
• Step 6: Evaluate the price of the business
• Step 7: Secure the required funding to finance the purchase
• Step 8: Close the deal with the right documents

While these steps break down buying a business into a simple process, buying a business is still an involved process that requires a lot of time investment and a lot of caution. We always recommend working with the right professionals to avoid any legal or financial problems down the road.

It is also advisable to keep in touch with the previous owner, because you might need their help or advice somewhere down the road.

All said and done, if you follow the process and recommendations shared in this guide, you’ll be able to successfully start your entrepreneurial journey without the pressure of building a business from the ground up.If you prefer starting your own business, rather than buying an existing business, check out our guides on how to start a blogging business , how to start a podcast , how to start a consulting business , and how to start an online store .

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Anastasia belyh.

Anastasia has been a professional blogger and researcher since 2014. She loves to perform in-depth software reviews to help software buyers make informed decisions when choosing project management software, CRM tools, website builders, and everything around growing a startup business.

Anastasia worked in management consulting and tech startups, so she has lots of experience in helping professionals choosing the right business software.

How to Buy a Business: The Ultimate Guide (2024)

Thinking about joining the club of 32 million small business owners by buying an established business?

Well, congratulations on taking your first step towards becoming a business owner – research!

Do you know the saying “knowledge is power”? That certainly applies to the process of buying a small business.

So then, your next step is – keep reading and learn how to buy a business!

Becoming a business owner can be both an exciting and daunting prospect.  The exciting part is dreaming about printing business cards and t-shirts, redecorating, and inviting your family and friends to the “under new management” grand opening.

The thing is, in order to get to your ribbon-cutting ceremony, you first have to go through several important steps that will ensure that you purchase your new business successfully .

Don’t worry though!  We’ve done the research on how to buy a business for you.

We’ve identified 5 important steps to take while trying to find a business to purchase. These 5 steps can serve as a roadmap to take you from where you are now – considering buying into a small business – to becoming a real live small business owner.

So, let’s get you started on that!

Step 1. Find a Business to Buy

We don’t recommend just Googling “businesses for sale” or “business on sale” and combing through the hundreds of websites that appear in over a billion results.

Where do you start, then ? Start narrowing those 1 billion search results by answering these 5 questions:

• What do you know how to do? – Warren Buffet, arguably the top investor of all time famously advised: “Never invest in a business you cannot understand.” Prioritize businesses that operate in a sector that you know and understand, or which require skillsets that you already have.
• What do you like to do? – It’s easier to succeed in business if you like going to work. Do you like interacting with people all day? Or do you prefer working from home?
• What do you want from the business? –  Is your goal to earn a living for yourself? Is it to build up an existing business so that you can sell it at a really high price? Are you buying an existing business for side income?
• What will you do in the business? – Do you plan on running the business full time? Or, are you hoping to hire a manager and be relatively hands-off? How much time are you willing and able to commit to the business?
• What can you pay to buy a business? – We’ll discuss how to budget for buying a business later, but before you start searching for potential businesses to buy, make sure you have an idea of what you can afford or what financial risk you can bear.

In addition to these 5 key questions, in our article 41 Essential Questions to Ask When Buying a Business , questions 29-35 provide some ideas for what to think about before you start looking to buy a business.

Make sure to check them out!

What’s next ? Once you have a better idea of what kind of business you want to buy and why it’s time to start searching for a business. But where, if not Google?

Here are some common ways to find small businesses for sale:

• Business brokers
• Online business marketplaces (like UpFlip’s marketplace )
• A business you are currently employed in
• A business you frequent a lot
• Newspaper and online ads
• Friends’ and associates’ word of mouth
• Commercial real estate agents
• Trade associations

Step 2. Determine Your Budget and Financing Options

So, you’ll need to take stock of your current and future financial picture. This is the first step in starting to think about how you will finance a business purchase.

Budgeting is a bit of art and science, so it’s time to get creative!

You will want to create a personal budget that takes into account how much you plan to spend on a business (a down payment plus monthly payments), what kind of salary or income you hope to gain from the business, any income you will lose after leaving your current job, upcoming big expenses (like a car purchase), business starting expenses, and so forth.

Need more guidance in figuring out your financial situation ? Here’s a guide to making a personal budget .

In the budgeting process, make sure you begin preparing financial information to present to a seller or bank who will want to determine your creditworthiness. You can obtain your free credit reports here .

You’ll also want to prepare bank statements to show proof of funds, get your past tax returns together, and think about what collateral if any, you can pledge in exchange for financing.

Once you better understand your financial picture, you can turn your sights to financing options.

So, what are they?

There are generally 3 categories of financing used to buy a small business:

• Seller financing
• Business purchase loan
• Alternative financing

1. Seller financing from the business owner

Sixty to ninety percent of small business loans involve some degree of seller financing. With this type of funding, the business owner provides a loan to cover some or all of the purchase price. The buyer provides a down payment and pays the seller back with installment payments that include interest.

There are many advantages to seller financing, which is why it’s such a popular funding source for the purchase of small businesses. This method of financing allows a lot more room for negotiation on financing terms such as the amount of down payment, interest rate, and monthly payments.

Tip: The willingness of a seller to finance a sale, and the degree to which they are willing to finance you, is a good indicator of how much they believe in the business and how confident they are in its ability to generate enough cash flow, if not to pay you a big salary, at least to pay them back over several years.

2. Business purchase loan from a bank

Since a seller is unlikely to finance the entire purchase price, many folks who are buying an existing small business will consider taking out a loan to fund the difference.

One of the most popular sources of loans to buy a business is the Small Business Association (SBA) loan program . The SBA provides a variety of government-backed loan programs to small businesses that are executed through approved banks and lenders. Contact your bank to find out if they are an SBA lender. If so, they can guide you through the requirements and the process.

Tip: The Small Business Association provides a wealth of information, classes, and supportive resources for free that can assist you with buying an existing business. The even have incentives for women businesses . It’s a good idea to check it out.

What about other types of bank loans?

It’s generally more difficult to get a traditional bank loan to fund the purchase of an existing small business. In some cases, however, when the price paid is very close to the value of assets and equipment of the business, a bank may be willing to lend against the value of the business assets that are pledged as loan collateral.

One other bank loan option, if you are sure about the viability of the small business you want to purchase, is a home equity loan. For these loans you borrow up to 80% of the value of your home, pledging your home as collateral. While somewhat risky, the advantage of these loans is that they typically have longer payback terms than personal loans.

Tip #1: The SBA has a loan program specifically for women-owned businesses. You can find more information on it here .

Tip #2: If the business you are buying an existing small business that has a bank credit relationship already and if your creditworthiness is good, you might want to try and obtain a loan from that business’ bank. The bank will know the business you are purchasing more intimately and so might be more receptive to lending.

3. Alternative financing methods

Owner buyout

If you are currently working in a company that you’d like to own, an owner buyout plan may be an option. A little-known secret is that the majority of business owners (aka Baby Boomers) do not plan their business exit, yet they expect the sale of their business to fund their retirement.

What’s more, the majority of existing business owners have their personal assets locked up in the business.

A study by the Exit Planning Institute found that most soon-to-retire business owners have trouble selling their small business because they haven’t planned for it, as the following results from the study show.

What does this mean for you?

Well, particularly, if you are planning on buying a small business with no money in the bank to commit, you might consider trying to buy out your current employer or targeting a company to buy where you can work while you buy out the owner.

Lending platforms

Technology has enabled new types of personal and business lending platforms. These platforms offer an alternative to traditional banks. For a more complete list of lenders, check out UpFlip’s top loan lenders to get a loan even if you have bad credit.

If you’ve been squirreling away money into your retirement plan, you don’t have to forego the opportunity to be a business owner. Under current rules (as of January 2024) you can borrow up to $50,000 from your retirement account or 50% of the vested value, whichever is less.

For more information on taking money out of your 401k, read this Investopedia article .

Friends and family

Remember Apple was started in a garage?

We now live in a world of Go Fund Me and career entrepreneurship. Don’t underestimate the power of asking friends and family to help you buy into an existing business. The fact that you will be personally held responsible to pay them back is also a great way to make sure that you don’t take unnecessary risks in buying a business.

Credit cards

Using credit cards to fund a business venture is the definition of a “shoestring budget”. You’re more likely to use this expensive alternative to fund business expenses once you’re the owner. However, if you’re short $10,000, even $20,000, on the sale price credit cards could be your last financing resort.

Step 3. Do Your Due Diligence

Now what? How on earth do you buy a business ?

Well, buying a business is a little like dating someone for a long time before putting a ring on their finger. You’ve got to take the time to get to know them and uncover and resolve any, err, issues before you put a ring on that finger.

As we said earlier, you need to do your research. Due diligence is a fancy word for research. There’s a lot of research that goes into evaluating an established business for sale. Don’t let it put you off though, it’s actually a good thing!

Due diligence also affords you the time and opportunity to get to know the ins and outs of running your potential business before you sign on the dotted line.

As they say, time is money. The time you spend researching a small business for sale that has caught your interest will either save or earn you money down the road.

Another reason to make sure you do enough due diligence? People lie (gasp!)

According to Andrew Cagnetta, President of  Transworld Business Advisors :

“Approximately half of all deals fall apart during the formal due diligence stage, and one of the most common reasons this happens is due to the buyer uncovering an issue which the seller did not disclose earlier.”

What to look for when buying a business

There are several critical factors to investigate when buying an existing business. We outline the major items to check off here.

Financial history

To be sure that you get an honest view of the business performance, you’ll need to see several years of financial records including cash flow statements (most important), balance sheets, accounts payable and receivables, and debt.

Look for patterns in the financials such as increasing debt or increasing receivables that might signal trouble. Are sales and net income growing or declining? Likewise, look for opportunities to better manage the financials once you take over to increase the value of your investment.

Stakeholders

Those with a stake in the business include employees, a customer base, suppliers, landlords, financiers, etc. Look at employee files including contracts, benefits, and compensation. Talk to employees to learn more about the business and identify issues. Talk to suppliers and assess if they are reliable.

Most importantly, look at the customer base of the small business. This will be your bread and butter, what pays your bills. Is the customer base growing or declining? What are customers saying on social media? What kind of reviews do they give?

Make sure to investigate if the business has had any lawsuits. In addition, for any major contracts, you might want to have a lawyer review them to make sure they are sound. For example, if the business has a lease that forbids someone else from taking it over without the landlord’s permission, you won’t want to sign a sale agreement until you have that permission in writing and with terms you can accept.

Other legal issues to watch out for include liens against property, business license requirements, regulatory and compliance requirements, and violations thereof.

Required seller disclosures

Speaking of sellers not disclosing information, there are Federal laws that mandate certain disclosures by sellers. It’s a good idea to familiarize yourself with these. This video by the Federal Trade Commission explains the requirements of the “Business Opportunity Rule” which mandates business sellers to provide a one-page disclosure document with specific information to buyers, for example, to support any earnings claims about the business.

Other important information to investigate

The more you dig, the more questions you ask, the more parts of the business you research, the more educated you’ll be about the next two steps, and about running a business in general. So here are some other factors to nail down in your due diligence:

• Buying assets vs. business entity – Are you buying just the corporation, partnership, or LLC? Which assets/equipment come with the business purchase and what are they worth?
• Owner involvement – Is the owner willing to remain for a while after the sale to teach you the business?
• Key employees – Will they stay and under what conditions? Do you want them to stay on? Can you let them go?
• Taxes – What items might the business allow you to write off? For what taxes is the business liable?
• Insurance – What kind is required and what does the business currently have? Will you be able to take over the policy?

Feeling like you might need a checklist at this point ? SCORE, a national organization that provides free mentoring to small business owners, has a downloadable checklist for what to investigate when buying a business. You can download it here .

Tip: If at any point in your due diligence the seller cannot provide you with definitive information and answers or does not want to do so, that’s a good sign that you should move on in your business search. Remember there’s a 50% chance that the seller is not disclosing something you should know!

Step 4: Determine a Value for the Business

After you’ve taken sometime poking around under the hood of the business, you’ll have a much better idea of what’s there and what it might be worth. You should also have a better idea of what you’re willing to pay. You’re going to use this information to decide on your offer price.

How to evaluate a business to buy

Determining a fair value or price at which to buy a small business is, like budgets, a bit of art and science. It’s important to understand how to value a business because chances are the owner may not have done any official valuation of the business, although they most certainly will have a sale price in mind.

For an in-depth guide to evaluating a business, we recommend you read our comprehensive guide here . In this guide, we outline the potential challenges of valuing a small business, and describe several different valuation methods, weighing the pros and cons of each. We also provide an example to use as a reference.

Don’t have time to read all that ? Here’s the super summary of five approaches you can use to value the business you want to purchase.

• Asset-based method – This is what it sounds like. The value is determined by adding up the value of all company assets. Asset value minus liabilities equals company value.
• Revenue Method – This method of valuation simply relies on taking the top-line revenue or gross sales and applying a multiplier to determine the maximum value of a small business. The multiplier can be less than one, or up to 2x typically. It will depend on the industry, economic environment, and business performance.
• Discounted Cash Flow (DCF) – DCF is one of the most heavily used methods to value a business. This method takes the business’s projected future cash flow and the time value of money to determine the current value. The concept of DCG is best expressed by Aswath Damodaran, author of the book The Little Book of Valuation :

“…we observed that the value of a firm is a function of three variables—its capacity to generate cash flows, its expected growth in these cash flows, and the uncertainty associated with these cash flows.”

• Income Stream Valuation – This method of valuation differs from DCF in that it looks at cash flows over a specific period of time (rather than projecting them out into the future). Alternatively, it uses other income streams such as net profit, earnings before taxes, operating profit, or earnings from a specific period only. These are then discounted at a rate reflecting the business risk.
• Range of Values – This method combines each of the previous methodologies and tries to derive an agreed-upon valuation through triangulation. With this method, the business owner or buyer can add other factors that affect business value. For example, if an owner knows that a small business has been lacking, he/she can indicate in the final value that with better management, the company could be making more and hence increase the value.

Do numbers freak you out ?

If after reading about valuation methods, you’re feeling a bit unsure about the whole process, you may want to enlist the assistance of a professional appraiser.

If you can’t afford one or want help, a great option again is SCORE . SCORE provides free business mentors that can assist you with all aspects of buying and running a business including valuation.

Step 5: Create a Business Sale Agreement

If after all that due diligence and number crunching, you’ve agreed on a sale price with the business owner, you’re ready, to use the previous dating metaphor, to put a ring on it. You do this by executing a business sale agreement.

The sale agreement should capture every detail of the sale so that the seller can transfer ownership to you on the closing date without issue. Yes, it sounds complicated and it is. This is because you want to protect yourself and make sure to cover all the potential risks in the agreement. So, if you can afford it, it’s a good idea to have a lawyer help you draw up and review your agreement.

Don’t like paying lawyer fees ?

If you have some degree of trust in the business owner and feel pretty confident about the transaction you can access templates for sale agreements from a variety of sources such as LawDepot.com , nolo.com , and LegalZoom .

Following is a high-level outline of what should be in your sales agreement.

• Who is selling the business
• Who is buying the business
• What the business is – assets or entity, and what assets are included.
• Sales price – for assets such as inventory, equipment, and receivables.
• Liabilities – who is responsible for pre-sale debts, lawsuits, liens, back taxes.
• Payment terms – deposit required, payment to be made at the closing, promissory note, other seller security.
• Liabilities – how they will be addressed and by whom
• Representations – seller and buyer
• Noncompete agreement – restrictions on the seller
• Seller agreement to stay on – doing what, when and for how long

There are other legal clauses and language that will need to be in the agreement, but the above factors are some of the most important details to outline.

In addition to the sale agreement, other legal documents will need to be drawn up including the promissory note (for seller financing), a bill of sale, a lease assignment, and others.

By the time you get through these five steps and have examined the other resources that we’ve referenced throughout this article, you’ll have learned a lot about what it takes to find, vet, value, finance and make an offer for an existing small business that could become your key to success and happiness.

So, after reading this, what’s it going to be for you: stay in your job, start your own business, or buy an existing one?

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I appreciate the detailed guide on how to buy a business. Your insights into the key steps, considerations, and strategies involved in the acquisition process are incredibly valuable for aspiring entrepreneurs and business buyers. By providing actionable tips and highlighting potential challenges, you've equipped readers with the knowledge and confidence needed to navigate the complex world of business acquisition successfully. Thank you for sharing your expertise and empowering individuals with the tools to make informed decisions when buying a business. https://www.filedocsphil.com/how-to-look-for-bir-zonal-value/

Would it be of more advantage to having a business broker when buying a business?

It's always a good idea to be working with someone who has experience buying a business.

These were some great tips that I'm definitely taking note on, it truly covered everything! With concern to the budgeting section, is there an expert you can hire who can help you with that? It would probably be more safer to have an expert in the field to help out with creating budgets like that.

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The role of life insurance

How much life insurance do i need.

• Assessing your financial situation 

Methods for life insurance coverage calculation

Reviewing and updating life insurance coverage, calculating life insurance faqs, how much life insurance do you need.

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• Many Americans don't have life insurance, and half of those that do don't have enough.
• Online life insurance calculators can help calculate how much life insurance you need.
• For comprehensive coverage, speak with a financial advisor, accountant, and estate planning attorney.
• Compare life insurance quotes with Policygenius .

Many Americans don't have life insurance, and half of those who do, don't have enough. According to a study from Global Atlantic Financial Group , 43% of Americans don't have life insurance. According to Insure , half of Americans who do have life insurance are underinsured, meaning their death benefit would not cover expenses like mortgage, college, food, debts, and clothing for dependents in the event of their death.

If you have employer-provided group life insurance through your job, note that those policies will end if you retire, are laid off, or are terminated. That is why it is best to have a personal life insurance policy as well.

The best option for determining how much life insurance you need is to speak with a financial professional. However, if you aren't ready to make a call yet, online life insurance calculators can help give you estimates as a starting point. 

The goal of life insurance is to ease the burden on your loved ones after your loss—to cover the mortgage, education, and other expenses. It's important to carry an adequate amount of protection so your dependents are fully covered if you pass away. 

You'll probably want to get as much life insurance as you can comfortably afford each month. If it would be a struggle to make your premium payments, it's probably too much for you.

Business Insider created three sample scenarios to estimate life insurance needs for people living in Brooklyn, Dallas, and Denver using SmartAsset's life insurance calculator . 

Each calculation was based on the following assumptions: a 35-year-old with two kids and a working spouse, with an annual salary of $60,000, owns a median-priced home in their city, plans to pay for children's college tuition at an out-of-state public institution, and has savings and investments.

The charts below show the estimated life insurance policy needed for five different income levels with the above assumptions:

Assessing your financial situation 

Income replacement needs.

Life insurance replaces your income so the people who rely on you can maintain their standard of living. It covers day-to-day expenses like rent payments, groceries, transportation, and other essential costs. 

Although life insurance is widely used to replace income, life insurance for non-income earners may also be as essential. For example, life insurance can cover childcare and household services that a stay-at-home parent would've ordinarily taken care of before they passed away. 

Debt and final expenses 

An unexpected (or expected in the case of terminal illness) death makes handling debt difficult for those who share financial liabilities with you. Life insurance provides a death benefit to cover outstanding obligations if you were to die.  

Life insurance can also cover end-of-life expenses like your funeral service and burial or cremation costs so your loved ones can focus on grieving your passing. 

Future financial obligations

In your life insurance calculations, you'll also want to factor in future financial obligations. For example, if you have children, you may want to ensure they have funds for post-secondary education. 

10 to 15 times your annual income 

When selecting your death benefit amount, the rule of thumb is to select 10 times your annual income. For example, if you make $75,000 per year, you would purchase a life insurance policy for $750,000 to $1,125,000. It is not uncommon for people to get $1 million in life insurance.

If you have children, you may also want to factor in about $100,000 to $150,000 of post-secondary education coverage for each child. 

Multiplying your income gives you a rough estimate of how much life insurance you should purchase. You can use it as a starting point, but there are more accurate ways to determine the amount you need. 

The DIME formula 

The DIME is a more comprehensive method of calculating your coverage needs. DIME entails adding up the following components of your finances: 

• Debt: Calculate the total of all your debt (e.g. loans, credit cards, medical bills, etc.), excluding your mortgage. You may also want to include costs for end-of-life expenses.
• Income: Multiply your income by how many years your beneficiaries will likely need it. The Guardian suggests a good place to start is multiplying your income by the number of years until your youngest child graduates high school. However, this amount may be larger if you have lifelong dependents. 
• Mortgage: Check your statements to find the outstanding balance of your mortgage. If you have a second mortgage or HELOC (Home Equity Line of Credit) on your home, be sure to include that in your calculations. 
• Education : If you have children, anticipate spending upwards of $100k to $150k for post-secondary education for each child. 

After adding those up, subtract any current savings or life insurance policies you already carry. 

Using an online calculator 

You can use online calculators to get an estimate of how much life insurance you will need. Nonprofit organization Life Happens, for instance, offers an online life insurance calculator that asks a few questions so you can get an estimate of the amount of life insurance coverage you may need. 

An online calculator doesn't replace the comprehensive advice you would receive from a financial advisor who would look at your financial situation, goals, and estate planning, says Maria Roloff, a wealth advisor at Northwestern Mutual Insurance . However, it will give you an idea of what to expect when you speak with life insurance specialists.

Consulting a financial professional 

When considering life insurance, it is wise to consult a financial advisor, accountant, and estate planning attorney to make sure you have the best life insurance coverage for your goals and budget. Your life insurance needs will change as you age and must consider children, marriage, divorce, retirement, and caring for aging parents. 

A comprehensive assessment will include whether you need long-term care life insurance, disability insurance, or a combination of permanent and term life insurance . Find someone you trust with knowledge of the different types of life insurance products and a background in estate planning. Business Insider recommends following these steps to find a financial planner.

You can find our guide on the best term life insurance companies here.

Your life insurance needs will fluctuate as your financial and individual situation does. Regular reviews ensure that your coverage amounts remain accurate over time and you're not overpaying for excessive coverage. For example, you may want to purchase additional insurance if a child enters the family or decrease your insurance when your children become adults and leave home. 

Be aware that increasing your policy may mean you have to undergo additional underwriting requirements, such as another medical exam or health questionnaire. Also, if you want to decrease your coverage, some insurers may have limitations. 

Review your life insurance coverage at least every few years or after significant life events such as marriage, childbirth, purchasing a home, or retirement.

Certain types of life insurance policies, like whole life or universal life, include a cash value component that grows your policy's value over time. You can withdraw or borrow from your cash value to pay for financial goals, such as retirement, your child's education, or long-term care expenses.

If you're single, life insurance can help you cover debts if you have a co-signer, final expenses, or costs to keep your business running. You can also use life insurance to build a financial legacy for loved ones or donate to charities.

Generally speaking, your financial obligations decrease over time (i.e., as your children leave the house, your mortgage gets paid off, etc.) So, younger individuals may need more coverage to cover those long-term financial obligations. Older individuals may carry less coverage, instead focusing on covering final expenses and leaving an inheritance.

Many life insurance companies and financial planning websites offer online calculators to estimate your life insurance needs based on your financial situation and goals.

• Real estate/mortgages
• Retirement planning
• Small business finances

• Main content

How To Start An Online Boutique (2024 Guide)

Published: Jun 25, 2024, 2:53pm

Reviewed By

Table of Contents

Step 1. decide on a niche, step 2. set up your legal entity, step 3. make a business plan, step 4. source suppliers and/or materials, step 5. create an online store, step 6. market your online boutique, frequently asked questions (faqs).

eCommerce sales in India will reach INR 4,416.68 billion in 2024. With more people buying online than ever, starting a boutique is a great side hustle or full-time business idea. Getting started is easy, but having all the pieces in place for a successful store takes time. In this guide, we’ll walk you through how to start an online boutique so you can quickly launch your new business.

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A niche is a specific type of product you focus on. When starting an online boutique , choosing a niche is important so you can stand out in the enormous sea of e-commerce businesses. Research and figure out what type of products you want to sell. Consider your interests, what’s popular in the market, and which gap you can fill.

Some niche ideas include:

• Cashmere clothing and gifts
• Vintage-style costume jewelry
• Children’s wall art
• Plants and gardening tools
• High-end stationery
• Ship and boat model kits
• Custom-fitted shapewear

One of the entrepreneurs’ biggest mistakes when deciding on a niche is chasing saturated markets. The niche you choose needs a captive audience, but yours must have an edge to compete in a dominant category. How will your products differentiate from the hoard of the same products sold by other boutiques?

Before choosing a name, checking to see if the domain is available is best. You can do this using a site such as GoDaddy. Otherwise, you can check its availability but wait to purchase the name in step five through your e-commerce platform.

The name you choose must be easy to spell, memorable, and catchy. While you can choose a domain name ending in something other than .com, it’s easier for customers to remember your site when using .com instead of .biz or .info.

Setting up your legal entity will determine how you’re taxed and your liability as the online boutique owner. Small businesses’ most common legal entities are sole proprietorships and limited liability companies (LLCs) .

Sole Proprietorship: As the name suggests, this is a business owned by a single person. No paperwork is required to set up a sole proprietorship, but you must register your business with the state and get a tax ID. This is the simplest way to set up a business, but you’re personally liable for any debts the business accumulates.

LLC: An LLC offers some liability protection for the owner, and it’s easier to get bank loans and other funding as an LLC than as a sole proprietorship. To set up an LLC, you must file Articles of Organization with your state and get an employer identification number (EIN) from the IRS. Most states offer this ability 100% online with little wait time to incorporate. You can also use an online business filing company, such as BetterLegal or Inc Authority, to do the filing.

Many small business owners skip the step of creating a business plan. While not required, it’s a good idea to have one in place to track your progress, determine the feasibility of your boutique, understand both your customer and competition, pivot and secure financing.

Your business plan can include sections such as:

• Executive Summary
• Business Description
• Products and Services
• Market Analysis
• Target Market
• Marketing Plan
• Financial Plan
• Business Structure and Ownership
• Legal Requirements
• Operations and Management

Finding reliable product suppliers for a price you can afford is half the battle of running an online boutique. Find a supplier or wholesaler who offers quality products, on-time delivery, and excellent customer service.

To find suppliers, search for terms such as “wholesale” or “product supplier” and include the type of product you’re looking for, such as “clothing supplier.” You can also attend trade shows in your industry to meet with suppliers and get product ideas.

Sources for products include:

DHgate can be a great source of wholesale goods for your boutique.

To establish your store, you first need an e-commerce platform. You can either use a hosted platform, a turnkey solution that includes everything you need to launch and maintain your store, or an open-source platform requiring a bit more technical know-how to set up and maintain. Open-source platforms provide far more customization options than what you’d find with a hosted platform.

The platform you choose will determine the features and functionality of your store, so it’s essential to choose one that offers the features you need to run your business. Read our e-commerce platform guide for recommendations.

We’ll show you how to set up a Shopify boutique for ease. It offers a free 14-day trial.

• Go to Shopify.com and create an account
• Install product apps (e.g., print-on-demand apps)
• Select a theme and customize it with your branding
• Add products
• Add, delete and customize web pages
• Organize your menu
• Set up a custom domain name
• Set up shipping
• Create a test order
• Choose a plan and publish

Please note that while creating an online boutique with Shopify’s free 14-day trial is free, you will need a plan for your site to be professional, with its own custom domain name and ad-free hosting. This is the case for every quality e-commerce site builder, including Weebly, Wix, Squarespace, and WordPress.

Now that your online store is up and running, it’s time to start marketing it. There are several ways to market an online store, and the best approach depends on your budget, target market, and goals.

Typical marketing strategies for online stores include:

• Search engine optimization (SEO)
• Paid advertising (Google Ads, Facebook Ads, etc.)
• Social media marketing
• Content marketing
• Email marketing
• Affiliate programs
• Influencer marketing
• Loyalty programs (create buzz through existing clients)
• Trade shows
• Press coverage

How much does it cost to start an online boutique?

The cost of starting an online boutique varies depending on the type of business structure you choose, your product, the platform you use for your store, and the marketing strategies you employ.

How long does it take to start an online boutique?

Getting your online store up and running typically takes about four to six weeks. However, this time frame can vary depending on the platform you choose and your level of technical expertise. If you’re dropshipping, you can have your site live in as little as a weekend.

What are some ways to drive traffic to my online boutique?

Some ways that you can ensure that your online boutique gets seen by the customers that you want to attract include using the right keywords to keep your store at or near the top of the search engine results pages keeping a constant presence on social media outlets, work with social media influencers, create or pay for relevant, helpful content that draws customers to your pages and keep up with your current customer with emails and promotional deals.

Can I run a business from my home?

Yes, you can run a business from your home. Many small businesses start this way. But remember that you may need to comply with local zoning laws and regulations, so be sure to check with your city or county about any restrictions before you get started.

How can I start a clothing business with no money?

One option for starting a clothing business with no money is to dropship products. Dropshipping is a type of e-commerce in which you don’t keep any inventory on hand but instead order products from a supplier as orders come in. When a customer places an order, you simply contact your supplier to have the product shipped directly to the customer. This eliminates the need for any upfront investment in inventory.

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Kathy Haan, MBA is a former financial advisor-turned-writer and business coach. For over a decade, she’s helped small business owners make money online. When she’s not trying out the latest tech or travel blogging with her family, you can find her curling up with a good novel.

Kelly is an SMB Editor specializing in starting and marketing new ventures. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist covering small business marketing content. She is a former Google Tech Entrepreneur and she holds an MSc in International Marketing from Edinburgh Napier University. Additionally, she manages a column at Inc. Magazine.

Rob is an SMB writer and editor based in New Jersey. Before joining Forbes Advisor, he was a content producer at Fit Small Business. In that role, he was responsible for writing, editing, and strategizing content geared toward small business owners. Before that, he worked at PCMag as a business analyst.

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Reporting by Victoria Waldersee in Berlin and Akash Sriram in Bengaluru Additional reporting by Christoph Steitz in Frankfurt and Abhirup Roy in San Francisco Editing by Madeline Chambers, Mark Potter, Sayantani Ghosh and Matthew Lewis

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Autos correspondent in Germany, covering the industry's transition to electric vehicles. Previously reported on the impact of the COVID-19 pandemic on the retail sector in South Asia, China and Europe, and wider general news. Formerly at YouGov and Economy, a charity working to produce accessible economics coverage.

Akash reports on technology companies in the United States, electric vehicle companies, and the space industry. His reporting usually appears in the Autos & Transportation and Technology sections. He has a postgraduate degree in Conflict, Development, and Security from the University of Leeds. Akash's interests include music, football (soccer), and Formula 1.

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