How to Buy a Business

By Austin Kilham. January 15, 2025 · 7 minute read

This content may include information about products, features, and/or services that SoFi does not provide and is intended to be educational in nature.

How to Buy a Business

Building a business from scratch isn’t easy. It involves a lot of careful planning and startup costs to get off the ground. For this reason, buying an existing business is a popular choice. In fact, in the next decade or so, it is estimated that 12 million businesses will change hands, with that projection increasing over time as baby boomers reach retirement age.

Before pursuing the purchase of a business, learn important steps to help ensure the process goes smoothly and to avoid potential pitfalls along the way.

Key Points

•   Purchasing an existing business offers a variety of advantages from a proven operation model and trained employees to a pre-existing customer base and supply chain.

•   Buying a business may be less risky and costly than launching a startup.

•   Establish business goals and ensure they align with the business you choose to buy.

•   Research businesses that meet your objectives, and perform a valuation and proper due diligence to help you when negotiating a price.

•   Lenders offer a variety of loan options designed to help individuals purchase small businesses.

💡 Recommended: How to Get a Loan to Buy a Business

Benefits of Buying a Small Business

Buying an existing business may be appealing for the several advantages it has to offer, including:

•  Shorter lead time: When you buy a business, you skip the startup process, which can be lengthy in terms of securing financing, finding the right space, developing systems and processes, hiring employees, and building a customer base.

•  Historic data: You’ll have access to past data on the financial history of the business. You can easily see historic trends instead of trying to predict what the costs and revenues of an entirely new business might be.

•  Name recognition: An existing business already has customers who know and understand the company and provide a steady stream of income from day one.

•  Supplier relationships: A steady supply chain is critical to the success of a business. An existing business may already have long-term relationships with vendors.

•  Trained staff: You may also be able to retain relationships with trained employees who understand how to run the business. Otherwise, hiring and training new employees can be a huge time commitment and a costly part of starting a new business.

•  Low risk: The potential benefits mean that buying a business may be less risky than starting one from scratch. That can be a big advantage if you need to seek financing.

Recommended: Small Business Startup Loan

6 Steps to Buy a Business

The basic process for buying a business is the same for many enterprises you may be considering.

No. 1) Identify Your Business Goals

Before you even begin looking for a business to buy, identify what you’re hoping to get out of a business you purchase. Consider your own interests, skills, and past experience. For example, if you’re highly knowledgeable about landscaping and plant care, maybe you would like to own a nursery or landscape design business. If you’ve worked at a company for many years and enjoy the business, you might consider buying it if it comes up for sale.

You’ll also want to consider factors, such as how much revenue you’ll need to make to meet your financial needs and goals. Understanding your material and immaterial goals will help you narrow your search.

No. 2) Research and Identify Potential Businesses

Once you’ve decided on your own goals and other criteria, you can begin your hunt for businesses that match your needs. Cast your net as wide as possible and search online marketplaces, classified ads online and in print, and local business brokers.

You may also want to build a network of local business owners, business accountants, and business attorneys who may have an ear to the ground when it comes to knowing what businesses are for sale or may soon be.

It may also be worth considering becoming a franchise owner. Franchisees buy the right to open a branch of a larger, established business.

No. 3) Conduct a Business Valuation

Once you find a business you’re interested in, determine how much it’s worth. The seller will likely have a valuation they can share with you, but you may want to get a third-party valuation of your own and see how it aligns. You can hire a professional to value the business, which could cost between $2,000 and $10,000 depending on how complicated the valuation is.

No. 4) Negotiate the Purchase Price and Terms

Once you have a good idea of how much the business is worth and that you want to buy it, it’s time to negotiate the price. To do so, you’ll usually make a nonbinding written or verbal offer. The seller may accept the offer, or they may counter with an offer of their own.

At this time you’ll also negotiate the terms of the sale. For example, sellers often prefer a “stock sale” in which business operations continue as they are with a new owner, and you agree to take on any outstanding legal liability. As a buyer, on the other hand, you might pursue an “asset sale” that helps limit your liability.

You’ll also negotiate other terms such as how much working capital is left in the business to fund daily operations, whether you want the seller to provide any training, and the sale of any other assets.

No. 5) Secure Financing

You may need to secure financing to purchase some of all of the business. In some cases, the seller may offer financing in which you make monthly payments to the seller, including an agree-upon interest rate. Alternatively, you may seek small business loans from banks and other lenders to help you buy the business, including business acquisition loans designed to help you acquire an existing company or franchise, a large business loan to cover the cost of acquisition, and unsecured business loans that don’t require collateral.

Many small businesses commingle personal assets and business assets, for example, a piece of equipment such as a truck or a tractor. Equipment financing or a business line of credit can help you purchase the equipment you need to operate and grow the business.

No. 6) Close the Deal and Transition Ownership

Before closing the deal on a business, do due diligence to find out as much about the business as you can. This includes looking at organizations documents, tax returns, account statements, revenue, employee information, customer information, and existing liabilities.

If nothing troubling comes up in this process you can close the transaction with a final purchase agreement. When both parties sign, you can set a date to close the deal and have your lender transfer money for the purchase. Funding may go into escrow in which a bank or law firm holds the money until all documentation is finalized.

As the deal is finalized, be sure you have the correct business permits in place to ensure you can continue operating through the transition and beyond.

The Takeaway

Buying an existing business can offer a real advantage in terms of the key factors you need to operate successfully. While it is potentially less risky to buy a business with a proven track record, there are potential disadvantages. Understanding the steps required to purchase a business — and make informed decisions — can help you steer clear of potential pitfalls or at least make a plan to address them.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.


With one simple search, see if you qualify and explore quotes for your business.

FAQ

What should I look for when buying a business?

Look for the business that meets your personal business goals. Gather as much information as you can about the business, such as information on accounts, revenue, taxes, employees, supply chains, and liabilities to help ensure that the business is the right fit.

How can I finance a business purchase?

Lenders offer a variety of loan options designed to help you purchase a business, such as business acquisition loans, small and large business loans, and unsecured business loans.

What is due diligence when buying a business?

Due diligence is the act of gathering as much information about a business as possible before you buy it. Doing so can help you identify the potential advantages and risks of buying that business.

Are there risks to buying an existing business?

There are risks associated with buying a business. For example, if you finance the purchase, there could be the risk that you will have trouble making loan payments in the future. You could also lose existing customers or vendors after the transition. Or you may encounter unforeseen problems you missed during the due diligence process such as aging infrastructure or technology that needs to be replaced.

How long does it take to buy a business?

Finding the right business to buy can sometimes take years. But once you’ve got one in your sights, the process of completing a sale may take about two to six months.


Photo credit: iStock/AsiaVision

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