Seeking a unique leadership challenge? Taking control of another company may just offer the test you’re looking for.

It’s been said that when one door closes another opens, and this idiom often holds true when it comes to company acquisitions. Approximately 200,000 small businesses are up for sale every year, creating new opportunities for aspiring entrepreneurs looking for a challenge. In fact, about twelve million such organizations are expected to change hands in the next decade or so, thanks largely to the influx of baby boomers entering retirement.

All this makes now an especially good time to go down this entrepreneurial path. And the benefits can be immense since much of the grind associated with start-ups—establishing operations and vendors, bringing on employees and customers, creating marketing, building inventory, and so on—has already been done, leaving these assets right at your fingertips. If you’re looking to embark on such a venture, here are some key factors to keep in mind.

Know your why

Begin by honestly asking yourself why you want to go down this road in the first place. Is growing or turning around another business something you’ve always wanted to do as an entrepreneur? Are you interested in branching out into an unrelated niche from your previous endeavors? Whatever your underlying reason for the purchase, make sure that the industry is one you’re passionate about.

Do initial research

Start by digging into the seller’s own “why” for letting go; the answer can reveal minor red flags, such as if they hit a growth wall, or major ones, such as if they’re desperate to get out because of crushing debt.

Also, as with any transaction, each party will determine what they feel is a fair price for the business, along with easy-to-digest breakdowns of how they came up with their respective numbers. Some areas you can assess to help you make an estimated valuation of the company include its capital earning, cash flow, estimated income, market comps, and tangible assets. You’ll also want to consider how you’ll prefer the purchase to be structured: as an asset sale or stock sale. With the former, you’re only buying the company’s assets and the seller retains ownership, whereas the latter is akin to purchasing it “lock, stock, and barrel,” including all legal liability. Similarly, you will likely need to eventually agree upon how much cash will be paid up front and how much of the remaining amount will be financed. You may even want to discuss agreements such as NDAs and noncompetes. Once there’s a general consensus on such parameters, you can formally submit a letter of intent, a nonbinding document that gives you exclusive first rights to make an official offer within an agreed-upon time.

A final note about negotiations: keep in mind the potential long-term positives. It’s better to keep things cordial instead of cutthroat, aiming for a win-win transaction much like you would with any other business deal. Among other benefits, establishing a good rapport can help make the initial postpurchase steps easier since it’ll open the door to ask questions that only the previous owner would know the answers to. In addition, making the transaction visibly amicable could help melt the ice with your new workforce— after all, if they loved and trusted the old owner, getting said owner’s blessing will better the chances they’ll trust you too.

Do your due diligence

In many ways, purchasing an existing company is no different than buying someone else’s house or a used car from a dealership. As the potential buyer, it’s your job to conduct thorough research to help ensure that the decision to purchase is a sound one.

Pore over the company’s financials (including its balance sheets, annual reports, tax returns, bank statements, accounts receivables and payables, operating expenses, etc.) to confirm that they are in reasonable shape and help you avoid being caught off guard by things like inventory issues after purchasing. In addition, you should make sure that any applicable licenses and permits are in order and zoning and other regulations are being met, whether any existing contracts will transfer, and if there’s pending litigation. All these are important factors to consider when determining how much growth potential you see now and in the future.

Finally, if allowable, talk to the employees to get feedback on what they like about the company and what could be improved. Make sure that IP such as the company logo is included in the sale. Even something as seemingly trivial as the office furniture and office equipment should be taken into account. (If they’re still using Windows Small Business Server 2011, for example, you may want to run for the hills.)

Secure financing

Up-front capital is crucial for most businesses, and the lack of such funding is a primary reason many fail in the first place. Fortunately, one of the benefits of buying an existing business is that it’s often easier to secure financing for it than for a start-up; after all, the proof of concept has already been established, dramatically decreasing the risk involved. There’s a myriad of ways to go about this, including using your own money, taking out an SBA or personal bank loan, taking advantage of the government’s Rollover as Business Start-Ups project (i.e., financing through a retirement plan such as a 401(k) or IRA), or bringing in a partner. You could even broach the subject of setting up a payment plan with the seller if such an option would work for both parties.

Get expert help

It’s imperative to note that you ideally shouldn’t do this transaction on your own. The tips provided here are merely an overview, so consider seeking advice from trusted people in your sphere who have gone down a similar route. For more expert guidance, it may be worth the investment of your time and money to bring on an accountant, business attorney, tax advisor, and/or business broker to ask questions you may not have considered during the process, help you understand every detail, and ensure that you complete your new business transaction without a hitch.

Purchase the business

Once you’ve completed all these steps and agreed to a price, it’s time to complete the purchase at the closing table, where you’ll want your legal representative to look over everything in the purchase agreement with a fine-tooth comb. Then all you need to do is sign, and the company will be yours.

A sense of finality may hit at this point, but the journey doesn’t end here. First, be sure you have all the important paperwork, most notably the official bill of sale and lease and an asset acquisition statement, which itemizes your purchased items for the IRS. Then get your name on the proper documents and licenses as soon as possible after the deal. In addition, remember to introduce yourself to your new team and any official sources, such as the leasing entity and creditors. After all, this is your extended business family going forward.

Buying an existing business has its fair share of baked-in benefits and drawbacks, but the former can be enhanced and the latter mitigated if you’re smart and methodical and surround yourself with the right people. In the end, you may find that this endeavor breathes new life into your entrepreneurial spirit and leads you down an exciting path of personal and professional growth.

TAKE ACTION:
Make a list of pros and cons to determine whether purchasing an existing business is right for you.