buying process in business plan

How to Buy an Existing Business (7 Steps)

Reviewed by

March 29, 2022

This article is Tax Professional approved

Having your own business is great. Building one from scratch? Really hard. Which is why some entrepreneurs opt to buy an existing business outright. There are other reasons to buy a business too, like acquiring an up-and-coming competitor, or just building your investment portfolio.

I am the text that will be copied.

Whatever your reason, the process of buying a small business follows the same pattern. From finding and evaluating the right business, to closing the transaction, we’ll walk you through the whole process so you know what’s coming.

Step 1: Find a business to purchase

The first step is not just finding an available business, but finding one that’s worth buying. There’s plenty of businesses for sale. But ones with financial promise that actually hold your interest aren’t so common. You need to find a business that’s primed for profitability, and isn’t hiding any skeletons.

When you’re ready to buy a business you should look for these things:

• Positive cashflow (or a trajectory that shows potential)
• An industry you’re familiar with
• A diversity of customers (no one client should be more than 20% of revenue, roughly)
• A long-term growth plan
• A business that you could see yourself enjoying

Where to find a business to purchase

The wider your search, the more likely you are to find a gem. Don’t just stop looking when you’ve found a business that ticks all the boxes. Look in as many places as possible before you start ranking your favorites.

Some of the rocks you can turn over include:

• Online broker sites like BizBuySell
• Local business brokers
• Local attorneys
• Franchisors
• Existing small business owners in your ideal industry

Step 2: Value the business

Once you’ve identified a business you’re interested in, it’s time to figure out how much the business is worth. You’ll find plenty of sellers that overvalue their business, and it’s important to make sure you don’t overpay.

When valuing a business you have two options:

• Do it yourself
• Hire a professional

The problem with hiring a professional is it can be expensive—up to $5,000 or more. But if you’re not confident in your ability to make an objective assessment, we’d recommend this.

A business valuation is typically calculated through either business revenue, net income, or EBITDA . We can’t give just one answer about how to value a business , because each type of business is handled differently.

Step 3: Negotiate a purchase price

Once you’ve decided you want to move forward with a business acquisition and you think you have a good idea of what the business is worth, it’s time to negotiate the price. You’ll typically do this by making an unbinding offer, either written or verbal. If your offer is close to what the seller is willing to sell for, they will start negotiating with you.

With most business transactions, you’ll go back and forth, negotiating different purchase prices and terms before you come to a tentative agreement. These terms can be changed later if you find something during due diligence that changes your opinion on the company’s value.

As part of the negotiation, you’ll decide whether you want to purchase the assets of the business or if you want to make it a stock sale.

A stock sale is preferred by most sellers for tax purposes . In a stock sale you’ll be agreeing to take on any outstanding legal liability because the company operations will continue as is, just with a new owner. Some sellers will even give you a discount on the purchase price for agreeing to a stock sale.

Step 4: Submit a Letter of Intent (LOI)

Once you have a general idea of the terms and structure of the business purchase, you’ll submit a letter of intent . This is a letter that outlines everything you’ve previously negotiated, including the purchase price, and states your intent to buy the business. This is a non-binding agreement that just furthers the business acquisition process. It shows the seller you’re ready to commit and move forward in the process.

The letter of intent will also typically give you exclusive rights to buy the business for a time period, usually up to 90 days. This means that you’ll be the only one that can purchase the business during the time frame, and the seller has to act in good faith to close your transaction if you’re able to meet the terms of your LOI.

Step 5: Complete due diligence

When the LOI is signed by you and the seller, then you’ll get access to more information about the business. Typically, when you first show interest in purchasing a business you’ll get a basic overview of how the business is performing. But when you enter due diligence, you’ll get access to any financial or legal information that you feel is needed to close the transaction.

We suggest making sure you review the following documents, at a minimum, before you close:

• Organizational documents for the business (e.g. incorporation docs, certificates of good standing, business licenses, etc.)
• Previous 3 years of business tax returns
• Current year income statements, balance sheets, and cash flow statements
• Revenue broken out by customer for the last 3 years
• Information on existing business debt
• Customer lists with proprietary information blocked out as necessary
• Existing contracts—can these be assigned to the new owner?
• Commercial lease or other property documents
• Rent rolls if the property has tenants
• Uniform franchise disclosure document (if the business is a franchise)
• Employee and manager information
• Marketing and advertising materials
• Legal records for pending litigation, if any

Step 6: Obtain financing

During due diligence you should also be working on financing for the transaction. Most businesses are purchased with a combination of debt and equity, meaning you’ll come up with part of the purchase price and the rest through a loan. You’ve got lots of options here, including SBA loans , traditional bank loans, and using a Rollover for Business Startups (ROBS). If you have a strong 401K, going for a ROBS is the best solution, as you can finance the purchase without having to pay back debt or interest.

Before you enter due diligence you should know whether or not seller financing is an option, which could alleviate some of the financial burdens of finding a loan. Seller financing is a loan provided by the owner of the business instead of an outside lender. This typically takes a lot of documentation from you as the new business owner and from the business itself. That is why it’s important to work through this process during due diligence. You’ll want to make sure your lender is ready to fund when you need to close the transaction.

7. Close the transaction

If there were no surprises during due diligence, then it’s time to close the transaction. This is where you’ll draft a final purchase agreement and agree to every term of the deal with the seller.

You should always hire a lawyer to help you negotiate this part of the process. At the very least, they can review the purchase agreement to make sure you’re getting what you negotiated through the contract.

After both parties sign the purchase agreement, you’re ready to choose a closing date and have your lender fund the purchase. Your funds will typically go into escrow (meaning a bank or law firm will hold the money for sake keeping) on the day you’re supposed to close, until all documentation is final. Once both parties give their approval then the money will be given to the seller and you’ll own the business outright.

As soon as closing is finalized , you’ll need to apply for any necessary business licenses to make sure your business operations have a smooth transition. Some states will let you operate with the existing licenses during the transition period, but don’t let it slip out of your mind. If your business acquisition is a stock purchase then you may not have to worry about this at all since the business entity won’t change.

At some point, while jumping through legal hoops, you might have forgotten that you just became a small business owner. Congrats! Your new life awaits. And if your brand new business needs bookkeeping, Bench can help with that.

Join over 140,000 fellow entrepreneurs who receive expert advice for their small business finances

Get a regular dose of educational guides and resources curated from the experts at Bench to help you confidently make the right decisions to grow your business. No spam. Unsubscribe at any time.

• Credit cards
• View all credit cards
• Banking guide
• Loans guide
• Insurance guide
• Personal finance
• View all personal finance
• Small business
• Small business guide
• View all taxes

You’re our first priority. Every time.

We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.

So how do we make money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. Here is a list of our partners .

How to Buy a Business: Everything You Need to Know

Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .

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.

LLC Formation

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.

On a similar note...

The Only Checklist You’ll Need for Buying an Existing Business

You’ve heard it here before— buying an existing business is a much better option than trying to start something on your own and scale it up.

But it’s important to know what to do (and what NOT to do) when searching businesses and making an offer.

Keeping track of all the stuff you need to get done is a lot easier when you have a checklist you can reference.

Our checklist breaks everything down into simple steps to follow as you go. And you can download a printable version here .

1. Understand Your Goals for Buying a Business

You know it’s a good idea, but go deeper.

What’s your why?

Even with an established business, you’ll face challenges and roadblocks as you go. Not only will knowing your why help you push through them, but it can also help guide your future plans for the company.

You need to know:

• What kind of owner you envision yourself as (a hands-on owner, someone building the roadmap to hand over to an operator, someone who wants to systematize everything to franchise the whole thing, etc.).
• How you’ll know when the company hits its goals and achieves success.
• What kind of team you need to build the business.
• Why you think you’re suited to manage the company.

2. Determine What Kind of Business You Want to Buy

There’s no shortage of boring businesses that make for great choices as a business acquisition. We’ve even come up with a list of the most lucrative businesses to buy for you to get the creative juices flowing.

Start by thinking about your own job history, skills, and background.

What you know and bring to the table provides powerful direction to the type of business that’s best for you. You’ll be able to get more revenue out of a business that needs the skills in your zone of genius.

For example, an operational wiz with skills in developing processes, will provide a lot of value to a business that needs an organizational shape up.

While someone with a background in marketing can get more mileage out of a business where the biggest problem is getting the message out to potential customers.

We also recommend that you buy a business that fits our SOWS (stale, old, weak, simple) framework. 

These types of boring businesses are stable, simple to scale, and there’s always demand. They’re the perfect acquisition for first timers.

And don’t forget our golden rule of business buying. It’s a two-parter:

• Don’t lose money.
• Don’t buy a business that can bankrupt you.

It’s about so much more than finding something that interests you or the “hot thing” everyone’s promoting. Look beneath the surface to find the real hidden gems.

Sure, placing ATMs sounds easy, but for being a business all about money, it can actually take you years to make some of your own. Same with Amazon FBA and other commonly-promoted business models that face multiple problems.

3. Choose How You Will Finance Your Purchase

Contrary to popular belief, you don’t always need a lot of money to purchase someone’s business. You can get in the doors with $5,000 or less for plenty of boring businesses using seller financing.

Here’s a quick rundown of the best financing options for buying a business :

• Your own cash (savings, personal loan funds, credit)
• Business loans, including SBA loans
• Other people’s money (investors, crowdsourcing)
• Seller financing (using the owner like a bank and paying them back over time)

Your own cash is problematic because it puts all your eggs in one basket. And that’s if you have the money in the first place.

Business loans? Not as easy to get as you might think, and there will be a lot of paperwork and back and forth with the lending officer. It’s still a viable option if your other choices don’t work out, though.

Our favorite? Seller financing. You can work out your own deal terms here, such as limiting your down payment.

4. Find Businesses That Are for Sale (Including the Ones that Are Off-Market)

By now, you should already know what kind of business you’re interested in. Combine that with your funding sources, and you should have a narrowed-down list of industries to research.

A few hot spots to check for businesses on the market include:

These are just the places where an owner’s already looking to get out as soon as they can.

You can go deeper and cut out a lot of the competition by looking for off-market deals. You can use BizScout , a service we own, to find business opportunities that haven’t hit the market yet.

And if you’re still having trouble finding the perfect option, check out our guide to finding a business to buy .

5. Send a Letter of Intent to the Business Owner

Great, now you’ve found a business you want to buy. It’s time to start evaluating the business before you buy it .

Make contact with the seller and provide a letter of intent. This signals the seller that you’re a serious prospective buyer and opens the door for future sharing of pertinent info, like financial data.

This is a preliminary commitment to do business with another party and may or may not be binding. But it doesn’t mean you’re obligated to buy the company if you find a big red flag.

6. Run a Financial Health Check

Read through financial records, balance sheets, cashflow statements, and credit reports.

A few questions to ask here:

• Is the business making money?
• Are there concerning seasonal or cyclical issues with income?
• Are expenses way out of whack with earnings?
• Do tax returns match the actual financial statements?
• Are there any tax liens on the company?
• Are there pieces of aging equipment or other things that will require an overhaul?
• How much debt does the company carry?
• What are the profit margins?
• What business assets does the company own?
• Does the company also own any intellectual property?

7. Evaluate the Business’s Operations

If you still feel good about things after looking over the finances, move on to a deep dive into operations.

Review the existing business plan and organizational charts if the owner has them. Dig into how the company works on a nuts-and-bolts level. 

Look for any red flags you can’t live with in the business.

The business needs a huge team to process work, and you don’t love being a manager? Red flag.

People putting in 80-hour weeks, and you see no chance of that changing? Red flag.

If the business is a little out of date or the marketing sucks, you can fix those kinds of business operations issues. If they have a complex process in place to systematize, you can fix that, too.

This is also your chance to discuss keeping the owner on for a transition period to work out kinks. It’s also your opportunity to vet key employees for moving up to bigger roles.

8. Run a Competitive Analysis

You can’t feel fully confident when buying an existing business if you don’t know what else is out there. Take a look and answer these questions:

• What unique selling proposition are competitors leaning into?
• Does the business I want to buy have a potential competitive edge I can use?
• Where are the other companies falling short?
• Is it reasonable to think that with my strategic insight, we can improve our competitive standing in the market?

9. Get a Professional Appraisal for all Company Equipment and Assets

Don’t take the current owner’s word for it when it comes to any physical equipment.

Get an independent evaluation from an outside expert. This will really help you when it comes time to make an offer on the business so you get a fair price.

Pay an outside expert to do this. Yes, it will cost you some cash to value all of the tangible and intangible assets. But the peace of mind and negotiation advantage you’ll get are worth it. 

10. Check the Business’s Reputation and Relationships

In your list of things to work on once you take over, you might consider some easy wins, like improving the brand’s online presence.

To do this, check out current reviews, feedback, and relationships and ask things like:

• Does the business have an existing customer base?
• What are customers’ sentiments? Do they have positive reviews, mostly positive, mostly negative?
• What relationships does the company have with vendors, suppliers, and partners?
• Do they have any marketing efforts in play right now? If so, what kind and how are they doing?

11. Conduct Legal Due Diligence

Skipping the due diligence process is one of the best ways to totally f*ck up your new business .

You don’t want to step into any surprises once the deal goes through. Check things like:

• Current business licenses and permits.
• Any pending or past litigation.
• Insurance policies (and whether these fully cover all risks and liabilities).
• Existing contracts and legal documents with customers, vendors, and partners.

12. Negotiate the Deal

Now for the fun part: let’s make a deal!

Negotiating can be a challenge if you get pushback, but use all the data you found up to this point to back up your offer.

Don’t fear working through a few rounds of negotiation with the seller. You can use what you learn to come up with a purchase price and terms that work for both of you.

And don’t be discouraged if your deal falls through.

It’s very common for first time buyers to lose on their first go-round. The important part is that you have the ability to dust yourself of and go look for another (better) deal.

13. Close the Deal

Congrats! The ink is dry on the purchase agreement, and it’s time to start working in the business.

Don’t forget to do things like:

• Secure any funding if you took out a loan, including details on repayment dates.
• Transfer all licenses, software, and paperwork into your name.
• Choose an official start date and prepare employees for the transition.

14. Make the Business Your Own

You’re finally in charge. It’s time to optimize the business now. With your due diligence complete, you probably already have a full list of things to tackle. Check out our ideas for the best tools for buying and growing a business .

That could include:

• Upgrading all operations to the 21st century, like using software and automations.
• Leveling up marketing.
• Looking at growth opportunities.
• Tweaking customer service.
• Providing more training to employees.

Make the Right Moves and Buy Now

Now that you know the steps involved in buying a business and what to pay attention to in each one, you’re ready to step out there and start the process.

Knowing what you want and where you’ll shine in the company gives you an initial direction for an informed decision, but spend time researching companies for sale before drafting your first letter of intent.

If you make the right moves, you could find yourself in the owner’s shoes sooner than you expected!

One more thing. We designed this checklist as a quick reference for your first business purchase. If you feel like you need a deep dive, check out our guide to buying a business . And if you really want to drink from a firehose, check out our Small Biz Buying Course .

Roll up your sleeves and join the tribe

Get the free weekly newsletters inspiring 700 ,000+ to reinvent the American Dream on their own terms.

Subscribe - Contrarian Thinking - Blog Sidebar

Trending posts.

My Million Dollar Bet… That You Can Do Too?

How This NFL Pro Built a Business Out of Waste

Company culture isn’t ping-pong tables. it’s this…, how they’re building a big shipping container business.

Read our 2024 Small Biz Buyer Insights Report

How a clever software pro launched a garbage biz.

Username or Email Address

Remember Me

• Best Countries for a Business
• How to Do Market Research
• Define Your Target Market
• How to Write a Business Plan
• Key Elements of a Business Plan
• How to Buy a Business
• What is a Pitch Deck?
• How to Set Financial Goals
• Best Business Opportunities
• Best Small Business Ideas
• Lucrative Online Business Ideas
• Side Ideas for Women
• Small Scale Business Ideas
• Best Tech Startup Ideas
• App Ideas for Start-Ups
• Small Business Ideas in India
• Business Tycoons to Learn From
• Most Innovative Entrepreneurs
• Successful Women Entrepreneurs
• Best Business Books of All Time
• Startup Pitch Deck Examples
• Successful Social Entrepreneurs
• Top Entrepreneurs of India
• Best Online Legal Services
• Small Business Software
• Apps for Daily Operations
• Business Name Generators
• Mission Statement Generators
• Privacy Policy Generators
• Start a Profitable Online Store
• Start a Dropshipping Business
• Start a Consulting Business
• Start a Podcast: 10-Step Tutorial
• Create a Successful Online Course
• How to Sell on Etsy

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 .

Was This Article Helpful?

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.

Buying An Existing Business in 2024

• There are many opportunities to buy an existing business, offering an excellent way to break into entrepreneurship without starting from scratch.
• The positives of buying an existing business include inheriting a customer base and operational plan, while the negatives include a potentially high purchase price and perhaps having to deal with problems that may not be disclosed.
• Find out what you need to look for in a potential business purchase, the pros and cons, where to find the right one, and the best funding options to purchase an existing business.

Plan ahead – see what you qualify for today

State of the “businesses for sale” market.

The “businesses for sale” market refers to the sector that deals with selling and buying businesses already in operation. It’s made up of a wide range of industries and sectors, from small local businesses to large enterprises. The market is influenced by a variety of factors, including:

• The state of the economy : During times of economic growth and stability, the market tends to be more active, with a higher number of businesses being bought and sold. On the other hand, during economic downturns or recessions, the market may experience a slowdown as buyers become more cautious.
• Industry trends : Different industries have varying levels of demand. Some sectors, like technology, healthcare, and e-commerce, traditionally have more potential for growth and profitability. Other industries may experience fluctuations based on consumer preferences, regulatory changes, or market disruptions.
• Demographics : The aging population and retirement of baby boomers have had a significant impact on the “businesses for sale” market. Many business owners from this generation are looking to sell their businesses and transition into retirement, creating a supply of businesses for sale. This trend is expected to continue as more baby boomers reach retirement age.
• Online marketplaces : The invention of online platforms and marketplaces has transformed the way businesses are bought and sold. Websites and platforms dedicated to connecting buyers and sellers have made it easier to access a larger pool of potential buyers. These platforms offer various tools to streamline the buying and selling process.
• Financing and deal structure : The availability of financing options and deal structures can impact the market. Access to capital and favorable lending conditions can motivate buyers and make acquisitions more feasible. On the other hand, the market can go down when interest interest rates are high and credit is less easily available.

Like all markets, the “businesses for sale” market is dynamic and can vary significantly based on regional and local conditions. Factors like government regulations, tax policies, and cultural norms can also shape market dynamics. 

Pros and Cons of Buying an Existing Business

Buying an existing business can offer several advantages and disadvantages for small business owners. Here are some pros and cons to consider when finding the right business to purchase:

• Established operations: An existing business already has a foundation in place for things like operational systems and processes. This can save time and effort compared to starting a business from scratch.
• Brand recognition: You’ll get a brand name, reputation, and customer loyalty built into the deal. This can provide a head start in terms of market recognition and customer trust (although make sure that the brand reputation is a positive one).
• Established customer base: One of the biggest advantages is inheriting an existing customer base. This can generate immediate revenue and provide a platform for future growth and expansion.
• Cash flow and financial history: An established business often has a track record of financial performance, which can help in securing small business loans and assessing the business’s financial viability. Positive cash flow from day one can also reduce the risk of initial losses.
• Supplier and vendor relationships: Established businesses may already have established relationships with suppliers, vendors, and partners. This can make it easier to access reliable suppliers and favorable terms from the get-go.
• Higher cost: Buying an existing business can cost more than starting a new business. The value of an established business may reflect its assets, customer base, and potential for future earnings.
• Existing challenges: The business you acquire may come with existing problems or challenges that need to be addressed, like outdated equipment, inefficient processes, or legal issues. Assessing and fixing these issues can require time, effort, and investment on your part.
• Management challenges: It’s hard for a new owner to integrate into an existing business culture and manage employees who already work there. These challenges can lead to difficulties putting needed changes into place or achieving desired outcomes.
• Hidden liabilities: It’s crucial to conduct thorough due diligence to uncover any hidden liabilities — this could be pending lawsuits, unpaid taxes, or contractual disputes. If you don’t identify these risks ahead of time, you may end up paying for them down the road.

Ultimately, you’ll want to consider both the advantages and disadvantages, as well look closely at the specific business and its market conditions. Conducting due diligence, seeking professional advice from a business valuation expert, and creating a well-informed business plan can help mitigate risks and increase the chances of a successful acquisition.

Where to Find Existing Businesses

There are several ways to find businesses that are for sale. Here are some common strategies to help you locate businesses that are on the market.

Online business marketplaces

There are online platforms dedicated to buying and selling businesses. Websites like BizBuySell, BizQuest, and BusinessesForSale.com offer listings of businesses for sale across different industries and locations. These platforms let you search for businesses based on specific criteria, like industry, location, and price range.

Business brokers

Working with a business broker can help you access a wider range of businesses for sale. Brokers specialize in connecting buyers with sellers and often have a large network and access to confidential listings. They can help you navigate the buying process, negotiate deals, and provide guidance throughout the transaction.

Professional networks and associations

Engaging with professionals such as lawyers, accountants, and financial advisors who work with businesses can provide access to potential opportunities. They may be aware of businesses looking for buyers or have connections with business owners who are planning to sell.

Direct outreach

If you have a specific industry or location in mind, you can proactively reach out to business owners to ask about their interest in selling. This approach requires research and targeted communication, but it can lead to discovering businesses that are not actively listed for sale.

Industry-specific publications and websites

Some industries have specialized publications, websites, or newsletters that feature businesses for sale within their niche. These resources can provide insights into opportunities within your industry.

When searching for businesses to potentially buy, having a clear understanding of your own criteria, budget, and objectives will help streamline the search process and focus on opportunities that line up with your requirements.

Why Consider a “Boring” Business

When people think of successful businesses, they often first think of flashy startups like Google or household names like Target. But there are a lot of lesser-known businesses with less of the pizzazz that provide fantastic opportunities for any entrepreneur looking to buy an existing company. More localized businesses or family-owned companies can have a proven track record of success, be profitable, and provide stability for you as an investor. 

Types of “Boring” Businesses

There are many types of businesses that might be more low-key than a billion-dollar tech startup or high-profile company but are profitable and stable. These businesses include:

• Construction or landscaping companies
• Vending machines
• Personal training
• Online teaching
• Cleaning service
• Accounting and bookkeeping
• Real estate

When you’re looking to buy a business, it’s best to look at the financial details and potential for future performance rather than being drawn in by a shiny idea. Making sure the business is a stable investment is the best way to set yourself up for success.

Personalized financing that grows with your business

Add CTA text Here

What Are the 7 Steps To Buying an Existing Business?

Though the exact steps may vary somewhat,  most buyers will want to incorporate the following 7 steps into the process of buying a business. 

1. Decide what you want. 

Running a business is hard work, so you want to carefully choose the kind of business you want to own. The right business should combine your skills and/or interests with the potential to build a profitable business. Everyone wants a high cash flow business , but if you really don’t like the business you may find it hard to stick with it or grow it. 

You’ll want to research the business model and industry, as well as the company itself. 

2. Prepare financially. 

How much money can you afford to put toward the purchase price? What are your credit scores, and how much will you be able to borrow for a business acquisition loan? How long will it take before you can pay yourself a salary, and how will you survive financially until then? 

3. Find a business to buy. 

If you’ve ever bought a house, you know that sometimes things fall together quickly and sometimes it takes a long time to find the right house, get your offer accepted, and close. Patience at this stage can pay off. Rather than rushing into a less-than-ideal business, be willing to take time to find the right deal using the resources in this article. 

4. Make your offer. 

Here’s where you decide how much you think the business is really worth. Like buying a house, it may involve some back and forth negotiations. A broker can prove very helpful here. Contingencies can protect you if the seller wasn’t completely truthful and you uncover issues during the next step of the process. 

Another option is to sign a letter of intent that will allow you to proceed to the next step before making a formal offer. 

5. Do due diligence

Thoroughly vet the prospective business, and enlist the help of professionals to minimize expensive surprises. (See more details about the due diligence process below.) 

6. Secure financing

If you need financing, and if the seller is willing to wait for you to get financing, you can apply for a loan at this stage. If you have already been preapproved, this step can go more quickly though that’s not always possible. 

7. Close the deal

You legally purchase the business and transition to full ownership.

Business Formation: Due Diligence and Legal Considerations  

With any new venture — whether that’s forming your own business or buying an existing one — you’ll need to both conduct due diligence and address legal considerations to ensure compliance, mitigate risks, and protect your interests. 

Due diligence is the process of thoroughly investigating and assessing a potential business opportunity before going ahead with it. You’ll need to gather relevant information (like the asking price vs. the fair price), analyze these details, and make informed decisions before agreeing to a sale of the business. Due diligence helps you understand the risks, opportunities, and overall viability of the business you’re forming or acquiring.

During due diligence, you’ll want to think through the following aspects:

• Compliance : Make sure that the business complies with all applicable laws, regulations, and licensing requirements. Assess any potential legal liabilities, ongoing litigation, or regulatory issues that may affect the business.
• Finances : Review financial statements, balance sheets, tax returns, and other relevant financial documents to assess the business’s financial health, revenue, expenses, profitability, and cash flow. Identify any outstanding debts and liabilities.
• Contracts and agreements : Examine contracts with customers, suppliers, landlords, and employees. Evaluate their terms, obligations, rights, and potential risks. Identify any limitations, exclusivity, clauses, or potential disputes that may impact the business.
• Intellectual property : Determine whether the business owns or has the right to use any patents, trademarks, copyrights, or trade secrets. Assess the protection and enforceability of its intellectual property.
• Assets and liabilities : Identify and evaluate the assets and liabilities of the business, including real estate, equipment, inventory, leases, loans, and outstanding obligations. Assess any potential environmental, legal, or operational liabilities.

In addition to due diligence, you’ll want to consider several legal aspects when forming or acquiring a business. While the specific legal requirements may vary depending on the jurisdiction and type of business entity, some common legal considerations include:

• Business structure : Make sure the business uses the appropriate legal structure, such as a sole proprietorship, partnership, corporation, or limited liability company (LLC). Each structure has different legal and tax implications.
• Registration and licensing : Check that the business is registered with the relevant government authorities and has the necessary permits and licenses required to operate legally in your area.
• Contracts and agreements : Review contracts, like partnership agreements, operating agreements, shareholder agreements, employment contracts, customer agreements, and vendor contracts. Make sure they’re comprehensive, clear, and protect your interests.
• Compliance with employment law : Ensure the previous owner understands and complies with employment laws, including hiring practices, wage and hour regulations, employee benefits, workplace safety, and anti-discrimination laws.
• Tax obligations : Check that the business complies with tax laws and obligations, including obtaining tax identification numbers, understanding tax reporting requirements, and fulfilling tax payment obligations.
• Data privacy and security: If the business handles customer data, make sure there are appropriate privacy and security measures to protect it in compliance with the law.

It’s a good idea to consult with legal professionals to ensure that all legal requirements and considerations are adequately addressed when you’re acquiring or forming a business. Using a business formation service is one of the best ways to form a business and make sure you’re compliant.

Financial Requirements and Funding Options for Buying a Business

When you buy a business, you may need a significant amount of money to cover startup costs like the purchase price and the down payment. You may also need working capital if the cash flow of the business isn’t currently strong, or if you want to introduce new products or services.

There may be a variety of sources for this capital, including private funding (from investors, personal savings, and/ or loved ones) or from lenders, including traditional banks or lines of credit. 

Some of the best business acquisition loans include term loans and SBA loans . Retirement funds ROBS accounts are also popular for this purpose. It may also be possible to buy a business with a business credit card if the price is right and your credit limits are large enough.

Most lenders require good credit, a down payment (or strong collateral), and will scrutinize financials carefully. 

You also may be able to use seller financing for some or all of the purchase price. Seller financing is an agreement between the buyer and the current owner to pay for the business over time. When structured properly, seller financing can benefit both parties. The seller may get a broader pool of buyers. The buyer may have time to ramp up revenues before getting a traditional loan. 

Examples of sources for business acquisition loans include:

How Nav Can Help

Nav is the only platform that can show you what business funding you can qualify for — before you apply. Let your business’s details work for you to find your business’s best funding options like loans or business credit cards faster. Get actionable cash flow insights, ways to help better your business credit, and more today.

Start your business credit journey

Build business credit, monitor credit health, and accelerate growth — all with Nav Prime.

Frequently Asked Questions

Is it smart to buy an existing business.

Buying an existing business can be a very smart move, as long as you do your due diligence to understand any weaknesses and problems the business may be facing. It can often be easier to improve an existing business that’s doing OK, compared to starting a new business from scratch. 

How do I take over an existing business?

If you’re serious about buying a business, take the time to thoroughly research your options, and to investigate the type of business you want to buy as well as looking at specific opportunities. Avoid getting too emotionally invested in a specific business early on; make sure you thoroughly research how financially viable it is. 

It’s also a mistake to gloss over financial data or to make a “handshake” deal. Buying a business is a big investment of your time and money: do it correctly. Work with a business broker and/or an attorney with experience in business acquisitions.

What are disadvantages of buying an existing business?

Cost can be one disadvantage of buying a business. If a business is successful, the owners will want to sell for an attractive price. That may require the buyer to dig deep and exhaust personal resources or take on a significant loan to purchase the business. 

Undisclosed problems are another potential pitfall. If the buyer isn’t careful they could end up with financial or legal problems the seller didn’t share. 

An existing business may be set in its ways and easily challenged by startups with more innovative products or services. 

A new owner may find it necessary to change operations, or staff. They may find it necessary to create new revenue streams to make the company more competitive. Employees may resent those changes, even if they are necessary.

Equipment may be nearing the end of its useful life, and require new equipment leases or equipment financing that add to operating costs. 

This article was originally written on October 25, 2023 and updated on April 21, 2024.

Rate This Article

This article currently has 1 rating with an average of 5 stars.

Tiffany Verbeck

Tiffany Verbeck is a Digital Marketing Copywriter for Nav. She uses the skills she learned from her master’s degree in writing to provide guidance to small businesses trying to navigate the ins-and-outs of financing. Previously, she ran a writing business for three years, and her work has appeared on sites like Business Insider, VaroWorth, and Mission Lane.

Have at it! We'd love to hear from you and encourage a lively discussion among our users. Please help us keep our site clean and protect yourself. Refrain from posting overtly promotional content, and avoid disclosing personal information such as bank account or phone numbers. Reviews Disclosure: The responses below are not provided or commissioned by the credit card, financing and service companies that appear on this site. Responses have not been reviewed, approved or otherwise endorsed by the credit card, financing and service companies and it is not their responsibility to ensure all posts and/or questions are answered.

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Save my name and email in this browser for the next time I comment.

Advertising Disclosure

The credit card, financing and service products that appear on this site are from credit card, financing and service companies from which this site receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). This site does not include all credit card, financing and service products or all available credit card, financing and service products. All images and trademarks are the property of their respective owners. Editorial and review content is the property of Nav, and has not been approved, provided, or reviewed by the company providing the credit card, financing, or service.

For complete information, see the terms and conditions on the credit card, financing and service issuer’s website. In most cases, once you click “apply now”, you will be redirected to the issuer’s website where you may review the terms and conditions of the product before proceeding. While Nav always strives to present the most accurate information, we show a summary to help you choose a product, not the full legal terms – and before applying you should understand the full terms of products as stated by the issuer itself.

Personal FICO credit scores and other credit scores are used to represent the creditworthiness of a person and may be one indicator to the credit or financing type you are eligible for. Nav uses the Vantage 3.0 credit score to determine which credit offers are recommended which may differ from the credit score used by lenders and service providers. However, credit score alone does not guarantee or imply approval for any credit card, financing, or service offer.

Editorial Disclosure

Any personal views and opinions expressed are author’s alone, and do not necessarily reflect the viewpoint of Nav. Editorial content is not those of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities.

Reviews are not provided or commissioned by the credit card, financing and service companies that appear in this site. Reviews have not been reviewed, approved or otherwise endorsed by the credit card, financing and service companies and it is not their responsibility to ensure all posts and/or questions are answered.

Back to Top

How to Write a Business Plan for a Small Business

Noah Parsons

24 min. read

Updated September 2, 2024

Writing a business plan doesn’t have to be complicated. 

In this step-by-step guide, you’ll learn how to write a business plan that’s detailed enough to impress bankers and potential investors, while giving you the tools to start, run, and grow a successful business.

• The basics of writing a business plan

If you’re reading this guide, then you already know why you need a business plan . 

You understand that writing a business plan helps you: 

• Raise money
• Grow strategically
• Keep your business on the right track 

As you start to write your business plan, it’s useful to zoom out and remember what a business plan is .

At its core, a business plan is an overview of the products and services you sell, and the customers that you sell to. It explains your business strategy: how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

Most business plans also include financial forecasts for the future. These set sales goals, budget for expenses, and predict profits and cash flow. 

A good business plan is much more than just a document that you write once and forget about. It’s also a guide that helps you outline and achieve your goals. 

After writing your business plan, you can use it as a management tool to track your progress toward your goals. Updating and adjusting your forecasts and budgets as you go is one of the most important steps you can take to run a healthier, smarter business. 

We’ll dive into how to use your plan later in this article.

There are many different types of plans , but we’ll go over the most common type here, which includes everything you need for an investor-ready plan. However, if you’re just starting out and are looking for something simpler—I recommend starting with a one-page business plan . It’s faster and easier to create. 

It’s also the perfect place to start if you’re just figuring out your idea, or need a simple strategic plan to use inside your business.

Dig deeper : How to write a one-page business plan

Brought to you by

Create a professional business plan

Using ai and step-by-step instructions.

Secure funding

Validate ideas

Build a strategy

• What to include in your business plan

Executive summary

The executive summary is an overview of your business and your plans. It comes first in your plan and is ideally just one to two pages. Most people write it last because it’s a summary of the complete business plan.

Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. 

In fact, it’s common for investors to ask only for the executive summary when evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation , or more in-depth financial forecasts .

Your executive summary should include:

• A summary of the problem you are solving
• A description of your product or service
• An overview of your target market
• A brief description of your team
• A summary of your financials
• Your funding requirements (if you are raising money)

Dig Deeper: How to write an effective executive summary

Products and services description

When writing a business plan, the produces and services section is where you describe exactly what you’re selling, and how it solves a problem for your target market. The best way to organize this part of your plan is to start by describing the problem that exists for your customers. After that, you can describe how you plan to solve that problem with your product or service. 

This is usually called a problem and solution statement .

To truly showcase the value of your products and services, you need to craft a compelling narrative around your offerings. How will your product or service transform your customers’ lives or jobs? A strong narrative will draw in your readers.

This is also the part of the business plan to discuss any competitive advantages you may have, like specific intellectual property or patents that protect your product. If you have any initial sales, contracts, or other evidence that your product or service is likely to sell, include that information as well. It will show that your idea has traction , which can help convince readers that your plan has a high chance of success.

Market analysis

Your target market is a description of the type of people that you plan to sell to. You might even have multiple target markets, depending on your business. 

A market analysis is the part of your plan where you bring together all of the information you know about your target market. Basically, it’s a thorough description of who your customers are and why they need what you’re selling. You’ll also include information about the growth of your market and your industry .

Try to be as specific as possible when you describe your market. 

Include information such as age, income level, and location—these are what’s called “demographics.” If you can, also describe your market’s interests and habits as they relate to your business—these are “psychographics.” 

Related: Target market examples

Essentially, you want to include any knowledge you have about your customers that is relevant to how your product or service is right for them. With a solid target market, it will be easier to create a sales and marketing plan that will reach your customers. That’s because you know who they are, what they like to do, and the best ways to reach them.

Next, provide any additional information you have about your market. 

What is the size of your market ? Is the market growing or shrinking? Ideally, you’ll want to demonstrate that your market is growing over time, and also explain how your business is positioned to take advantage of any expected changes in your industry.

Dig Deeper: Learn how to write a market analysis

Competitive analysis

Part of defining your business opportunity is determining what your competitive advantage is. To do this effectively, you need to know as much about your competitors as your target customers. 

Every business has some form of competition. If you don’t think you have competitors, then explore what alternatives there are in the market for your product or service. 

For example: In the early years of cars, their main competition was horses. For social media, the early competition was reading books, watching TV, and talking on the phone.

A good competitive analysis fully lays out the competitive landscape and then explains how your business is different. Maybe your products are better made, or cheaper, or your customer service is superior. Maybe your competitive advantage is your location – a wide variety of factors can ultimately give you an advantage.

Dig Deeper: How to write a competitive analysis for your business plan

Marketing and sales plan

The marketing and sales plan covers how you will position your product or service in the market, the marketing channels and messaging you will use, and your sales tactics. 

The best place to start with a marketing plan is with a positioning statement . 

This explains how your business fits into the overall market, and how you will explain the advantages of your product or service to customers. You’ll use the information from your competitive analysis to help you with your positioning. 

For example: You might position your company as the premium, most expensive but the highest quality option in the market. Or your positioning might focus on being locally owned and that shoppers support the local economy by buying your products.

Once you understand your positioning, you’ll bring this together with the information about your target market to create your marketing strategy . 

This is how you plan to communicate your message to potential customers. Depending on who your customers are and how they purchase products like yours, you might use many different strategies, from social media advertising to creating a podcast. Your marketing plan is all about how your customers discover who you are and why they should consider your products and services. 

While your marketing plan is about reaching your customers—your sales plan will describe the actual sales process once a customer has decided that they’re interested in what you have to offer. 

If your business requires salespeople and a long sales process, describe that in this section. If your customers can “self-serve” and just make purchases quickly on your website, describe that process. 

A good sales plan picks up where your marketing plan leaves off. The marketing plan brings customers in the door and the sales plan is how you close the deal.

Together, these specific plans paint a picture of how you will connect with your target audience, and how you will turn them into paying customers.

Dig deeper: What to include in your sales and marketing plan

Business operations

When writing a business plan, the operations section describes the necessary requirements for your business to run smoothly. It’s where you talk about how your business works and what day-to-day operations look like. 

Depending on how your business is structured, your operations plan may include elements of the business like:

• Supply chain management
• Manufacturing processes
• Equipment and technology
• Distribution

Some businesses distribute their products and reach their customers through large retailers like Amazon.com, Walmart, Target, and grocery store chains. 

These businesses should review how this part of their business works. The plan should discuss the logistics and costs of getting products onto store shelves and any potential hurdles the business may have to overcome.

If your business is much simpler than this, that’s OK. This section of your business plan can be either extremely short or more detailed, depending on the type of business you are building.

For businesses selling services, such as physical therapy or online software, you can use this section to describe the technology you’ll leverage, what goes into your service, and who you will partner with to deliver your services.

Dig Deeper: Learn how to write the operations chapter of your plan

Key milestones and metrics

Although it’s not required to complete your business plan, mapping out key business milestones and the metrics can be incredibly useful for measuring your success.

Good milestones clearly lay out the parameters of the task and set expectations for their execution. You’ll want to include:

• A description of each task
• The proposed due date
• Who is responsible for each task

If you have a budget, you can include projected costs to hit each milestone. You don’t need extensive project planning in this section—just list key milestones you want to hit and when you plan to hit them. This is your overall business roadmap. 

Possible milestones might be:

• Website launch date
• Store or office opening date
• First significant sales
• Break even date
• Business licenses and approvals

You should also discuss the key numbers you will track to determine your success. Some common metrics worth tracking include:

• Conversion rates
• Customer acquisition costs
• Profit per customer
• Repeat purchases

It’s perfectly fine to start with just a few metrics and grow the number you are tracking over time. You also may find that some metrics simply aren’t relevant to your business and can narrow down what you’re tracking.

Dig Deeper: How to use milestones in your business plan

Organization and management team

Investors don’t just look for great ideas—they want to find great teams. Use this chapter to describe your current team and who you need to hire . You should also provide a quick overview of your location and history if you’re already up and running.

Briefly highlight the relevant experiences of each key team member in the company. It’s important to make the case for why yours is the right team to turn an idea into a reality. 

Do they have the right industry experience and background? Have members of the team had entrepreneurial successes before? 

If you still need to hire key team members, that’s OK. Just note those gaps in this section.

Your company overview should also include a summary of your company’s current business structure . The most common business structures include:

• Sole proprietor
• Partnership

Be sure to provide an overview of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided? 

Potential lenders and investors will want to know the structure of the business before they will consider a loan or investment.

Dig Deeper: How to write about your company structure and team

Financial plan

The last section of your business plan is your financial plan and forecasts. 

Entrepreneurs often find this section the most daunting. But, business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast. 

A typical financial forecast in a business plan includes the following:

• Sales forecast : An estimate of the sales expected over a given period. You’ll break down your forecast into the key revenue streams that you expect to have.
• Expense budget : Your planned spending such as personnel costs , marketing expenses, and taxes.
• Profit & Loss : Brings together your sales and expenses and helps you calculate planned profits.
• Cash Flow : Shows how cash moves into and out of your business. It can predict how much cash you’ll have on hand at any given point in the future.
• Balance Sheet : A list of the assets, liabilities, and equity in your company. In short, it provides an overview of the financial health of your business. 

A strong business plan will include a description of assumptions about the future, and potential risks that could impact the financial plan. Including those will be especially important if you’re writing a business plan to pursue a loan or other investment.

Dig Deeper: How to create financial forecasts and budgets

This is the place for additional data, charts, or other information that supports your plan.

Including an appendix can significantly enhance the credibility of your plan by showing readers that you’ve thoroughly considered the details of your business idea, and are backing your ideas up with solid data.

Just remember that the information in the appendix is meant to be supplementary. Your business plan should stand on its own, even if the reader skips this section.

Dig Deeper : What to include in your business plan appendix

Optional: Business plan cover page

Adding a business plan cover page can make your plan, and by extension your business, seem more professional in the eyes of potential investors, lenders, and partners. It serves as the introduction to your document and provides necessary contact information for stakeholders to reference.

Your cover page should be simple and include:

• Company logo
• Business name
• Value proposition (optional)
• Business plan title
• Completion and/or update date
• Address and contact information
• Confidentiality statement

Just remember, the cover page is optional. If you decide to include it, keep it very simple and only spend a short amount of time putting it together.

Dig Deeper: How to create a business plan cover page

How to use AI to help write your business plan

Generative AI tools such as ChatGPT can speed up the business plan writing process and help you think through concepts like market segmentation and competition. These tools are especially useful for taking ideas that you provide and converting them into polished text for your business plan.

The best way to use AI to write a business plan is to leverage it as a collaborator , not a replacement for human creative thinking and ingenuity. 

AI can come up with lots of ideas and act as a brainstorming partner. It’s up to you to filter through those ideas and figure out which ones are realistic enough to resonate with your customers. 

There are pros and cons of using AI to help with your business plan . So, spend some time understanding how it can be most helpful before just outsourcing the job to AI.

Learn more: 10 AI prompts you need to write a business plan

• Writing tips and strategies

To help streamline the business plan writing process, here are a few tips and key questions to answer to make sure you get the most out of your plan and avoid common mistakes .  

Determine why you are writing a business plan

Knowing why you are writing a business plan will determine your approach to your planning project. 

For example: If you are writing a business plan for yourself, or just to use inside your own business , you can probably skip the section about your team and organizational structure. 

If you’re raising money, you’ll want to spend more time explaining why you’re looking to raise the funds and exactly how you will use them.

Regardless of how you intend to use your business plan , think about why you are writing and what you’re trying to get out of the process before you begin.

Keep things concise

Probably the most important tip is to keep your business plan short and simple. There are no prizes for long business plans . The longer your plan is, the less likely people are to read it. 

So focus on trimming things down to the essentials your readers need to know. Skip the extended, wordy descriptions and instead focus on creating a plan that is easy to read —using bullets and short sentences whenever possible.

Have someone review your business plan

Writing a business plan in a vacuum is never a good idea. Sometimes it’s helpful to zoom out and check if your plan makes sense to someone else. You also want to make sure that it’s easy to read and understand.

Don’t wait until your plan is “done” to get a second look. Start sharing your plan early, and find out from readers what questions your plan leaves unanswered. This early review cycle will help you spot shortcomings in your plan and address them quickly, rather than finding out about them right before you present your plan to a lender or investor.

If you need a more detailed review, you may want to explore hiring a professional plan writer to thoroughly examine it.

Use a free business plan template and business plan examples to get started

Knowing what information to include in a business plan is sometimes not quite enough. If you’re struggling to get started or need additional guidance, it may be worth using a business plan template. 

There are plenty of great options available (we’ve rounded up our 8 favorites to streamline your search).

But, if you’re looking for a free downloadable business plan template , you can get one right now; download the template used by more than 1 million businesses. 

Or, if you just want to see what a completed business plan looks like, check out our library of over 550 free business plan examples . 

We even have a growing list of industry business planning guides with tips for what to focus on depending on your business type.

Common pitfalls and how to avoid them

It’s easy to make mistakes when you’re writing your business plan. Some entrepreneurs get sucked into the writing and research process, and don’t focus enough on actually getting their business started. 

Here are a few common mistakes and how to avoid them:

Not talking to your customers : This is one of the most common mistakes. It’s easy to assume that your product or service is something that people want. Before you invest too much in your business and too much in the planning process, make sure you talk to your prospective customers and have a good understanding of their needs.

• Overly optimistic sales and profit forecasts: By nature, entrepreneurs are optimistic about the future. But it’s good to temper that optimism a little when you’re planning, and make sure your forecasts are grounded in reality. 
• Spending too much time planning: Yes, planning is crucial. But you also need to get out and talk to customers, build prototypes of your product and figure out if there’s a market for your idea. Make sure to balance planning with building.
• Not revising the plan: Planning is useful, but nothing ever goes exactly as planned. As you learn more about what’s working and what’s not—revise your plan, your budgets, and your revenue forecast. Doing so will provide a more realistic picture of where your business is going, and what your financial needs will be moving forward.
• Not using the plan to manage your business: A good business plan is a management tool. Don’t just write it and put it on the shelf to collect dust – use it to track your progress and help you reach your goals.
• Presenting your business plan

The planning process forces you to think through every aspect of your business and answer questions that you may not have thought of. That’s the real benefit of writing a business plan – the knowledge you gain about your business that you may not have been able to discover otherwise.

With all of this knowledge, you’re well prepared to convert your business plan into a pitch presentation to present your ideas. 

A pitch presentation is a summary of your plan, just hitting the highlights and key points. It’s the best way to present your business plan to investors and team members.

Dig Deeper: Learn what key slides should be included in your pitch deck

Use your business plan to manage your business

One of the biggest benefits of planning is that it gives you a tool to manage your business better. With a revenue forecast, expense budget, and projected cash flow, you know your targets and where you are headed.

And yet, nothing ever goes exactly as planned – it’s the nature of business.

That’s where using your plan as a management tool comes in. The key to leveraging it for your business is to review it periodically and compare your forecasts and projections to your actual results.

Start by setting up a regular time to review the plan – a monthly review is a good starting point. During this review, answer questions like:

• Did you meet your sales goals?
• Is spending following your budget?
• Has anything gone differently than what you expected?

Now that you see whether you’re meeting your goals or are off track, you can make adjustments and set new targets. 

Maybe you’re exceeding your sales goals and should set new, more aggressive goals. In that case, maybe you should also explore more spending or hiring more employees. 

Or maybe expenses are rising faster than you projected. If that’s the case, you would need to look at where you can cut costs.

A plan, and a method for comparing your plan to your actual results , is the tool you need to steer your business toward success.

Learn More: How to run a regular plan review

How to write a business plan FAQ

What is a business plan?

A document that describes your business , the products and services you sell, and the customers that you sell to. It explains your business strategy, how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

What are the benefits of writing a business plan?

A business plan helps you understand where you want to go with your business and what it will take to get there. It reduces your overall risk, helps you uncover your business’s potential, attracts investors, and identifies areas for growth.

Writing a business plan ultimately makes you more confident as a business owner and more likely to succeed for a longer period of time.

What are the 7 steps of writing a business plan?

The seven steps to writing a business plan include:

• Write a brief executive summary
• Describe your products and services.
• Conduct market research and compile data into a cohesive market analysis.
• Describe your marketing and sales strategy.
• Outline your organizational structure and management team.
• Develop financial projections for sales, revenue, and cash flow.
• Add any additional documents to your appendix.

What are the 5 most common business plan mistakes?

There are plenty of mistakes that can be made when writing a business plan. However, these are the 5 most common that you should do your best to avoid:

• 1. Not taking the planning process seriously.
• Having unrealistic financial projections or incomplete financial information.
• Inconsistent information or simple mistakes.
• Failing to establish a sound business model.
• Not having a defined purpose for your business plan.

What questions should be answered in a business plan?

Writing a business plan is all about asking yourself questions about your business and being able to answer them through the planning process. You’ll likely be asking dozens and dozens of questions for each section of your plan.

However, these are the key questions you should ask and answer with your business plan:

• How will your business make money?
• Is there a need for your product or service?
• Who are your customers?
• How are you different from the competition?
• How will you reach your customers?
• How will you measure success?

How long should a business plan be?

The length of your business plan fully depends on what you intend to do with it. From the SBA and traditional lender point of view, a business plan needs to be whatever length necessary to fully explain your business. This means that you prove the viability of your business, show that you understand the market, and have a detailed strategy in place.

If you intend to use your business plan for internal management purposes, you don’t necessarily need a full 25-50 page business plan. Instead, you can start with a one-page plan to get all of the necessary information in place.

What are the different types of business plans?

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. Here are a few common business plan types worth considering.

Traditional business plan: The tried-and-true traditional business plan is a formal document meant to be used when applying for funding or pitching to investors. This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix.

Business model canvas: The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea.

One-page business plan: This format is a simplified version of the traditional plan that focuses on the core aspects of your business. You’ll typically stick with bullet points and single sentences. It’s most useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Lean Plan: The Lean Plan is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance. It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

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

A business plan covers the “who” and “what” of your business. It explains what your business is doing right now and how it functions. The strategic plan explores long-term goals and explains “how” the business will get there. It encourages you to look more intently toward the future and how you will achieve your vision.

However, when approached correctly, your business plan can actually function as a strategic plan as well. If kept lean, you can define your business, outline strategic steps, and track ongoing operations all with a single plan.

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• Use AI to help write your plan
• Common planning mistakes
• Manage with your business plan

Related Articles

5 Min. Read

How To Write a Business Plan for a Life Coaching Business + Free Example

7 Min. Read

How to Write a Bakery Business Plan + Sample

3 Min. Read

What to Include in Your Business Plan Appendix

1 Min. Read

How to Calculate Return on Investment (ROI)

The LivePlan Newsletter

Become a smarter, more strategic entrepreneur.

Your first monthly newsetter will be delivered soon..

Unsubscribe anytime. Privacy policy .

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

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

No thanks, I prefer writing 40-page documents.

Discover the world’s #1 plan building software

More From Forbes

Understand and optimize the buying process to help your business grow.

• Share to Facebook
• Share to Twitter
• Share to Linkedin

Founder & CEO,  Step2Growth - Helping Startups Reach Self Sufficiency  | Women of Influence | Startup Mentor & Marketing Strategist

We live in a world where people are often overwhelmed by the amount of information available to them, though this is nothing new. Companies have been competing for customers' attention since the dawn of time. Advances in technology have made it increasingly difficult for businesses to get their message across, and people are more likely to act based on less information than before. Yet, despite all that noise, there are some guidelines that can help you combat your competition and stand out from the crowd. 

To be effective at most any business, understanding the customer's journey is paramount. It provides valuable insights into how potential customers may behave. 

Understand the buyer's journey.

A buying process is the series of steps that a company or individual takes to decide on whether to buy an item. The single goal of an effective and engaging buying process is to make it as easy as possible for customers to buy the products or services they need. The buying process has specific stages that customers go through as they evaluate and compare different companies, products and services. Understanding this helps you understand where the customer is in their journey and how to guide them from one stage of the process to another. It is also essential to determine how a company can best position its products and services for each stage. 

There are five stages of the buyer's journey: awareness, consideration, selection, retention and advocacy. Let's look at each stage. 

1. Awareness  

The awareness stage is where you’ll find information seekers who are doing background research before making a purchase decision. These people are typically not ready to buy just yet, but they want to stay aware of all their options. The awareness stage is when your products, services or solutions become an option for the potential customer. Awareness has two key elements: knowledge and intent. 

All your digital assets like website, social media and blog posts help with building awareness. Attending or sponsoring events and investing in search engine optimization also support awareness. 

2. Consideration  

The consideration stage, the second stage in the buyer's journey, is when consumers decide whether to buy. The buyers are evaluating their needs and wants against potential purchases. The decision may be made based on the quality of the product, its price and/or how it has been marketed. Consumers will also look for information about similar products on the market that do what they need it to at a more affordable price or better value. At this stage in the buyer’s journey, consumers are often not sure how they want to spend their money.  

You want to ensure that your product or service is considered by customers in this stage by introducing new features and adding value. Creating relevant landing pages and providing free downloadable eBooks, guides, consultations and trials are ways you can encourage potential buyers to consider your company. 

3. Selection  

The selection stage of this journey typically occurs after the buyer has completed their research and before they make a final decision to buy. During this time period, they are determining which product will best suit their needs by weighing the pros and cons against their expectations. 

Buyers are often at their most vulnerable when they're in the selection stage, so it's important to create an experience that will lead consumers to make a purchase. Creating urgency by providing limited-time offers, discounts and giveaways might help expedite the purchase process.  

4. Retention  

A potential buyer only becomes a customer when they have purchased something from you. Even after they are your customers, with so many alternative options, they can easily switch to your competitors if they provide better value. If a buyer or customer is at the retention stage of their buying journey, it is important for brands to find ways to keep the customer engaged even after the purchase is finally made. The goal during the retention stage is to maintain customer satisfaction and keep them coming back to your business for future purchases.  

One way brands can do that is by creating blog posts that are relevant to their audience. Blog content should help customers use the produce or service effectively — for example, video tutorials or step-by-step articles. Always make sure that your customers feel appreciated by communicating with them throughout their journey and addressing any concerns they have. 

5. Advocacy  

This is the final stage of the buyer's journey. This stage signifies the customer has bought your product or service and needs to be converted into an evangelist. To make customers evangelists, it's best to provide exceptional post-purchase support, which could include anything from hassle-free returns to follow-up emails. The importance of this stage cannot be overstated as advocates for your company can influence other potential buyers to purchase their product. 

You always want your customers to help promote your business. Create social media posts with testimonials from current customers to help potential customers at earlier stages move forward or even start their journey. Generate content to show your credibility to new prospects. 

Why should businesses care about the buyer's journey?

Everyone has a unique story and experience. Whether they buy a service or product, a buyer's journey is their own. But with so many different industries and so many different motivations, there can't be one way of doing things. Acknowledging and understanding the buying process can help your business develop a strategy that targets key hot spots and handle them in a more personalized and rewarding way.  

Depending on the product or service, a buyer can stay in different stages for varying amounts of time. The buyer's journey is generally shorter for low-cost, everyday consumer products while it takes much longer to decide when they're on the hunt for an enterprise solution. It is important to keep the buyer's journey in mind when creating your marketing and content strategy so that you have all the touchpoints covered and at the right time. 

Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?

• Editorial Standards
• Reprints & Permissions

A Comprehensive Guide to The Buying Process Steps

Did you know that understanding and leveraging the consumer buying process, specifically the buying process steps, can be the key to your business’s success?

It’s true! Understanding and catering to your customer’s needs at each stage of their journey can significantly improve customer satisfaction and drive more sales. In this blog post, we will delve into the consumer buying process and provide you with strategies to enhance the customer experience and overcome common obstacles. So, let’s embark on a journey to unlock the potential of the buying process steps!

Short Summary

• Understanding the consumer buying process is essential for businesses to remain competitive.
• The five stages of the buying process involve identifying needs and wants, gathering information, evaluating options, making a purchase decision, and post-purchase reflection.
• Businesses can improve customer satisfaction by leveraging technology & analytics, providing personalization & customization strategies, addressing price concerns & alleviating decision fatigue.

Understanding the Consumer Buying Process

The consumer buying process is a series of steps customers go through when making a purchase decision, which is influenced by marketing efforts. It is crucial for businesses to understand this process, as it helps them effectively promote their products and services, gather customer feedback, and remain competitive in the market. A customer journey map can be a helpful tool in visualizing and comprehending customers’ experiences as they go through the buying process.

Now that we have established the importance of understanding the consumer buying process let’s define it and examine the role marketing plays in guiding customers through their journey.

Defining the Consumer Buying Process

The consumer decision-making process, also known as the consumer buying process or the consumer decision process, consists of five distinct stages that consumers typically progress through when making a purchasing decision. These stages are:

• Problem recognition
• Gathering information
• Evaluating options
• Making the purchase decision
• Post-purchase reflection

Understanding these stages is critical for businesses, as it allows them to effectively tailor their marketing efforts to engage and guide shoppers throughout their buying journey.

To provide a comprehensive understanding of the consumer buying process, we will discuss each stage in detail and explore strategies businesses can employ to improve the customer experience at every step of the process.

The Role of Marketing in the Buying Process

Marketing is critical in impacting consumer behavior and providing guidance throughout the buying process. From the moment a customer recognizes a need or problem, marketing efforts work to engage and influence their decision-making process.

For example, Google is the most commonly used research tool for consumers, with 85% of them citing it as their primary source for product ideas and information. Popular marketplaces, such as Amazon and eBay, also play a significant role in customer information searches.

By understanding the importance of marketing in the buying process, businesses can create effective strategies to present their products or services as the optimal solution for the customer’s needs, ultimately leading to higher conversion rates and increased sales.

The Five Key Stages of the Buying Process

In this section, we will delve deeper into the five key stages of the consumer buying process, which include:

• Identifying needs and wants

By examining each stage in detail, we can uncover valuable insights and strategies to help businesses optimize their marketing efforts and enhance the overall customer experience.

For example, understanding the needs and wants of customers can help businesses create more targeted and effective campaigns.

Stage 1: Identifying Needs and Wants

The initial stage of the purchase phase involves customers recognizing a requirement or issue that can be addressed through a product or service.

Problem recognition is widely considered to be the foremost and most critical step in the customer buying process. For example, a customer may realize they need a heavy-duty winter coat for the upcoming winter, which initiates the sales process.

To help customers identify their needs and wants, businesses can create marketing campaigns highlighting common pain points and presenting their products or services as the solution. By effectively addressing the customer’s problem recognition, businesses can successfully guide them to the next stage of the buying process.

Stage 2: Gathering Information

Once customers recognize their needs or wants, they move on to the second stage of the consumer buying process: gathering information about potential solutions. During this stage, customers research their options, often utilizing tools such as search engines, online marketplaces, and word of mouth from family members or friends.

To reach customers during the information search stage, businesses can:

• Create informative content to assist potential customers in making informed decisions about their products and services
• Establish a reputable presence as an industry leader or expert
• Incorporate consumer-generated content such as customer reviews or video testimonials

These strategies can be effective in influencing the customer’s decision-making process.

Stage 3: Evaluating Options

At Stage 3, customers assess and contrast various alternatives based on criteria like cost, quality, and feedback. They create a list of brands or products that address their requirements, and consider factors such as the costs and benefits of each option and how each option aligns with their values and objectives.

During this stage, businesses should aim to present their product as the optimal option for the shopper. This can be achieved by providing detailed product descriptions and customer reviews and offering side-by-side comparisons of different products. By demonstrating the superiority of their product compared to other alternatives, businesses can successfully guide customers to the next stage of the buying process.

Stage 4: Making the Purchase Decision

In Stage 4, consumers make a final decision on which product or service to purchase. If the marketing strategy is successful, the consumer will make their final decision and purchase the product or service. For example, a customer may decide to purchase a particular winter coat after verifying that the brand uses sustainable materials and seeking input from their peers.

To encourage customers to make a purchase, businesses should:

• Provide clear and transparent pricing information
• Offer competitive pricing, discounts, or financing options
• Streamline the checkout process and reduce the number of steps customers need to take

These strategies can help retain shoppers and prevent them from abandoning the purchase.

Stage 5: Post-Purchase Reflection

Stage 5 involves consumers reflecting on their purchase and assessing whether it fulfilled their expectations and needs.

The post-purchase evaluation entails the customer assessing the usefulness of their new purchase and determining if it met their expectations. This stage is crucial for businesses, as it provides valuable feedback that can be used to improve the buying process and overall customer satisfaction.

To gather feedback and enhance the post-purchase experience, businesses can utilize tools such as QuestionPro CX, which provides insights into the customer’s post-purchase experience and identifies opportunities for improvement.

Businesses can improve customer retention and encourage repeat business by addressing any issues or concerns that arise during the post-purchase reflection stage.

Enhancing the Customer Experience Throughout the Buying Process

As we have seen, enhancing the customer experience throughout the buying process is crucial for both customer satisfaction and business success. By implementing strategies such as:

• Leveraging technology and analytics
• Providing personalization and customization
• Addressing price concerns
• Alleviating decision fatigue

Businesses can optimize the buying process and ensure a positive customer experience.

These strategies can help businesses create a more efficient and enjoyable buying process for their customers, leading to a more efficient buying process.

Leveraging Technology and Analytics

Businesses can utilize technology and analytics to gain insight into customer behavior and preferences, and thereby optimize the purchasing process.

For example, marketing automation tools can provide customers with the necessary support throughout their customer journey, with a variety of resources available in the PMA tech stack.

By leveraging technology and analytics, businesses can better understand their customers’ needs and preferences, and tailor their marketing efforts accordingly. For example, CMIT Solutions, a provider of IT support products and services, successfully leveraged content to engage consumers dealing with slow computers by targeting relevant keywords such as “why is my computer so slow” and “computer running slow”.

Personalization and Customization

Personalization and customization can help businesses tailor their marketing efforts and product offerings better to meet the needs and preferences of individual consumers.

Personalization in the buying process involves adapting the experience to the individual customer, usually by using data to offer a more personalized and relevant shopping journey.

On the other hand, customization pertains to giving the customer the ability to adjust or create a product to their particular requirements.

Businesses can create a more engaging and satisfying customer experience by implementing personalization and customization strategies. This increases customer satisfaction and fosters brand loyalty and repeat business.

Overcoming Common Obstacles in the Buying Process

Now that we have a comprehensive understanding of the consumer buying process and strategies to enhance the customer experience, let’s address some common obstacles in the buying process. By overcoming these challenges, businesses can increase conversion rates and improve customer satisfaction.

Addressing Price Concerns

Price concerns are a common obstacle in the purchasing process, as consumers often consider factors such as affordability, value for money, and comparison with competitors. To address these concerns, businesses can offer competitive pricing, discounts, or financing options to alleviate consumer hesitation and encourage purchases.

By providing clear and transparent pricing information, businesses can help customers make informed decisions and feel more confident in their purchase. This not only increases customer satisfaction, but also encourages repeat business and fosters brand loyalty.

Alleviating Decision Fatigue

Decision fatigue is another common obstacle in the buying process, characterized by a gradual decrease in the quality of decisions made by a buyer after a lengthy decision-making session. This can lead to suboptimal choices and irrational trade-offs. To alleviate decision fatigue, businesses can simplify the buying process, provide clear product descriptions, and offer helpful customer service.

Furthermore, offering personalized recommendations based on buyers’ individual needs and preferences can help reduce decision fatigue and lead to more confident purchase decisions. By implementing these strategies, businesses can create a smoother buying process and improve overall customer satisfaction.

In conclusion, understanding and leveraging the consumer buying process is crucial for businesses to market their products and services and stay competitive effectively.

By examining the five key stages of the buying process and implementing strategies to enhance the customer experience, businesses can improve customer satisfaction, loyalty, repeat business and overcome common obstacles in the buying process.

By applying the knowledge gained in this blog post, you can unlock the potential of the consumer buying process and drive your business to new heights of success.

Frequently Asked Questions

What are the 4 steps of the buying process.

The four buying process steps are Problem Recognition, Information Gathering, Evaluating Solutions, and the Purchase phase.

What are the 6 steps when a buyer makes a purchase?

The buying process comprises six stages: Problem Recognition, Information Search, Evaluation of Alternatives, Purchase Decision, and Purchase and Post-purchase Evaluation.

How can businesses improve the customer experience during the purchasing process?

Businesses can improve the customer experience by leveraging technology and analytics to provide personalization, address price concerns, and reduce decision fatigue.

By using technology and analytics, businesses can create a personalized customer experience. This can include customizing product recommendations, providing discounts, and offering tailored services. Additionally, businesses can use analytics to identify customer price concerns.

What role does marketing play in the buying process?

Marketing is key in guiding and influencing consumer behavior throughout the buying process.

It helps to shape customers’ decisions, from the initial awareness of a product or service to the final purchase. It can also help to build loyalty and trust.

How can businesses address price concerns in the purchasing process?

Businesses can offer competitive pricing, discounts, or financing options to help customers overcome price concerns and make purchases.

These options can make it easier for customers to purchase the products or services they need, even if they are on a tight budget.

Leave a Comment Cancel

Your email address will not be published. Required fields are marked *

Email Address:

Save my name, email, and website in this browser for the next time I comment.

What's Planergy?

Modern Spend Management and Accounts Payable software.

Helping organizations spend smarter and more efficiently by automating purchasing and invoice processing.

We saved more than $1 million on our spend in the first year and just recently identified an opportunity to save about $10,000 every month on recurring expenses with Planergy.

Cristian Maradiaga

Download a free copy of "indirect spend guide", to learn:.

• Where the best opportunities for savings are in indirect spend.
• How to gain visibility and control of your indirect spend.
• How to report and analyze indirect spend to identify savings opportunities.
• How strategic sourcing, cost management, and cost avoidance strategies can be applied to indirect spend.

Purchasing Process: Definition, Steps, and Best Practices

• Written by Lyle Del Vecchio
• 21 min read

KEY TAKEAWAYS

• The purchasing process is a series of steps a company goes through to purchase the goods and services they need to operate.
• Purchasing is a part of the overall procurement process, which also includes sourcing and accounts payable.
• Following best practices can help you extract more value from the purchasing process.
• Automation is one of the most important best practices, as it frees up your team to create more value while saving you time and money.
• Formalizing your purchasing process helps create a healthy supply chain and be a value-driver for your business.

Businesses will always need to purchase goods and services to meet their needs. 

Using a formalized purchasing process to do so can extract the maximum value from every dollar spent.

The way a company executes its purchasing process can have a major influence on not just expenses, but competitive performance, profitability, and efficiency.

By learning and implementing a few best practices for your purchasing process—particularly with help from modern procurement software—you can help reduce waste, protect against needless risk and expense, and maximize efficiency, profits, and value recovered from every dollar invested.

What Is Purchasing?

Purchasing is the practice of purchasing goods and services. Sounds obvious, but it can get confused with other areas of procurement.

To be more specific, purchasing is part of the procurement process that involves making the actual purchase. 

It includes identifying a need, getting internal approval, and sending a formal purchase order (PO) to vendors.

What Is the Difference Between Purchasing and Procurement?

The difference between purchasing and procurement is that purchasing is actually just a part of the greater procurement process.

While procurement is the entire process from sourcing through accounts payable, purchasing is the part where needs are met through purchasing goods and services.

The greater procurement process is referred to as procure-to-pay (P2P) .

Procurement involves all of the P2P process, including sourcing and vetting suppliers, negotiating yearly contracts, and ensuring that vendors are paid on time.

Purchasing teams focus solely on the purchasing part of the P2P process.

Another way of looking at it is that procurement refers to the overall framework for optimizing purchasing for maximum value, savings, and efficiency while purchasing is confined to actually obtaining goods and services.

Procurement will also incorporate all sourcing activities as well as purchasing.

What Is the Purchasing Process?

The purchasing process is the steps a company goes through when purchasing goods and services.

When looked at as a whole, the purchasing process is better described as the procure-to-pay (P2P) process. At its most basic level, the process can be as simple as conducting a transaction.

In the P2P process, procurement teams requisition goods and services through your supply chain, much in the same way a consumer might research and purchase the best appliance for their home.

The main benefit of a formal purchasing process is avoiding waste due to fraud, maverick spend , and other non-optimized buying habits.

By setting clear procurement policies and procedures, companies can ensure consistency, reduce costs, and improve supplier relationships, leading to better negotiation power and overall efficiency.  

Additionally, integrating analytics into the P2P process allows for real-time tracking and data-driven decision-making, further enhancing operational effectiveness.

Whether you’re a small business or a multinational corporation, having a formalized purchasing process can help you stay competitive in the modern marketplace.

Incorporating software that implements guided buying can ensure compliance with purchasing policies and maximize realized cost savings and cost avoidance .

Manual workflows and paper-based record-keeping are no longer sufficient for modern purchasing processes. Procurement software and automation have eliminated the challenges that come with these outdated methodologies.

What Are the Steps in the Purchasing Process?

The steps in the purchasing process are a cycle, with each step requiring information to be exchanged and either internal or external approval to move forward.

Every business will have its own unique purchasing process, but the purchasing process below is a standard that many companies can follow, and is a great place for any company to start.

Needs Analysis

Before a purchase can happen, a business need must be identified. The need should solve a specific problem and be documented by either the purchase requester or the procurement team. The procurement team can work with other teams on how to best justify a need and document it.

For example, a company that has recently adopted a remote-first policy may need more advanced video conferencing software.

The operations team might identify and source the best tool themselves, or can work with procurement to understand and document exactly what is needed and why before sourcing the best tool.

Purchase Requisition Created

Once a need has been identified, a purchase requisition is submitted to either the procurement department or purchasing manager of the department making the request.

The purchase requisition form contains full details on the items or services to be obtained, including the justification for why they need to be purchased from the needs analysis.

When using a procurement software system, an important step of the requisition process can be automated. If the requisition is below a certain threshold and there is budget available, the purchase request can be automatically approved.

If it is above that threshold, it can get automatically routed to the necessary approvers for expedited processing.

Purchase Order (PO) Review and Approval

Once the requisition is approved, it gets turned into a purchase order (PO). This can also be automated with e-procurement software, or done manually with Excel, Word, or a paper form.

Rejected purchase requisitions are returned to the requester to ask for a correction or clarification on why the purchase can’t be made.

The purchase order contains everything a vendor needs to fulfill the order, including quantity, price, item number, payment information, and payment terms.

The procurement team should review purchase orders to ensure that they include accurate pricing and match the purchase requisition.

They also need to verify the funds exist in the appropriate budget to cover the purchase.

This can be done by sending the purchase order to accounting, but if procurement software is being used, the budget should be immediately available for procurement teams to verify. This helps simplify the purchase order process .

Requests for Proposal

In some cases, approved POs are sent to the procurement department and used to create either an RFP (request for proposal) or RFQ (request for quotation). These, or some other sourcing documents , can be used in a sourcing event.

These requests are dispatched to potential vendors to solicit bids. Vendors are carefully reviewed based on important characteristics such as performance history, compliance records, average lead times, reputation, and price.

Note: When purchasing routine goods or services from preferred suppliers that have already been vetted, this step and the next can be skipped. Steps four and five are more important when working with new suppliers.

Contract Negotiation and Approval

If the RFP or RFQ process is used, the vendor with the winning bid is awarded a contract. The contract is further refined to ensure optimal terms and conditions and a mutually satisfactory arrangement for both parties.

Once the contract is signed, the purchase order becomes a legally binding agreement between the buyer and seller when the supplier accepts it.

This gives both parties recourse in the event that the order is not delivered by the vendor or paid for by the customer.

Shipping and Receiving

The supplier delivers the goods or services within the agreed-upon timeframe. Relevant documentation, like a goods received note for goods or timesheets for services, can be tracked and recorded as evidence for future audits.

Once they’ve been received (in the case of goods) or performed (in the case of services), the purchaser reviews if what they’ve received is what was ordered and notifies the vendor of any issues.

Three-Way Matching

Three-way matching is a verification process that accounts payable teams use to ensure that they are paying the correct amount and for the correct items. The process compares receipts/packing slips against the purchase order and invoice.

If all the information matches, then the invoice can be paid. If there is a discrepancy on the invoice or receipt, the vendor is asked for clarification or a correction to the invoice. This will follow an invoice dispute management process .

Discrepancies should be rectified as soon as possible to avoid late payment charges , production delays, or damage to supplier relationships.

Invoice Approval and Payment

Invoices that pass three-way matching are approved for payment. Payment is issued to the vendor via the payment information provided on the invoice.

Ideally, such payments are made with the goal of capturing early payment discounts and other incentives while avoiding late payment fees.

Using AP Automation software as part of a procurement software suite can speed up the payment process and capture more early payment discounts . It also helps solidify positive vendor relationships when payments are consistently made early or on time.

Accounting Records Update

Completed orders are recorded in the company’s books, and all documents related to the transaction are securely stored in a centralized location.

When using procurement software that integrates with your accounting software or ERP , this happens automatically and shouldn’t require any extra work from either accounting or procurement.

What Are the Best Practices for Purchasing?

Following a set purchasing process is helpful, but it doesn’t solve all of your procurement headaches. 

To level up your purchasing process into a well-oiled machine, it’s helpful to follow the best practices laid out below.

Automate As Much as You Can

Manual and paper-based workflows are not sufficient for companies that want a streamlined purchasing process and healthy supply chain.

Adding automation at each step of the process eliminates many of the headaches that these outdated methods have traditionally caused.

Using a modern procurement solution to automate as much of the purchasing process as you can provides the following benefits:

• Eliminates waste and expense from paper workflows and storage
• Significantly reduces time-consuming, high-volume tasks
• More accuracy, speed, and consistency
• Reduced human error
• Better ability to capture early payment discounts and avoid late payment fees
• Speeds up the approval process for requisitions, POs, and invoices

Automation isn’t just about cost savings or reducing labor, it frees your staff up to work on more meaningful tasks, creating a flywheel effect of value creation as people find better ways to use their time.

Use POs Whenever Possible

It can be tempting to allow teams to make purchases on company credit cards without a formal PO, especially for small purchases. However, using a PO safeguards your business.

Once it is signed, the PO becomes a legally binding document that ensures the seller will provide the goods or services being purchased.

Also, using POs helps out later in the procurement cycle. When it’s time for payment the PO can be used to verify that payment is for exactly what was ordered as part of the three-way matching process.

Always Do Three-Way Matching

It can also be tempting to ‘just pay the invoice’ when dealing a stack of invoices to sort through. Creating policies where invoices are paid below a value threshold can save time but will leave you open to accounts payable fraud just like respected companies like Google and Facebook .

It’s highly recommended to always match the invoice against the purchase order and receipt. This ensures that you’re paying the correct price, not paying a duplicate invoice, and are paying for the correct items.

Three-way matching is much easier when procurement software keeps track of invoices, purchase orders, and receipts in a central location.

Planergy’s accounts payable system automatically matches invoices and purchase orders, which means you can manage by exception and save time while ensuring your invoice payments are correct.

Improve Vendor Collaboration

Your best vendors aren’t just suppliers; they’re partners and stakeholders in your success.

If you succeed, they succeed with you. By working closely and collaborating with them, you can help each other grow your businesses.

Consider how vendors can help you:

• Discover new markets
• Develop innovative new products with better raw materials
• Further streamline your workflows through contracted services
• Boost your bottom line with better pricing terms and exclusive agreements

Don’t just think about how your vendors can help you, but how you can help them. The best vendors are thrilled to have you as a customer and excited about the growth opportunities that you can achieve by working together.

Focus on TCO Over Price

The price isn’t the only cost behind a purchase. There can also be other costs such as maintenance, training, labor hours, and other items associated with making a purchase or investment.

Shifting your perspective to the total cost of ownership (TCO), which considers all of the expenses related to owning something rather than just the price tag, can change the way your procurement function makes decisions.

Considering purchases and their related costs and benefits throughout their entire lifecycle can help you create more long-term value.

Build Social Responsibility Into Your Purchasing Process

Consumers take social and political issues seriously when considering their purchases—and so should your business.

Responsible sourcing and having a focus on ESG (environment, social, and governance) in procurement is not just about complying with environmental or labor regulations, but protecting your reputation and showing your customers that you care.

When evaluating potential suppliers, pay attention to their compliance history and environmental and social reputation. If you choose suppliers that match your company’s ethics, you’ll minimize the chance of violating them.

How to Get The Best Value from Your Purchasing Process

Extracting the maximum value from the purchasing process requires care and skill—especially in a competitive and fast-moving global marketplace.

Along with following the best pratices above, using the right tools to automate and streamline the purchasing process will help you derive the most value.

Choosing a complete procure-to-pay software solution like Planergy can help you:

• Standardize processes for every purchase
• Reduce labor through automation
• Create more value at every step of the process
• Speed up your approval and purchasing flows
• Help you build better supplier relationships
• Improve spend visibility and reporting
• Identify savings opportunities with spend analytics
• Automate three-way matching and invoice processing

Having a solid purchasing process and reliable procurement software does more than just get solve your immediate purchasing needs. 

It adds value, savings, sustainability, and greater productivity to your overall business.

What’s your goal today?

1. use planergy to manage purchasing and accounts payable.

We’ve helped save billions of dollars for our clients through better spend management, process automation in purchasing and finance, and reducing financial risks. To discover how we can help grow your business:

• Read our case studies, client success stories, and testimonials.
• Visit our Purchase Order Software page to see how Planergy can digitize and automate your purchase order process saving you time and money.
• Learn about us, and our long history of helping companies just like yours.

2. Download our “Indirect Spend Guide”

3. learn best practices for purchasing, finance, and more.

Browse hundreds of articles , containing an amazing number of useful tools, techniques, and best practices. Many readers tell us they would have paid consultants for the advice in these articles.

Related Posts

• Spend Management

Catalog Management in Procurement: What Is It, Types of Catalogs, Challenges and Best Practices To Manage Them

• 17 min read

Discretionary Expenses: What Are They, Examples, and How To Control Them In Business

• 18 min read

Procurement Methods: How To Source and Evaluate The Best Suppliers To Work With

• 16 min read

PROCUREMENT

• Purchasing Software
• Purchase Order Software
• Procurement Solutions
• Procure-to-Pay Software
• E-Procurement Software
• PO System For Small Business
• Spend Analysis Software
• Vendor Management Software
• Inventory Management Software

AP & FINANCE

• Accounts Payable Software
• AP Automation Software
• Compliance Management Software
• Business Budgeting Software
• Workflow Automation Software
• Integrations
• Reseller Partner Program

We use cookies to personalise content and ads, to provide social media features and to analyse our traffic. We also share information about your use of our site with our social media, advertising and analytics partners who may combine it with other information that you’ve provided to them or that they’ve collected from your use of their services.

Read our privacy statement here .

Business is Our Business

Stay up-to-date with news sent straight to your inbox

Sign up with your email to receive updates from our blog

The 7 Steps of the Business Planning Process: A Complete Guide

In this article, we'll provide a comprehensive guide to the seven steps of the business planning process, and discuss the role of Strikingly website builder in creating a professional business plan.

Step 1: Conducting a SWOT Analysis

The first step in the business planning process is to conduct a SWOT analysis. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. This analysis will help you understand your business's internal and external environment, and it can help you identify areas of improvement and growth.

Strengths and weaknesses refer to internal factors such as the company's resources, capabilities, and culture. Opportunities and threats are external factors such as market trends, competition, and regulations.

You can conduct a SWOT analysis by gathering information from various sources such as market research, financial statements, and feedback from customers and employees. You can also use tools such as a SWOT matrix to visualize your analysis.

What is a SWOT Analysis?

A SWOT analysis is a framework for analyzing a business's internal and external environment. The acronym SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.

Strengths and weaknesses include internal factors such as the company's resources, capabilities, and culture. Opportunities and threats are external factors such as market trends, competition, and regulations.

A SWOT analysis can help businesses identify areas of improvement and growth, assess their competitive position, and make informed decisions. It can be used for various purposes, such as business planning, product development, marketing strategy, and risk management.

Importance of Conducting a SWOT Analysis

Conducting a SWOT analysis is crucial for businesses to develop a clear understanding of their internal and external environment. It can help businesses identify their strengths and weaknesses and uncover new opportunities and potential threats. By doing so, businesses can make informed decisions about their strategies, resource allocation, and risk management.

A SWOT analysis can also help businesses identify their competitive position in the market and compare themselves to their competitors. This can help businesses differentiate themselves from their competitors and develop a unique value proposition.

Example of a SWOT Analysis

Here is an example of a SWOT analysis for a fictional business that sells handmade jewelry:

• Unique and high-quality products
• Skilled and experienced craftsmen
• Strong brand reputation and customer loyalty
• Strategic partnerships with local boutiques
• Limited production capacity
• High production costs
• Limited online presence
• Limited product variety

Opportunities

• Growing demand for handmade products
• Growing interest in sustainable and eco-friendly products
• Opportunities to expand online presence and reach new customers
• Opportunities to expand product lines
• Increasing competition from online and brick-and-mortar retailers
• Fluctuating consumer trends and preferences
• Economic downturns and uncertainty
• Increased regulations and compliance requirements

This SWOT analysis can help the business identify areas for improvement and growth. For example, the business can invest in expanding its online presence, improving its production efficiency, and diversifying its product lines. The business can also leverage its strengths, such as its skilled craftsmen and strategic partnerships, to differentiate itself from its competitors and attract more customers.

Step 2: Defining Your Business Objectives

Once you have conducted a SWOT analysis, the next step is to define your business objectives. Business objectives are specific, measurable, achievable, relevant, and time-bound (SMART) goals that align with your business's mission and vision.

Your business objectives can vary depending on your industry, target audience, and resources. Examples of business objectives include increasing sales revenue, expanding into new markets, improving customer satisfaction, and reducing costs.

You can use tools such as a goal-setting worksheet or a strategic planning framework to define your business objectives. You can also seek input from your employees and stakeholders to ensure your objectives are realistic and achievable.

What is Market Research?

Market research is an integral part of the business planning process. It gathers information about a target market or industry to make informed decisions. It involves collecting and analyzing data on consumer behavior, preferences, and buying habits, as well as competitors, industry trends, and market conditions.

Market research can help businesses identify potential customers, understand their needs and preferences, and develop effective marketing strategies. It can also help businesses identify market opportunities, assess their competitive position, and make informed product development, pricing, and distribution decisions.

Importance of Market Research in Business Planning

Market research is a crucial component of the business planning process. It can help businesses identify market trends and opportunities, assess their competitive position, and make informed decisions about their marketing strategies, product development, and business operations.

By conducting market research, businesses can gain insights into their target audience's behavior and preferences, such as their purchasing habits, brand loyalty, and decision-making process. This can help businesses develop targeted marketing campaigns and create products that meet their customers' needs.

Market research can also help businesses assess their competitive position and identify gaps in the market. Businesses can differentiate themselves by analyzing their competitors' strengths and weaknesses and developing a unique value proposition.

Different Types of Market Research Methods

Businesses can use various types of market research methods, depending on their research objectives, budget, and time frame. Here are some of the most common market research methods:

Surveys are a common market research method that involves asking questions to a sample of people about their preferences, opinions, and behaviors. Surveys can be conducted through various channels like online, phone, or in-person surveys.

• Focus Groups

Focus groups are a qualitative market research method involving a small group to discuss a specific topic or product. Focus groups can provide in-depth insights into customers' attitudes and perceptions and can help businesses understand the reasoning behind their preferences and behaviors.

Interviews are a qualitative market research method that involves one-on-one conversations between a researcher and a participant. Interviews can be conducted in person, over the phone, or through video conferencing and can provide detailed insights into a participant's experiences, perceptions, and preferences.

• Observation

Observation is a market research method that involves observing customers' behavior and interactions in a natural setting such as a store or a website. Observation can provide insights into customers' decision-making processes and behavior that may not be captured through surveys or interviews.

• Secondary Research

Secondary research involves collecting data from existing sources, like industry reports, government publications, or academic journals. Secondary research can provide a broad overview of the market and industry trends and help businesses identify potential opportunities and threats.

By combining these market research methods, businesses can comprehensively understand their target market and industry and make informed decisions about their business strategy.

Step 3: Conducting Market Research

Market research should always be a part of your strategic business planning. This step gathers information about your target audience, competitors, and industry trends. This information can help you make informed decisions about your product or service offerings, pricing strategy, and marketing campaigns.

There are various market research methods, such as surveys, focus groups, and online analytics. You can also use tools like Google Trends and social media analytics to gather data about your audience's behavior and preferences.

Market research can be time-consuming and costly, but it's crucial for making informed decisions that can impact your business's success. Strikingly website builder offers built-in analytics and SEO optimization features that can help you track your website traffic and audience engagement.

Step 4: Identifying Your Target Audience

Identifying your target audience is essential in the business planning process. Your target audience is the group of people who are most likely to buy your product or service. Understanding their needs, preferences, and behaviors can help you create effective marketing campaigns and improve customer satisfaction.

You can identify your target audience by analyzing demographic, psychographic, and behavioral data. Demographic data include age, gender, income, and education level. Psychographic data includes personality traits, values, and lifestyle. Behavioral data includes buying patterns, brand loyalty, and online engagement.

Once you have identified your target audience, you can use tools such as buyer personas and customer journey maps to create a personalized and engaging customer experience. Strikingly website builder offers customizable templates and designs to help you create a visually appealing and user-friendly website for your target audience.

What is a Target Audience?

A target audience is a group most likely to be interested in and purchase a company's products or services. A target audience can be defined based on various factors such as age, gender, location, income, education, interests, and behavior.

Identifying and understanding your target audience is crucial for developing effective marketing strategies and improving customer engagement and satisfaction. By understanding your target audience's needs, preferences, and behavior, you can create products and services that meet their needs and develop targeted marketing campaigns that resonate with them.

Importance of Identifying Your Target Audience

Identifying your target audience is essential for the success of your business. By understanding your target audience's needs and preferences, you can create products and services that meet their needs and develop targeted marketing campaigns that resonate with them.

Here are reasons why identifying your target audience is important:

• Improve customer engagement. When you understand your target audience's behavior and preferences, you can create a more personalized and engaging customer experience to improve customer loyalty and satisfaction.
• Develop effective marketing strategies. Targeting your marketing efforts to your target audience creates more effective and efficient marketing campaigns that can increase brand awareness, generate leads, and drive sales.
• Improve product development. By understanding your target audience's needs and preferences, you can develop products and services that meet their specific needs and preferences, improving customer satisfaction and retention.
• Identify market opportunities. If you identify gaps in the market or untapped market segments, you can develop products and services to meet unmet needs and gain a competitive advantage.

Examples of Target Audience Segmentation

Here are some examples of target audience segmentation based on different demographic, geographic, and psychographic factors:

• Demographic segmentation. Age, gender, income, education, occupation, and marital status.
• Geographic segmentation. Location, region, climate, and population density.
• Psychographic segmentation. Personality traits, values, interests, and lifestyle.

Step 5: Developing a Marketing Plan

A marketing plan is a strategic roadmap that outlines your marketing objectives, strategies, tactics, and budget. Your marketing plan should align with your business objectives and target audience and include a mix of online and offline marketing channels.

Marketing strategies include content marketing, social media marketing, email marketing, search engine optimization (SEO), and paid advertising. Your marketing tactics can include creating blog posts, sharing social media posts, sending newsletters, optimizing your website for search engines, and running Google Ads or Facebook Ads.

To create an effective marketing plan , research your competitors, understand your target audience's behavior, and set clear objectives and metrics. You can also seek customer and employee feedback to refine your marketing strategy.

Strikingly website builder offers a variety of marketing features such as email marketing, social media integration, and SEO optimization tools. You can also use the built-in analytics dashboard to track your website's performance and monitor your marketing campaign's effectiveness.

What is a Marketing Plan?

A marketing plan is a comprehensive document that outlines a company's marketing strategy and tactics. It typically includes an analysis of the target market, a description of the product or service, an assessment of the competition, and a detailed plan for achieving marketing objectives.

A marketing plan can help businesses identify and prioritize marketing opportunities, allocate resources effectively, and measure the success of their marketing efforts. It can also provide the marketing team with a roadmap and ensure everyone is aligned with the company's marketing goals and objectives.

Importance of a Marketing Plan in Business Planning

A marketing plan is critical to business planning. It can help businesses identify their target audience, assess their competitive position, and develop effective marketing strategies and tactics.

Here are a few reasons why a marketing plan is important in business planning:

• Provides a clear direction. A marketing plan can provide a clear direction for the marketing team and ensure everyone is aligned with the company's marketing goals and objectives.
• Helps prioritize marketing opportunities. By analyzing the target market and competition, a marketing plan can help businesses identify and prioritize marketing opportunities with the highest potential for success.
• Ensures effective resource allocation. A marketing plan can help businesses allocate resources effectively and ensure that marketing efforts are focused on the most critical and impactful activities.
• Measures success. A marketing plan can provide a framework for measuring the success of marketing efforts and making adjustments as needed.

Examples of Marketing Strategies and Tactics

Here are some examples of marketing strategies and tactics that businesses can use to achieve their marketing objectives:

• Content marketing. Creating and sharing valuable and relevant content that educates and informs the target audience about the company's products or services.
• Social media marketing. Leveraging social media platforms like Facebook, Twitter, and Instagram to engage with the target audience, build brand awareness, and drive website traffic.
• Search engine optimization (SEO). Optimizing the company's website and online content to rank higher in search engine results and drive organic traffic.
• Email marketing. Sending personalized and targeted emails to the company's email list to nurture leads, promote products or services, and drive sales.
• Influencer marketing. Partnering with influencers or industry experts to promote the company's products or services and reach a wider audience.

By using a combination of these marketing strategies and tactics, businesses can develop a comprehensive and effective marketing plan that aligns with their marketing goals and objectives.

Step 6: Creating a Financial Plan

A financial plan is a detailed document that outlines your business's financial projections, budget, and cash flow. Your financial plan should include a balance sheet, income statement, and cash flow statement, and it should be based on realistic assumptions and market trends.

To create a financial plan, you should consider your revenue streams, expenses, assets, and liabilities. You should also analyze your industry's financial benchmarks and projections and seek input from financial experts or advisors.

.jpg)Image taken from Strikingly Templates

Strikingly website builder offers a variety of payment and e-commerce features, such as online payment integration and secure checkout. You can also use the built-in analytics dashboard to monitor your revenue and expenses and track your financial performance over time.

What is a Financial Plan?

A financial plan is a comprehensive document that outlines a company's financial goals and objectives and the strategies and tactics for achieving them. It typically includes a description of the company's financial situation, an analysis of revenue and expenses, and a projection of future financial performance.

A financial plan can help businesses identify potential risks and opportunities, allocate resources effectively, and measure the success of their financial efforts. It can also provide a roadmap for the finance team and ensure everyone is aligned with the company's financial goals and objectives.

Importance of Creating a Financial Plan in Business Planning

Creating a financial plan is a critical component of the business planning process. It can help businesses identify potential financial risks and opportunities, allocate resources effectively, and measure the success of their financial efforts.

Here are some reasons why creating a financial plan is important in business planning:

• Provides a clear financial direction. A financial plan can provide a clear direction for the finance team and ensure everyone is in sync with the company's financial goals and objectives.
• Helps prioritize financial opportunities. By analyzing revenue and expenses, a financial plan can help businesses identify and prioritize financial opportunities with the highest potential for success.
• Ensures effective resource allocation. A financial plan can help businesses allocate resources effectively and ensure that financial efforts are focused on the most critical and impactful activities.
• Measures success. A financial plan can provide a framework for measuring the success of financial efforts and making adjustments as needed.

Examples of Financial Statements and Projections

Here are some examples of financial statements and projections that businesses can use in their financial plan:

• Income statement. A financial statement that shows the company's revenue and expenses over a period of time, typically monthly or annually.
• Balance sheet. A financial statement shows the company's assets, liabilities, and equity at a specific time, typically at the end of a fiscal year.
• Cash flow statement. A financial statement that shows the company's cash inflows and outflows over a period of time, typically monthly or annually.
• Financial projections. Forecasts of the company's future financial performance based on assumptions and market trends. This can include revenue, expenses, profits, and cash flow projections.

Step 7: Writing Your Business Plan

The final step in the business planning process is to write your business plan. A business plan is a comprehensive document that outlines your business's mission, vision, objectives, strategies, and financial projections.

A business plan can help you clarify your business idea, assess the feasibility of your business, and secure funding from investors or lenders. It can also provide a roadmap for your business and ensure that you stay focused on your goals and objectives.

Importance of Writing a Business Plan

Writing a business plan is an essential component of the business planning process. It can help you clarify your business idea , assess the feasibility of your business, and secure funding from investors or lenders.

Here are some reasons why writing a business plan is important:

• Clarifies your business idea. Writing a business plan can help you clarify your business idea and understand your business's goals, objectives, and strategies.
• Assesses the feasibility of your business. A business plan can help you assess the feasibility of your business and identify potential risks and opportunities.
• Secures funding. A well-written business plan can help you secure funding from investors or lenders by demonstrating the potential of your business and outlining a clear path to success.
• Provides a roadmap for your business. A business plan can provide a roadmap and ensure that you stay focused on your goals and objectives.

Tips on How to Write a Successful Business Plan

Here are some tips on how to write a business plan successfully:

• Start with an executive summary. The executive summary is a brief business plan overview and should include your business idea, target market, competitive analysis, and financial projections.
• Describe your business and industry. Provide a detailed description of your business and industry, including your products or services, target market, and competitive landscape.
• Develop a marketing strategy. Outline your marketing strategy and tactics, including your target audience, pricing strategy, promotional activities, and distribution channels.
• Provide financial projections. Provide detailed financial projections, including income statements, balance sheets, and cash flow statements, as well as assumptions and risks.
• Keep it concise and clear. Keep your business plan concise and clear, and avoid using jargon or technical terms that may confuse or intimidate readers.

Role of Strikingly Website Builder in Creating a Professional Business Plan

Strikingly website builder can play a significant role in creating a professional business plan. Strikingly provides an intuitive and user-friendly platform that allows you to create a professional-looking website and online store without coding or design skills.

Using Strikingly, you can create a visually appealing business plan and present it on your website with images, graphics, and videos to enhance the reader's experience. You can also use Strikingly's built-in templates and a drag-and-drop editor to create a customized and professional-looking business plan that reflects your brand and style.

Strikingly also provides various features and tools that can help you showcase your products or services, promote your business, and engage with your target audience. These features include e-commerce functionality, social media integration, and email marketing tools.

Let’s Sum Up!

In conclusion, the 7 steps of the business planning process are essential for starting and growing a successful business. By conducting a SWOT analysis, defining your business objectives, conducting market research, identifying your target audience, developing a marketing plan, creating a financial plan, and writing your business plan, you can set a solid foundation for your business's success.

Strikingly website builder can help you throughout the business planning process by offering a variety of features such as analytics, marketing, e-commerce , and business plan templates. With Strikingly, you can create a professional and engaging website and business plan that aligns with your business objectives and target audience.

Most Viewed

8 Steps of a Business Organization's Purchasing Process

• Small Business
• Business Planning & Strategy
• Business Steps
• ')" data-event="social share" data-info="Pinterest" aria-label="Share on Pinterest">
• ')" data-event="social share" data-info="Reddit" aria-label="Share on Reddit">
• ')" data-event="social share" data-info="Flipboard" aria-label="Share on Flipboard">

What Are the Three Most Important Components of an RFP?

The difference between a requisition & a purchase order, roles of a purchasing department.

• Business Activities That Are Preformed in the Expenditure Cycle
• How to Join Facebook as an Organization

Unlike consumer buying habits, businesses usually have a more formal approach toward purchasing. Rather than make impulse purchases, businesses will compare prices, compare suppliers and compare the quality of goods and services before completing a sale. Although some companies may spend more time on specific steps in the process or they may eliminate certain steps altogether, most business-to-business purchases can be divided into eight distinct steps.

1. A Problem Is Identified

The purchasing process does not begin until someone identifies a problem within the organization, which can be solved by purchasing a good or service. Anyone within the organization can initiate this – from a customer service rep out of printer paper – to the CEO who decides that it's time to expand to a larger facility. In some instances, a sales person may help someone in the organization to identify a need that no one had previously recognized.

2. General Need Description

After a problem is identified, the organization determines which product or service is required. When an office is out of printer paper, the office manager may decide that more paper is needed. However, a software engineer in the same company might suggest that the organization become paperless by providing all employees in the office with tablet computers.

3. Product or Service Specification

Once the general need is agreed upon by those who have purchasing authority in that organization, they will then narrow down the options by specifying what the product or service must offer. If they have decided on tablets, they would then specify the size they want, how much memory the tablets offer, and so on. If they decide on paper, then they would determine the quantity and quality of paper required.

4. Potential Supplier Search

The third step of the buying process involves looking for potential suppliers. If the company doesn't already have an established relationship with a vendor that offers the product, then often the company must look online, attend trade shows or contact suppliers by telephone. Purchasers determine if the suppliers are reputable, financially stable and if they'll be around for future requirements.

5. Request for Proposals

For large purchases, organizations usually write out a formal RFP, a Request for Proposal, and then send it to their preferred suppliers. Alternatively, they may make the process public so that anyone can send in a proposal. For smaller purchases, this could be as simple as looking at the price on a website.

6. Supplier Evaluation and Selection

In this part of the process, supplier proposals and prices are evaluated to determine who is offering the best price and the best quality. Often, price alone is enough to win an organization's business, as many businesses will weigh the price against financing options, supplier reputation and whether or not a supplier can provide the organization with future goods and services.

7. Establishing Credit and Order Specification

Once the winning supplier has been selected, the organization places the order. This may involve establishing credit with the supplier, agreeing on terms, as well as reviewing shipment times and any other deliverables that may come with the sale, such as installation or product training.

8. Supplier Performance Review

After the product has been delivered or the service has been performed, the organization will review the purchase to see if it meets acceptable standards. For larger purchases, this could be a formal review involving key decision makers in the organization and the supplier's sales staff. For smaller purchases, it is often informal. For example, if the company ordered a box of paper that arrived late or was damaged, the company may decide not to buy from that supplier again, without ever informing the supplier of a problem.

• University of Delaware: What is Consumer Buying Behavior?

A published author and professional speaker, David Weedmark has advised businesses on technology, media and marketing for more than 20 years. He has taught computer science at Algonquin College, has started three successful businesses, and has written hundreds of articles for newspapers and magazines and online publications including About.com, Re/Max and American Express.

Related Articles

Five stages of the business buying decision process, what are strategic sourcing steps, procurement checklist for an audit, what are the functions of a purchasing department in an organization, how to deal with purchasing agents, what is a purchase requisition form, steps for a purchasing department in a small business, iso 9001 purchasing procedures, how does a purchase order work, most popular.

• 1 Five Stages of the Business Buying Decision Process
• 2 What Are Strategic Sourcing Steps?
• 3 Procurement Checklist for an Audit
• 4 What Are the Functions of a Purchasing Department in an Organization?

Definition and examples of the consumer decision-making process

Lucid Content

Reading time: about 6 min

What is the consumer decision making process

The consumer decision-making process involves five basic steps. This is the process by which consumers evaluate making a purchasing decision. The 5 steps are problem recognition, information search, alternatives evaluation, purchase decision and post-purchase evaluation.

5 steps of the consumer decision making process

• Problem recognition : Recognizes the need for a service or product
• Information search : Gathers information
• Alternatives evaluation : Weighs choices against comparable alternatives
• Purchase decision : Makes actual purchase
• Post-purchase evaluation : Reflects on the purchase they made

The consumer decision-making process can seem mysterious, but all consumers go through basic steps when making a purchase to determine what products and services will best fit their needs. 

Think about your own thought process when buying something—especially when it’s something big, like a car. You consider what you need, research, and compare your options before making the decision to buy. Afterward, you often wonder if you made the right call. 

If you work in sales or marketing, make more of an impact by putting yourself in the customer’s shoes and reviewing the steps in the consumer decision-making process.

Steps in the consumer decision process

Generally speaking, the consumer decision-making process involves five basic steps.

1. Problem recognition

The first step of the consumer decision-making process is recognizing the need for a service or product. Need recognition, whether prompted internally or externally, results in the same response: a want. Once consumers recognize a want, they need to gather information to understand how they can fulfill that want, which leads to step two.

But how can you influence consumers at this stage? Since internal stimulus comes from within and includes basic impulses like hunger or a change in lifestyle, focus your sales and marketing efforts on external stimulus. 

Develop a comprehensive brand campaign to build brand awareness and recognition––you want consumers to know you and trust you. Most importantly, you want them to feel like they have a problem only you can solve.

Example: Winter is coming. This particular customer has several light jackets, but she’ll need a heavy-duty winter coat if she’s going to survive the snow and lower temperatures.

2. Information search

When researching their options, consumers again rely on internal and external factors, as well as past interactions with a product or brand, both positive and negative. In the information stage, they may browse through options at a physical location or consult online resources, such as Google or customer reviews.

Your job as a brand is to give the potential customer access to the information they want, with the hopes that they decide to purchase your product or service. Create a funnel and plan out the types of content that people will need. Present yourself as a trustworthy source of knowledge and information. 

Another important strategy is word of mouth—since consumers trust each other more than they do businesses, make sure to include consumer-generated content, like customer reviews or video testimonials, on your website.

Example: The customer searches “women’s winter coats” on Google to see what options are out there. When she sees someone with a cute coat, she asks them where they bought it and what they think of that brand.

3. Alternatives evaluation

At this point in the consumer decision-making process, prospective buyers have developed criteria for what they want in a product. Now they weigh their prospective choices against comparable alternatives.

Example: The customer compares a few brands that she likes. She knows that she wants a brightly colored coat that will complement the rest of her wardrobe, and though she would rather spend less money, she also wants to find a coat made from sustainable materials.

4. Purchase decision

This is the moment the consumer has been waiting for: the purchase. Once they have gathered all the facts, including feedback from previous customers, consumers should arrive at a logical conclusion on the product or service to purchase.

If you’ve done your job correctly, the consumer will recognize that your product is the best option and decide to purchase it.

Example: The customer finds a pink winter coat that’s on sale for 20% off. After confirming that the brand uses sustainable materials and asking friends for their feedback, she orders the coat online.

5. Post-purchase evaluation

This part of the consumer decision-making process involves reflection from both the consumer and the seller. As a seller, you should try to gauge the following:

• Did the purchase meet the need the consumer identified?
• Is the customer happy with the purchase?
• How can you continue to engage with this customer?

Remember, it’s your job to ensure your customer continues to have a positive experience with your product. Post-purchase engagement could include follow-up emails, discount coupons, and newsletters to entice the customer to make an additional purchase. You want to gain life-long customers, and in an age where anyone can leave an online review, it’s more important than ever to keep customers happy.

Tools to better understand your customer

Putting yourself in the customer’s shoes can help you steer consumers towards your product. Here are some tools to help you analyze their decision-making process and refine your brand marketing and sales tactics.

Customer journey map

A customer journey map visualizes a hypothetical customer’s actions. Use it to empathize with your customers as they go through a specific process or try to complete a purchase. Map out the actions the customer is likely to take.

Learn how to make a customer journey map to understand the decision-making process for your product/service.

Empathy map

Empathy maps help teams understand the customer’s mindset when dealing with a product or service. They can be used for personas or specific customer types. Empathy mapping is often most helpful at the beginning of a new project. Collaborate as a team to quickly get inside the heads of your customers during every step of product development, testing, and release.

Learn how empathy maps work so you can understand your customers better and make customer-oriented decisions .

User personas

Based on user research or past user interactions, user persona cards construct fictional or composite personas that break down and organize your data into distinctive types of users. Build a more human picture of your users and understand your user base better by creating user personas for the various types of users for your product or service.

Understanding the consumer decision-making process is key if you want to attract more customers and get them to make that crucial purchase. Use this process and the tools above to tune in to consumers and genuinely understand how to reach them.

Visualize your own customer journey map.

About Lucidchart

Lucidchart, a cloud-based intelligent diagramming application, is a core component of Lucid Software's Visual Collaboration Suite. This intuitive, cloud-based solution empowers teams to collaborate in real-time to build flowcharts, mockups, UML diagrams, customer journey maps, and more. Lucidchart propels teams forward to build the future faster. Lucid is proud to serve top businesses around the world, including customers such as Google, GE, and NBC Universal, and 99% of the Fortune 500. Lucid partners with industry leaders, including Google, Atlassian, and Microsoft. Since its founding, Lucid has received numerous awards for its products, business, and workplace culture. For more information, visit lucidchart.com.

Related articles

How to make a decision tree in excel.

Use this guide to learn how to make a decision tree in Microsoft Excel—either directly in Excel using Shapes or using a simple Lucidchart integration.

9 templates for marketers

Whether you specialize in a specific marketing role or you wear many different hats on a small team, we’ve rounded up nine marketing templates to make your job easier.

Bring your bright ideas to life.

or continue with

By registering, you agree to our Terms of Service and you acknowledge that you have read and understand our Privacy Policy .

3.3 The Consumer Purchasing Decision Process

Learning outcomes.

By the end of this section, you will be able to:

• 1 Explain the first stage in the consumer purchasing decision process.
• 2 Summarize the second stage in the consumer purchasing decision process.
• 3 Describe the third stage in the consumer purchasing decision process.
• 4 Discuss the fourth stage in the consumer purchasing decision process.
• 5 Explain the fifth and final stage in the consumer purchasing decision process.

Consumer Decision Process

This chapter has examined many of the factors that influence consumer buying behavior, but behind the visible act of making a purchase lies an important decision process that takes place before, during, and after the purchase of a product or service. Figure 3.12 shows the five stages of the consumer decision process .

A buyer passes through five stages of the consumer decision process when making choices about which products or services to buy. Let’s examine each, starting at the beginning.

Stage 1: Need Recognition

The buying process starts when you sense a difference between your actual state and your desired state. This is referred to as problem awareness or need recognition. You might become aware of a need through internal stimuli (such as feeling hungry or thirsty when you’re on a long road trip) or external stimuli (such as passing a bakery and smelling the wonderful aroma of cookies baking).

Sometimes recognizing the problem or need is easy. You’ve run out of toilet paper or milk. But other times recognizing the problem or issue is more complicated. For example, think about this first stage in terms of your decision to enroll in college. What was the stimulus that triggered your interest in attending college? Are you a working adult who has recognized that upward advancement in your company won’t happen without possessing a college degree? Have you long aspired to be an entrepreneur, and you wanted to get some business and marketing courses under your belt so that you’re better prepared for the challenges of entrepreneurship? Perhaps a career in marketing has been on your internal radar since high school, and you’ve decided to take the plunge and get your degree in marketing. Or perhaps, after graduating from high school, your parents gave you an ultimatum—either find a job or enroll in college.

Stage 2: Information Search

Now that you’ve identified the problem or need, you’ll be inclined to search for more information. There are two different search states. The milder search state is called “heightened attention,” in which you become more receptive to information about the product or service. The stronger search state is called “active information search,” in which you might do some research about the product or service on the Internet (referred to as an internal search), ask friends and/or family members their opinions (what’s known as an external search), or even visit stores to view and touch the product (called an experiential search).

Keep in mind, of course, that not all needs/problems identified in Stage 1 will require this second stage. If you’ve run out of bread or toilet paper, you’re probably not going to do an information search; rather, you’ll just go to the store to buy what you need, and your information search may be as simple as checking prices at the grocery store to see if your favorite brand is available or another brand is on sale. However, purchase decisions of more consequence will usually trigger an information search of some type.

Again, consider the process you went through in deciding which college to attend. What sources of information did you use to find out about the colleges or universities you considered attending? Did you look at their websites, talk with friends or family who attended that school, or perhaps even visit the campus and meet with an admissions counselor?

Stage 3: Evaluation of Alternatives

Consumers are said to view a product or service as a “bundle of product attributes,” and you evaluate several attributes of a product or service in reaching your purchase decision. For example, if you’re buying a smartphone, you’ll consider factors such as battery life, speed, storage capacity, or price. If you’re booking a hotel, you’ll probably consider its location, cleanliness, free Wi-Fi, whether it has a free breakfast in the morning or a pool, and of course price.

What bundle of attributes did you use when evaluating your college alternatives? You may have considered factors such as location, size of the campus, whether the school had the program of study you wanted, if it had online learning, and cost.

Stage 4: Purchase Decision

This stage involves actually reaching a decision on the purchase of the product or service. One way people navigate all the information, evaluations, and choices in their purchase decision is to use heuristics —mental shortcuts or “rules of thumb.” Heuristics are types of preexisting value judgments that people use to make decisions.

For example, do you believe that the more expensive product is always of higher quality than the lower-priced product? That’s known as the price = quality heuristic. Brand loyalty is another heuristic people use in reaching their purchase decisions. For example, do you eat cereal? Do you always buy the same brand, or do you buy whatever’s on sale or a brand for which you have a coupon? Country of origin is still another heuristic. Given a choice, do you prefer to buy products made in the United States versus products made in other countries?

How did you make your purchase decision to enroll in your college or university? What heuristics did you use?

Stage 5: Post-Purchase Evaluation

After purchasing the product or service, you’ll experience either satisfaction or dissatisfaction. You may have second thoughts after making a purchase decision, and these doubts lead to cognitive dissonance , or buyer’s remorse—tension caused by uncertainty about the correctness of your decision. This may lead you to search for additional information to confirm the wisdom of your decision in order to reduce that tension.

What determines if a consumer is very satisfied, somewhat satisfied, or dissatisfied with his or her purchase? Satisfaction is a function of the closeness between the buyer’s expectations and the product’s perceived performance. If the product’s performance falls short of expectations, you’ll be dissatisfied. If the product’s performance meets your expectations, you’ll be satisfied, and if the product’s performance exceeds your expectations, you’ll be very satisfied.

Think about the purchase decision you made when you decided to enroll in your college or university. Are you very satisfied, satisfied, or dissatisfied with your decision? Refer to Table 3.1 for a summary of the five stages of the consumer decision process.

Careers In Marketing

You are also a consumer.

Learn about the five stages of the consumer decision process in this video from Open Up (Upatras) Entrepreneurship and this article from Business Study Notes .

GWI , a company that researches global consumer thinking, published its 2022 consumer trends report , which showed that consumers’ needs and priorities have shifted. Read the report and see if you find the same results for yourself. Have your priorities and needs changed since the pandemic hit? What are the other factors influencing your needs assessment?

Several tools can help you with a personal needs assessment. Practice your marketing skills on yourself by trying this needs assessment worksheet . This personal awareness will help you in many ways, including finding the right job that best fits your interests and abilities. Also take a few assessments and compare your results to better identify jobs worth learning more about. There are several free career aptitude tests to try:

• 123 Career Test
• Interest Assessment
• Work Values Matcher
• A Personality Color Test

In addition to career aptitude tests, personality tests assess your skill level and your ability to succeed in a career. Try a few of these:

• Typology Central Jung Personality Test
• Myers-Briggs Type Indicator

The Balance Careers site also provides a wealth of resources on additional aptitude, personality, talent, and preemployment tests. It’s worth your time to dive into this information to help you identify which career might be your best fit.

Knowledge Check

It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.

• Need recognition
• Information search
• Evaluation of alternatives
• Purchase decision
• Problem identification
• Post-purchase evaluation
• It is the mental conflict that occurs when a person’s behaviors and beliefs do not align.
• It is a mental shortcut that allows people to solve problems and make judgments more quickly and efficiently.
• It is a function of the closeness between your expectations of a product or service and its actual performance.
• It is the process of assigning the cause of behavior to either internal or external characteristics.

This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax's permission.

Want to cite, share, or modify this book? This book uses the Creative Commons Attribution License and you must attribute OpenStax.

Access for free at https://openstax.org/books/principles-marketing/pages/1-unit-introduction

• Authors: Dr. Maria Gomez Albrecht, Dr. Mark Green, Linda Hoffman
• Publisher/website: OpenStax
• Book title: Principles of Marketing
• Publication date: Jan 25, 2023
• Location: Houston, Texas
• Book URL: https://openstax.org/books/principles-marketing/pages/1-unit-introduction
• Section URL: https://openstax.org/books/principles-marketing/pages/3-3-the-consumer-purchasing-decision-process

© Jan 9, 2024 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution License . The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.

• Skip to main content
• Skip to primary sidebar
• Skip to footer
• QuestionPro

• Solutions Industries Gaming Automotive Sports and events Education Government Travel & Hospitality Financial Services Healthcare Cannabis Technology Use Case AskWhy Communities Audience Contactless surveys Mobile LivePolls Member Experience GDPR Positive People Science 360 Feedback Surveys
• Resources Blog eBooks Survey Templates Case Studies Training Help center

Purchasing Process: Definition, Key Steps & Best Practices

All businesses need to buy goods or services to meet their day-to-day needs. If you don’t have a formal way of buying things and services, you may be spending more than you need to. Here, the purchasing process comes.

How you set up your buying process will significantly affect your business, not just in terms of managing costs and expenses but also in terms of how well it runs. Learning and using a few steps and best practices for your buying process can help reduce waste and protect your business from unnecessary risk and cost. 

And you also can create workflows that make the most of every dollar spent in terms of efficiency, profits, and value recovered.

What is the purchasing process?

A business’s steps to make a purchase are called the purchasing process. Businesses usually have to go through a formal process when they buy something. Also, when they want to buy something, they may need to research, get input from different departments, negotiate, and send out payments. 

The purchasing process involves simple and essential procedures that organizations and individuals use to buy things they need.

It may differ depending on how a company works and what it needs, but the steps in this process usually include the following:

• Reviewing and approving requests for purchases
• Making and sending out a purchase order
• Negotiating prices, contracts, or how to pay for things
• Keeping track of spending

In the purchase process, many people are involved, such as procurement and finance teams, requesters, approvers, vendors/suppliers, and the purchasing and accounts payable departments.

Importance of a purchasing process

The formal purchasing process is really important for you for many reasons. Let’s break down some key points to understand its importance:

Cost savings

The purchasing process is like your money-saving superhero. It allows you to compare prices, seek out discounts, and negotiate deals. This means you can get the best bang for your buck. With a well-structured process, you can avoid impulsive buying and ensure you spend your money wisely.

Quality assurance

You want to be sure that what you buy is worth your money. A proper purchasing process lets you research and assess the quality of products or services. It empowers you to make informed decisions, preventing you from ending up with subpar items or shoddy services that might disappoint you.

Legal protection

The modern purchasing process acts as your legal shield. It spells out the terms and conditions of your purchase, which can be crucial if any issues arise. It ensures that both you and the seller are on the same page, reducing the chances of misunderstandings or disputes. If something goes wrong, a clear process can be your ticket to a fair resolution.

Efficiency and time management

Time is precious, and a structured purchasing process helps you make the most of it. It streamlines your shopping or procurement activities, making the entire process faster and more efficient. You won’t waste time running from store to store or endlessly searching for products online. Instead, you follow a well-organized plan that saves you time and effort.

Transparency and accountability

The purchasing process is like a transparent window into your spending. It keeps everything open and visible, essential for personal finances and business operations. This transparency reduces the chances of fraud or errors in your purchases.

You know where your money is going, why you’re spending it, and who is accountable for each step of the process.

What is the difference between the purchasing and procurement process?

Let’s talk about the difference between the purchasing and procurement processes:

Purchasing process

When you’re in the purchasing process, you’re focusing on buying things. It’s like going to the store and picking out the products you need. This part is all about finding the best price, negotiating deals, and making the actual purchase.

In a way, purchasing is like a one-time deal. You’re buying what you need, and once it’s done, you move on. It’s more like a transaction.

Procurement process

Now, think of procurement as a bigger picture. It’s not just about buying stuff but also about the whole process of getting what your organization needs. It includes finding the right suppliers, negotiating contracts, managing relationships, and even thinking about the long-term impact of your buying decisions by the procurement department.

Procurement is like a whole journey. It’s not just about buying things once but managing your purchases over time. It’s a bit more strategic, like planning for the future.

So, the main difference is that purchasing is like the short-term action of buying, while procurement is the bigger, long-term strategy of how your organization gets what it needs. Both are important, but they focus on different aspects of the buying process. 

In a larger organization, a dedicated procurement team plays a key role in developing and executing the long-term procurement strategy, ensuring that the organization gets the best value from its purchases over time.

Key steps of the purchasing process

Usually, the purchasing process is a cycle, with each phase requiring information and permissions. Every business will add its special touches. But in general, the buying process follows a well-known pattern of steps. They are given below:

Understand business needs

Even though this isn’t exactly a step, it’s an excellent place to start if you want to manage how a business spends money, find ways to save money, cut spending that isn’t necessary, and deal with supply chain problems.

For example, if a company requires a large number of goods, such as mobiles, there may be an opportunity to negotiate discounts.

Create a purchase requisition

The purchasing process begins when someone makes a purchase request and sends it in. You can speed up this process and improve the request process by creating a standard request form. This way, purchase requests will be the same and meet the data management needs of your team.

Screen the requests

Screening purchase requests ensure that all of the company’s purchases are correct, don’t go over budget, and, most importantly, are actually needed.

Search for suppliers

Once the request has been screened and approved for sourcing, the purchasing team will look for suppliers or vendors to meet the request. For this, you need to learn more about strategic sourcing and its importance for finding the best suppliers.

Request for proposals

Once the best products have been sourced, it’s common for the purchasing team to ask for proposals to make sure the products or services are within budget, can be delivered on time, and meet your business’s policies or requirements.

Negotiate costs and contract terms

Sometimes, all the boxes may be checked except pricing or payment terms. For example, the quality might need improvement, but the supplier might be the only one who can meet the demand by a certain date. In this case, the purchasing manager will try to negotiate a more reasonable purchase total.

The purchase request is prepared for final approval if every step of the process, including cost, delivery, and payment process, complies with the specifications. If it’s turned down, the purchasing team will either inform the requester or try to find another source or vendor.

A department manager’s lack of approval, duplication of the purchase, high cost, and failure to provide enough value for the company are a few reasons why it could be rejected.

Issue a purchase order

Once all the approvals are in, the purchasing team will make a purchase order based on the details of the approved purchase request and send it to the chosen supplier or vendor to be filled out for supplier evaluation .

Best practices for the purchasing process

Use the following best practices to make the purchasing process go smoothly.

Automate the efficient purchasing process

Whenever you can, try to automate the purchasing process, with purchase automation software, a business can shorten the time it takes to buy something, make it easier for people to do their jobs, reduce mistakes, and reduce paperwork.

Purchase automation software is helpful if your business repeatedly buys a lot from the same suppliers.

Keep accurate records

Keep accurate records of the whole buying process. It includes records of possible suppliers, negotiations, sales, returns, and any other transactions. You might want to switch to a different supplier or have a problem with the one you already have.

Keeping accurate records of every purchase process step helps reduce problems and extra work in the future.

Review your needs often

A company’s needs change all the time. Sometimes, a business needs something completely new, and sometimes, it needs a different version of something it already has. Make it a regular part of your business to look at what you need now and whether the things you buy meet those needs.

By keeping an eye on your operations regularly, you can find problems and fix them faster. It lets your business grow while you make wise spending decisions.

The purchasing process is primarily transactional and systematic. But you should still use expert strategies to help your company even more. Using the steps and best practices we’ve shared, your Purchasing team will achieve savings and efficiency for years to come.

Now, it’s time to create your purchasing process. You will have to analyze your market, business, and customers. If you need any help with the analysis process, QuestionPro is there for you.

QuestionPro CX is a survey software that helps you analyze your business and manage your customer feedback. Contact us right away to talk about how to do it.

LEARN MORE         FREE TRIAL

Frequently Asked Questions (FAQ)

The purchasing process is an organization’s steps to buy products and services efficiently.

Purchasing is the short-term buying action, while procurement is the long-term strategy for acquiring what an organization needs.

Ongoing supplier relationship management and post-purchase evaluations are conducted to ensure long-term value and quality.

MORE LIKE THIS

Interactive Forms: Key Features, Benefits, Uses + Design Tips

Sep 4, 2024

Closed-Loop Management: The Key to Customer Centricity

Sep 3, 2024

Net Trust Score: Tool for Measuring Trust in Organization

Sep 2, 2024

Why You Should Attend XDAY 2024

Aug 30, 2024

Other categories

• Academic Research
• Artificial Intelligence
• Assessments
• Brand Awareness
• Case Studies
• Communities
• Consumer Insights
• Customer effort score
• Customer Engagement
• Customer Experience
• Customer Loyalty
• Customer Research
• Customer Satisfaction
• Employee Benefits
• Employee Engagement
• Employee Retention
• Friday Five
• General Data Protection Regulation
• Insights Hub
• Life@QuestionPro
• Market Research
• Mobile diaries
• Mobile Surveys
• New Features
• Online Communities
• Question Types
• Questionnaire
• QuestionPro Products
• Release Notes
• Research Tools and Apps
• Revenue at Risk
• Survey Templates
• Training Tips
• Tuesday CX Thoughts (TCXT)
• Uncategorized
• What’s Coming Up
• Workforce Intelligence

• Design for Business
• Most Recent
• Presentations
• Infographics
• Data Visualizations
• Forms and Surveys
• Video & Animation
• Case Studies
• Digital Marketing
• Design Inspiration
• Visual Thinking
• Product Updates
• Visme Webinars
• Artificial Intelligence

Consumer Decision-Making Process Explained (With Real-Life Examples & Templates)

Written by: Olujinmi Oluwatoni

Customers don't just buy. Their purchase decisions are shaped by their entire buying experience, from the initial spark of interest to the final purchase.

Each stage of the customer decision-making process is crucial. If you want to succeed in today's cutthroat market, you'll need to learn and leverage the subtleties of consumer behavior at each stage.

Understanding why, when, and how your customers make buying decisions will help you create memorable customer experiences, remove obstacles, drive more conversions and improve your business processes.

In this post, we'll examine the many phases of the consumer decision-making process and uncover secrets to win customers over at each level. We’ll also share some practical, real-life examples and templates that’ll help you along the way.

Table of Contents

What is the consumer decision-making process, 5 steps of the consumer decision-making process, 5 templates to understand your customer better.

• The consumer decision-making process is a series of steps an individual undergoes to make a purchase.
• A good knowledge of how your customers make buying decisions allows you to create more targeted marketing strategies to interact with your customer at each stage of the decision-making process.
• The five stages of the consumer decision-making process include; problem recognition, information search, alternatives evaluation, purchase decision and post-purchase evaluation.
• Visme has a vast library of beautiful, professionally designed templates to help you create visual assets to better understand your audience and streamline the sales process.

The consumer decision-making process is a series of steps an individual undergoes to make a purchase. It is also called the Buyer Decision Process and covers the five stages a buyer goes through before, during and after buying your product.

The consumer buying process begins when with the buyer recognizing their need and ends with them evaluating their purchase decision. Each step of this process allows you to make smart moves that position you properly and ensure the buyer chooses your product at the end of their decision-making journey.

Having a good knowledge of how your customers make buying decisions allows you to create more targeted marketing strategies to interact with them at each stage of the decision-making process.

Here are some more reasons you need a grasp of the consumer decision-making process.

• With this knowledge, you’re able to recognize and impact the social, psychological and external factors that influence your buyer’s decision process.
• By recognizing these factors, you can customize your messaging and create a strategy that appeals to your customer in the particular stage they are in.
• You can identify the obstacles that come up and prevent a buyer from going through with your product as a solution to their need. This, in turn, can help you make improvements to your product or customer experience along the sales cycle .
• Understanding how to influence your customers at the most important touch points will drive more sales conversion. This will ultimately increase your client base and revenue.

Throughout the buying process, your customer will inevitably consult a number of various resources for information. It is your job to make sure that information is readily accessible when they are ready to process it.

Build relationships with customers and drive sales growth

• Reach out to prospects with impressive pitch decks and proposals that convert
• Monitor clients' level of engagement to see what they are most interested in
• Build a winning sales playbook to maximize your sales team's efficiency

Sign up. It’s free.

Made with Visme Infographic Maker

 Let’s explore what’s going through a buyer’s head from the moment they identify their need to when they make a purchase.

This process isn’t always linear. Some products go through this process swiftly, while others go progressively. Buyers may quickly decide to purchase a low-cost or low-involvement product without investing much time or effort in the decision-making process.

For example, a buyer may spend little to no time comparing the prices and colors of snacks in a vending machine. What they are most interested in is satisfying their hunger.

Compare that to a B2B company interested in buying enterprise software. They would spend more time researching the features, pricing, reviews and whether it fits their needs.

Below are the 5-step processes most buyers go through when making a purchase.

Problem Recognition

The first step in the consumer decision making process is when the buyer recognizes that they have a need or a problem and require a solution.

Problem recognition may be influenced by internal factors such as new needs, interests, beliefs or external factors like learning, dissatisfaction with current products or advertising.

When people become aware of a need, they feel compelled to find a solution, and they devote more time and energy to exploring their options.

Your focus at the problem recognition stage would be to identify the core need behind customer needs and position yourself to be seen as a solution to that need.

Let’s take Native Deodorants as an example. Native identified that consumers were becoming more conscious of the ingredients used in deodorants and the health risks they posed. Thus, the core need of their customers was a deodorant that didn’t contain harmful substances like aluminum.

Native positioned itself as a solution that offered natural deodorants that were aluminum-free, paraben-free and made with recognizable ingredients, emphasizing product benefits.

They went on to create awareness using social media, influencers and advertising. They even engaged with consumers to build trust and offered incentives to encourage them to try the product. At this stage, the consumer recognized the need for a safe deodorant. Also, Native identified their customers' core needs and created awareness of their products as a solution.

Information Search

The next step the buyer will take after identifying and accepting their need or problem will be to search for a solution. Research shows that 87% of shoppers start their product searches online. In most cases, Google may be the first port of call!

At this stage, they want to know what products and services exist to fulfill their needs.

The consumer researches and gathers information by;

• Asking for recommendations
• Using their “pain point” as keywords on search engines, or
• Reading testimonials or reviews

While the consumer is actively looking for information, your goal at this stage should be to put out as much information as needed about your product or service. You may want to optimize your website and content for search engines or leverage social media.

The goal is to be present when your target audience comes searching. In other words, make it easy for your target customer to find you or find information about your product or service.

You can also take advantage of paid advertising to target buyers who are searching for products you offer. Actively encouraging satisfied customers to leave positive reviews for your products will also let prospects perceive you as a trusted solution.

Warby Parker established a strong online presence with an e-commerce website showcasing prescription glasses and providing detailed product information. They optimized their website for search engines and shared valuable content related to eyewear and fashion.

In a competitive market like New York, Warby Parker utilized smart sales skills and strategies like geotargeting, paid ads and promotions. This put them on the radar of consumers in the area who were in the information search stage.

Warby Parker made it easy for customers to find them and positioned themselves as a trusted source of information. This ultimately increased their chances of being considered and chosen by consumers needing prescription glasses.

Alternatives Evaluation

Now the consumer has gathered information on potential products that may solve their needs. Yours is one of them. In this stage, they compare and contrast the various options and alternatives they have at their disposal.

Depending on the complexity of the products, a few factors your target audience may be looking out for include, but are not limited to:

• Specific features of the product
• Brand reputation
• Quality of the product
• Availability and Warranty
• Personal preference (color, style, etc.)

At this stage, you can take advantage of sales collateral to showcase the value of your products. Examples of sales collateral you could use are sales battle cards, product demos, product sell sheets, videos, case studies and more.

You can share deal-closing insights with your team using this sales battle card template below:

There's also a case study template you can use to showcase your brand's performance:

This product sell sheet is a valuable asset for highlighting your product’s key features and benefits:

Purchase Decision

Hurray! The buyer has gone through three buying stages of the consumer decision-making process and has now selected a product they believe will solve their problem best.

If this product is yours, your customer will head over to your online store, purchase page, or retail store to buy the product. While this is an exciting moment, you must remain aware of some obstacles that may arise at this stage.

These obstacles may hinder a smooth sale, so information must be put out to handle them before the need arises. Some obstacles that may occur are:

• Payment issues
• Shipping or delivery challenges
• Purchase price
• Organizational hierarchy, etc

Knowing this step can help you prepare and provide content, materials, or strategies to combat these hindrances and ensure a smooth sale.

A good example is the sportswear company Nike . Nike offers a seamless checkout process and allows its customers to make up to four interest-free payments for products. This immediately eases the stress on their customers, who may not have had an initial budget for the product.

Nike also offers free shipping and free 60-day returns for its members. During the purchase decision, this can encourage customers to go ahead with Nike instead of alternatives, as they would feel secure with their purchase.

A great step you can take for consumers at this stage is to project the various obstacles that may hinder a good sale and provide solutions ahead of time. This will make your customer more comfortable and secure with your product.

Using this modern infographic, you can detail the specific features your customers gain with each pricing plan.

Post-purchase Evaluation

This last step in the consumer decision-making process is the post-purchase evaluation. This step is very important in the buyer's decision-making process because it determines whether or not they’ll move forward with your brand.

In this step, your customer will probably ask these questions:

• Am I happy with my purchase decision?
• Does it meet or surpass my expectation?
• Am I disappointed or satisfied?

Your customer is evaluating the use of your product to assess if they made the right choice or not. This evaluation can influence their loyalty to your brand, future buying decisions, or even recommendations.

But you don’t have to leave it all to chance. You can provide post-sale services that keep your customers happy and satisfied with their purchases.

A brand that understood this consumer decision process model and effectively applied it is Bombas . Their help center offers a ton of information that guides their customers even after a purchase. Customers can get answers to questions like “How do I wash my socks?” or “How can I recycle my Bombas?”

They also have a section to keep customers happy called “ Happiness Guarantee ”

According to Bombass, the happiness guarantee is dedicated to ensuring that every Bombas customer is satisfied through generous replacement programs.

Understanding what sort of value or services your customers will appreciate and implementing them post-sale will boost your customer loyalty, referrals and revenue.

You can create engaging customer feedback forms with Visme Forms to evaluate purchase satisfaction.

Visme has some professionally designed templates to help you better understand your audience and refine your sales strategy . We'll take a look at them.

But first, hear what the Polly, a creative director at IBM  has to say about her team's experience with Visme.

““Visme is something that I would highly recommend. It made us look a lot better in our clients’ eyes because it's something that's visually effective as a marketing tool. It’s a great tool to facilitate sharing that information in a much more visually-friendly and user-friendly method.”  - Polly Brewster | Creative Director of IBM's Talent Acquisition Optimization & Recruitment Team

If you're short on time, use Visme's AI Designer to generator a document for you. This AI Document Generator  is designed to create personalized templates in a matter of minutes.

Here are some of Visme's templates that'll help you understand your customers better:

1. Project Management Software Customer Persona Template

Capture essential information and requirements about your ideal users and visualize their common characteristics and traits with the help of this template. It has a visually appealing design layout, complete with high-resolution images, icons and dynamic content blocks provided by Visme. Automatically customize this template with your brand assets using Visme's brand wizard .

2. User Journey Map

When it comes to gaining valuable insights into how your customers interact with your product, a user journey map is an invaluable tool. This helps to outline your ICPs business buying decision and more.

Our template is designed with visually appealing graphics, arrows, icons and layouts that make it effortless to translate insights from your user journey into actionable information.

With simple customization options such as color and font editing, you can easily tailor the template to align with your brand. You can also add Visme’s icons , stock photos and videos to make your design more appealing.

If you have trouble finding the perfect image use the AI Image Generator . Simply enter a detailed prompt and let the AI share several output styles: photos, paintings, pencil drawings, 3D graphics, and more for you to choose from.

3. Executive User Persona

With this whiteboard template, you can create and visualize realistic user personas for the key decision-makers involved in purchasing your product or service.

Dive deep into their needs, behaviors and motivations to craft targeted marketing messages that resonate with your audience. Featuring beautiful colors and stunning fonts, this fully customizable template can be tailored to reflect your brand's unique aesthetic, helping you create compelling marketing campaigns.

It's important to create a user persona that closely portrays your buyer or user. This could mean collaborating with internal stakeholders by sharing this template with them to contribute their input.

If it's solely on you to create one and you're struggling to fully capture what to say about your user persona, you can use the AI Writer . This AI-powered tool will help you create detailed personas effortlessly, ensuring your marketing messages are always engaging and precisely tailored to your audience.

Lastly, Use Visme's Dynamic Fields to easily update information on this template and throughout your projects.

4. Customer Journey Map Infographic Timeline

Use this template to provide a clear visual representation of how your customers navigate through your business.

With its sleek and intuitive design, this infographic is perfect for business and marketing presentations by professionals who want to effortlessly interpret and illustrate crucial touchpoints and areas that require improvement in a customer's journey with your business.

Whether you're fine-tuning your business strategies or highlighting key moments in your marketing campaigns, this infographic template is a great tool to convey your message with impact.

5. Step Ladder Brainstorming WhiteBoard

Use this brainstorming template with your team to collaborate with your team as you discuss insights about your customer decision-making process. This template will aid collaborative learning and visual thinking. You can include charts, graphs, maps, widgets and other data visualization tools to showcase data.

Use Visme to Understand & Attract Your Audience with Ease

You can better serve your customers, remove roadblocks, increase conversions, and fine-tune your operations if you have a firm grasp of the factors that influence their purchasing decisions.

Visme can assist you in increasing sales, fostering relationships and streamlining the sales process with appealing and professionally designed visual content.

Create visual presentations, training materials, graphics and other print and digital materials for sales support, marketing, human resources and other uses with Visme. Our easy-to-use software allows people of varying design skills to create professional work that’s engaging and within brand guidelines. So, you don't have to worry if you're not a professional designer.

Utilize tools for collaboration, live sharing, presenting and more to understand your audience, unite your team and produce outstanding sales content.

If you're looking for tools to help your team sell more effectively, you can also browse through these unique sales templates and learn more about selling with Visme here.

Streamline your sales and marketing process with Visme

Trusted by leading brands

Recommended content for you:

Create Stunning Content!

Design visual brand experiences for your business whether you are a seasoned designer or a total novice.

About the Author

Olujinmi is a Content writer for Visme who creates human-first SEO content. She loves helping businesses smash their ROI goals with strategic content development and optimization. When she’s not writing, you’ll find her composing songs.

• Start free trial

Start selling with Shopify today

Start your free trial with Shopify today—then use these resources to guide you through every step of the process.

5 Stages of the Consumer Purchase Decision Process

Every customer goes through a journey as they decide whether to make a purchase from your store. Learn how to guide the purchase decision process.

What inspires customers to buy a particular product or service? One of the ways merchants can explore this question is by identifying the distinct stages a customer goes through when making a purchase decision, starting with the recognition of a need. 

Use the consumer decision-making framework to learn more about how customers make purchase decisions and how you can influence them toward sales conversions.

✂️ Shortcuts

What is a purchase decision?

What is the consumer decision-making process, 5 stages of the purchase decision process, tips for influencing purchase decisions, purchase decision faq.

A purchase decision is the stage in the consumer buying process where a customer chooses to buy a specific product or service. To influence this decision, businesses can highlight unique selling points, offer limited-time discounts, or provide customer testimonials to build trust and urgency.

The consumer decision-making process is a series of stages that customers go through when purchasing a product or service. The consumer decision-making process is also known as the buying decision process, the consumer decision process, the buying process, and the consumer purchase decision process.

The consumer decision-making process covers a customer’s entire buying journey , from identifying an initial need to evaluating a product, service, or experience, and then making a final purchase decision. Brands use intuitive tools and marketing strategies to streamline their company’s purchase process and influence consumer behavior.

• Customer need recognition
• Initial information search
• Evaluation of alternatives
• Post-purchase appraisal

There are five stages of the consumer decision-making process, starting with a need and ending with an evaluation of a purchase:

1. Customer need recognition

The first step of the customer journey involves consumers identifying problems they need to solve. A customer’s need for a product or service arises from factors like physical needs and emotions, often influenced by advertisements and recommendations. For example, a customer might want to purchase healthy snacks because they’re hungry or because they started a workout routine that requires more nutrient-dense food on the go—or both.

Brands can influence consumer behavior during this stage by focusing marketing efforts on particular needs related to their offerings. One of the best ways that brands can engage with this stage is by learning as much as possible about their target audience’s needs. Surveys, customer interviews, focus groups, and market research are all ways that merchants can learn more about the needs of their loyal customer base.

2. Initial information search

The second stage of the consumer decision-making process involves customers searching for information about products or services related to their needs. Customers engage with this information search stage by making search engine queries, reading online reviews, engaging with informative ads, talking with friends, or visiting a store in person.

Some of the ways that brands influence the buying process at this stage include creating compelling social media content that offers information about their products or services, as well as developing an SEO strategy with content designed to rank highly on search engine results pages (SERPs).

3. Evaluation of alternatives

The evaluation of alternatives stage involves customers weighing which product, service, or brand to choose. Consumers use the information they gathered in the previous stage to compare options and make a choice based on a variety of factors, including availability, pricing, positive and negative reviews, and brand loyalty.

Brands can influence the evaluation process by generating quality social proof with positive customer testimonials and endorsements. Other marketing strategies that brands can use during this stage include product demonstrations, promotional discounts, and advertisements focused on how a particular product or service stands apart from its competitors.

4. Purchase

The fourth stage of the consumer decision-making process is the actual purchase of the product or service. Once customers gather enough information and evaluate their options, they make a final decision about what to purchase.

Brands can interact with this purchase decision stage by optimizing the customer checkout experience. By improving this experience both in stores with an easy point-of-sale system and online using an intuitive ecommerce platform , brands can avoid shopping cart abandonment and earn more sales conversions.

5. Post-purchase appraisal

The post-purchase stage involves customers evaluating their experience with a brand’s product or service after purchasing it. During this post-purchase evaluation, customers reflect on how a particular product or service met their needs and whether they’d purchase it again or recommend it to others. 

Brands can influence post-purchase behavior with strategies like customer loyalty programs , customer surveys, follow-up emails with discount codes for new products, and effective retargeting campaigns focused specifically on previous customers.

Gather social proof

Understand your target audience, build a valuable brand, optimize your ecommerce store, choose the right pricing model.

Consumers make purchase decisions based on a variety of factors. Here are a few ways that brands can influence consumer behavior and help customers make a final purchase decision:

Collect as much user-generated content from past customers as possible, including positive reviews, testimonials, and social media posts. This type of content acts as social proof , a psychological phenomenon where people rely on the opinions or actions of others to inform their decisions. Brands can use social proof to influence consumer choice by validating their products or services with positive feedback.

Optimizing your brand to influence customers toward making a purchase requires a comprehensive understanding of your target audience . Brands can learn about their target audience by analyzing the customer base of their competition and conducting market research through surveys or focus groups.

Creating a brand image that customers recognize and respect takes time, money, and energy. However, if you create a positive customer experience throughout the decision-making process, you can inspire brand loyalty over time and earn repeat purchases from previous customers.

Create compelling brand assets and determine brand guidelines for your brand’s voice, tone, and visual style. By defining a clear brand identity that aligns with your target audience, you can increase your brand equity , or the perceived value of your brand.

Create a purchasing experience in your ecommerce store that makes it as easy as possible for potential customers to choose products or services and make a purchase. Use attractive product images, clear call-to-action buttons, and mobile-friendly designs. Ecommerce platforms like Shopify help merchants create online stores that bring customers seamlessly through the decision-making process with features like secure checkouts, customizable themes, and automated email sequences.

One of the best ways that brands can move potential buyers through the consumer decision-making process toward a sale is by choosing a pricing strategy that works for their products and services. Companies choose pricing strategies for a variety of reasons, including production costs, profit margins, market demand, competitor pricing, and revenue goals.

Whichever pricing strategy you choose, remember to keep pricing transparent upfront and include an estimate of taxes, shipping costs, and any other additional costs. Holding back on the full price of your products or services until the final purchase stage of the decision-making process can hurt your reputation and increase shopping cart abandonment .

What is purchase intention?

Purchase intention, also known as buying intent, is the likelihood that a customer will purchase a product or service. Marketers use previous sales data and predictive modeling to anticipate future purchases and inform strategic decisions about pricing, product development , and product launches .

What are the main factors that influence purchase decisions?

Some of the main factors that influence purchase decisions include customer needs, social proof for a product or service, pricing, and brand loyalty.

What is the most important stage of the purchase decision process?

All five stages of the consumer decision-making process are important, but the first stage is particularly important, as final purchase decisions start with customers recognizing they have a need to fulfill or a problem to solve.

Keep up with the latest from Shopify

Get free ecommerce tips, inspiration, and resources delivered directly to your inbox.

By entering your email, you agree to receive marketing emails from Shopify.

popular posts

The point of sale for every sale.

Subscribe to our blog and get free ecommerce tips, inspiration, and resources delivered directly to your inbox.

Unsubscribe anytime. By entering your email, you agree to receive marketing emails from Shopify.

Latest from Shopify

Sep 4, 2024

Sep 3, 2024

Learn on the go. Try Shopify for free, and explore all the tools you need to start, run, and grow your business.

Try Shopify for free, no credit card required.

The five steps of the consumer buying process: Explained

Do you ever walk into a store, aimlessly fill the cart, and spend your hard-earned cash without a second thought?

Sure, we may be susceptible to the odd impulse buy, but, overall, many of us focus on what it is we’re buying, why we need the product, and how the product will add value to our lives. 

Before arriving at the point of going through the checkout, a buyer embarks on a decision-making process that you as a product marketer must also understand.

This process works in tandem with consumer behavior , but what is consumer behavior, and more importantly, why is it applicable to businesses, as well as the consumer?

Let’s find out.

The importance of consumer buying behavior

Consumer behavior provides an understanding of the people buying your product, whether they’re individuals, groups of consumers, or organizations.

These behavioral trends provide invaluable insights into the process a buyer(s) goes through when they’ve decided to invest in your product or service, as well as how they use and consume your offering to fulfill their needs and requirements.

The consumer buying process helps companies with the likes of:

• Consumer differentiation
• Customer retention
• Design and implementation of effective marketing
• Predicting market trends
• Competitor intel
• Innovate new products - successfully
• Enhance customer service
• Remain relevant

What is the consumer buying process?

Otherwise referred to as the consumer decision-making process or buyer funnel , to name a few, the consumer buying process refers to the stages a customer experiences throughout their customer journey – from recognizing a need to the final post-purchase stage (and beyond!). 

It’s a fundamental aspect of product marketing, serving as the cornerstone for businesses aiming to understand and influence customer behavior . 

There are five steps in the consumer buying process, and the time taken to pass through each stage is unique for each customer.

For example, a consumer buying a new car may decide to test drive a model several times, compare and contrast different brands, read reviews, and conduct thorough research before making a purchase, or deciding to look at an alternative.

On the other hand, another person may devote their loyalties to a particular manufacturer, and be willing to invest after taking it for a spin. The point being, the fluidity of the consumer buying process hinges on the personal preferences of the consumer – sometimes it’s straightforward, and sometimes it’s convoluted.

Nevertheless, by comprehending the intricacies of this process you can tailor your research, strategies, and campaigns to engage with consumers effectively and enhance overall customer satisfaction and relationships . 

So, what are the stages, what role do they play, and what influence does a product marketer have at each respective point?

The five key stages of the consumer buying process

The consumer buying process unfolds through several distinct stages, each playing a crucial role in shaping purchasing decisions. It typically begins with problem recognition, followed by an information search, evaluation of alternatives, and the actual purchase, and concludes with post-purchase evaluation. 

Recognizing and addressing each stage enables you to strategically intervene, provide relevant information, build trust, and address concerns right from the get-go.

Stage 1: Problem recognition

Problem recognition marks the initiation of the consumer buying process, where individuals identify a need or challenge requiring resolution. It’s often considered the most important point in the process. After all, how can a consumer be expected to invest in a solution to a problem they’re yet to identify?

When our vision’s impaired, we buy new glasses, if we can’t sleep in our stuffy bedroom in the summertime, then we buy a fan, and when you’re sick to death of plugging the vacuum cleaner, you invest in a cordless alternative.

The common theme: Consumers buy products to solve a problem.

This phase is integral for product marketers, demanding a keen understanding of consumer pain points. Your role is to delve into the consumer's mindset, positioning your product as the ideal solution to their identified problem. 

Whether your company’s making flat-screen TVs, state-of-the-art coffee machines, or mobile phones with “the most impressive, sophisticated megapixel camera," as a PMM pro, you need to use your skills and step into the mind of your prospective customer and position your product as the go-to option on the market that’ll solve their worries just like that. 

To drive potential customers through the buyer’s journey , you need to research their purchasing habits and buyer behaviors and use your findings to craft messaging and communication that’ll resonate with respective personas , establishing your product as the ultimate answer to their concerns. 

You may not think marketing automation is your cup of tea, but with research revealing humans have a shorter attention span than a goldfish (no, we’re not kidding), we strongly suggest using these tools to enhance your customer onboarding experience and support your customers through the recognition phase and beyond.

Stage 2: Research, research, research

The research process is where consumers actively seek information about products or services recognized during problem recognition. 

They’ll typically search both online and offline, as well as internally and externally, intending to collect information on the products or services identified at the preceding problem recognition point. This might involve anything from exploring a multitude of online reviews to seeking advice via word of mouth (WOM).

Unsurprisingly, much of the consumer research is completed online, so businesses need to ensure they invest time, effort, and resources in their SEO (search engine optimization) to enhance their online exposure and brand presence.

But consumers don’t only turn to the powers of the World Wide Web during the search process, with word of mouth regarded by many as the most powerful form of advertising. Previous experiences or testimonials from family and friends are often cited as a key factor behind a person being persuaded or dissuaded from choosing one brand, instead of another.

Stage 3: Considering alternatives

After visiting their chosen sources, your customers will now be at a stage where they’ll have earmarked a few options, before deciding where to invest.

Let’s use the classic running shoe comparison as an example. After visiting their chosen sources, your customers will now be at a stage where they’ll have earmarked a few options – and are evaluating which product aligns best with their needs – before deciding where to invest.

They’ll have taken into account factors such as cushioning, comfort, and the protection the shoe gives the foot. 

And let’s not forget the price!

When a consumer is making their buying decision, they’ll always be looking for the best product they can get, at the best price. Evaluating alternatives allows the consumer to conclude which option would suit their needs and address their pain points before they make a final selection.

This is the stage where effective product marketing can tip the scales in your favor by demonstrating why your product stands out among the alternatives .

Stage 4: Selection stage

This is it – crunch time.

Having identified their problem, searched for available products, and compared and contrasted the options on the table, it’s time for the consumer to decide which product they’re going to buy.

Product marketers play a pivotal role in this stage. You need to ensure that your product is not only considered but chosen . Factors like negative reviews, reluctance to invest, poor customer onboarding, company location, and reputation can influence the consumer's decision. 

All going well, this is the point your hard work pays dividends and you convert the lead into a customer . That said, it’s not always plain sailing, with multiple factors contributing to a consumer taking their custom elsewhere. 

This could be attributed to the likes of:

• Negative reviews
• Reluctance to invest
• Poor customer onboarding
• Company location
• Poor reputation

Stage 5: Post-purchase evaluation

The post-purchase evaluation is very much what it says on the tin: It’s the reflective phase where customers assess how useful their new investment is, and whether or not their new investment has fulfilled the expectations they had during the pre-purchase stages. 

Positive post-purchase experiences can transform customers into brand ambassadors . If you have a satisfied customer who becomes an ambassador, they’ll promote your product and serve as an influencer for prospective customers… Remember the importance of word-of-mouth marketing we spoke about?

Factors influencing consumer behavior

Consumer behavior is a complex interplay of many different factors – both internal and external, and each factor can significantly influence the customer’s decision-making process. 

Internal factors encompass things like personal preferences, attitudes, and perceptions, while external factors include the likes of cultural norms and economic considerations. Recognizing the interconnectivity of these elements is key when you’re seeking to understand and predict consumer behavior. 

By dissecting these influences, you can tailor your strategies to resonate with the target audience effectively and foster deeper connections which (hopefully) turn into brand loyalty and advocacy.

Psychological aspects of consumer decision-making

Consumer decision-making extends far beyond surface-level needs and wants. It’s shaped by, you guessed it – the human brain ; the nuanced mechanisms of our psyche. 

If you’re seeking unwavering brand loyalty, you need to peel back the layers and examine the implicit perceptions, attitudes, motivations, and values that could be guiding each customer’s purchase.

What values could color a consumer's view of a product? How do entrenched attitudes influence receptivity to messaging? What desires or goals could spur engagement with your brand ? 

By probing these psychological dimensions, you can align positioning and messaging , and create impactful campaigns.

The role of branding and positioning

As you likely know, in today’s market, product quality and features aren’t always enough to sway a customer. Long-term loyalty stems from making that emotional connection . 

Meticulous and creative branding goes way beyond a logo or tagline. A brand should represent the total experience a customer has with a product – effective branding weaves together the right messaging, imagery, and associations, and constructs and solidifies them in the minds of the consumer .

This means weaving your purpose, values, and personality into your branding , so you can resonate on a deeper level, and become much more than a commodity. 

This ties in with your positioning – ensuring your brand is clear, seamless, consistent, and differentiated from your competitors. Leaning too heavily on features alone leaves you at risk of being replaceable. 

Post-purchase experience and customer satisfaction

The customer journey doesn’t end at checkout. The consumer buying process is just that: An ongoing process. If you want conversions and long-lasting loyalty, don’t overlook this stage.  

Attentive PMMs understand that how a customer feels after a purchase can make or break the relationship. Providing stellar customer service, checking in on satisfaction, and surprising with loyalty perks can transform an experience from just transactional into something personal. It shows that your cares lie beyond revenue.

Don’t forget – satisfied customers often become vocal champions, generating word-of-mouth.

Final thoughts: The role of product marketing in consumer decision-making

Product marketing is a linchpin in the consumer decision-making process, orchestrating a strategic tie between the product and its potential consumers. 

From the initial stages of creating awareness to the post-purchase phase, product marketing shapes how consumers perceive and engage with a product. 

Effective product marketing transcends simple promotional tactics and focuses on creating a compelling narrative that aligns the product seamlessly with the consumer's lifestyle, solving their problems, addressing their needs, or enhancing their experiences.

Throughout the consumer buying process, your strategies will evolve to cater to each stage uniquely. 

Want to learn more?

Wouldn’t it be awesome if we could line our customers up, throw on a pair of magic goggles, and read all of their minds? Imagine the insights you could collect to influence your entire product marketing strategy!

Well, we might not have magic but we do have a Consumer Psychology Certified course to help you… which is pretty much the same thing.

Led by Alex Chahin , VP of Marketing at Titan , you’ll learn how to tap into consumer psychology and reap the rewards of applying knowledge around behavioral economics to your product marketing strategies.

By the end of this course, you'll:

✅ Have a definition of consumer psychology in marketing and how advertising affects consumer behavior.

✅ Better understand how to group pain and gain points.

✅ Understand how personal factors and individual differences affect people's buying choices.

✅ Be able to identify what your customer’s default action is.

And much more...

Product marketing insider

Thank you for subscribing

Level up your product marketing career & network with product marketing experts.

An email has been successfully sent to confirm your subscription.

Ops! Something went wrong!

• Media Guide
• Ambassadors
• Privacy Policy
• Terms of Service
• Help Centre
• PMM Certification

Module 7: Consumer Behavior

Reading: the organizational buying process, making b2b buying decisions.

The organizational buying process contains eight stages, which are listed in the figure below. Although these stages parallel those of the consumer buying process, there are important differences that have a direct bearing on the marketing strategy. The complete process occurs only in the case of a new task. In virtually all situations, the organizational buying process is more formal than the consumer buying process.

It is also worth noting that B2B buying decisions tend to be more information-intensive than consumer buying decisions. As the marketing opportunity progresses, buyers seek detailed information to guide their choices. It is unlikely that a B2B buyer—in contrast to a consumer—would ever make a final buying decision based solely on the information they see in a standard advertisement.

The organization buying process stages are described below.

Problem Recognition

The process begins when someone in the organization recognizes a problem or need that can be met by acquiring a good or service. Problem recognition can occur as a result of internal or external stimuli. Internal stimuli can be a business problem or need that surfaces through internal operations or the actions of managers or employees. External stimuli can be a presentation by a salesperson, an ad, information picked up at a trade show, or a new competitive development.

General N eed D escription

Once they recognize that a need exists, the buyers must describe it thoroughly to make sure that everyone understands both the need and the nature of solution the organization should seek. Working with engineers, users, purchasing agents, and others, the buyer identifies and prioritizes important product characteristics. Armed with knowledge, this buyer understands virtually all the product-related concerns of a typical customer.

From a marketing strategy perspective, there is opportunity to influence purchasing decisions at this stage by providing information about the nature of the solution you can provide to address the the organization’s problems. Trade advertising can help potential customers become aware of what you offer. Web sites, content marketing, and direct marketing techniques like toll-free numbers and online sales support are all useful ways to build awareness and help potential customers understand what you offer and why it is worth exploring. Public relations may play a significant role by placing stories about your successful customers and innovative achievements in various trade journals. (Note that the AirCanada video you just watched is an example of this. The video was created by IBM and is offered as one of many “IBM client stories.”)

Product Specification

Technical specifications come next in the process. This is usually the responsibility of the engineering department. Engineers design several alternatives, with detailed specifications about what the organization requires. These specifications align with the priority list established earlier.

Supplier Search

Six of the mirror segments for NASA’s James Webb Space Telescope. The mirrors were built by Ball Aerospace & Technologies Corp., Boulder, Colorado

The buyer now tries to identify the most appropriate supplier (also called the vendor). The buyer conducts a standard search to identify which providers offer what they need, and which ones have a reputation for good quality, good partnership, and good value for the money. This step virtually always involves using the Internet to research providers and sift through product and company reviews. Buyers may consult trade directories and publications, look at published case studies (written or video), seek out guidance from opinion leaders, and contact peers or colleagues from other companies for recommendations.

Marketers can participate in this stage by maintaining well-designed Web sites with useful information and case studies, working with opinion leaders to make advantageous information available, using content marketing strategies to make credible information available in sources the buyer is likely to consult, and publishing case studies about customers using your products successfully. Consultative selling (also called personal selling ) plays a major role as marketers or sales personnel learn more about the organization’s goals, priorities, and product specifications and provide helpful information to the buyer about the offerings under consideration.

Proposal S olicitation

During the next stage of the process, qualified suppliers are invited to submit proposals. Depending on the nature of the purchase, some suppliers send only a catalog or a sales representative. More complex purchases typically require submission of a detailed proposal outlining what the provider can offer to address the buyer’s needs, along with product specifications, timing, and pricing. Proposal development requires extensive research, skilled writing, and presentation. For very large, complex purchasing decisions, such as the solution sale described above, the delivery of a proposal could be comparable to a complete marketing strategy targeting an individual customer. Organizations that respond to many proposals typically have a dedicated proposal-writing team working closely with sales and marketing personnel to deliver compelling, well-crafted proposals.

Supplier Selection

At this stage, the buyer screens the proposals and makes a choice. A significant part of this selection involves evaluating the vendors under consideration. The selection process involves thorough review of the proposals submitted, as well as consideration of vendor capabilities, reputation, customer references, warranties, and so on. Proposals may be scored by different decision makers using a common set of criteria. Often the selection process narrows down vendors to a short list of highest-scoring proposals. Then the short-listed vendors are invited to meet with the buyer(s) virtually or in person to discuss the proposal and address any questions, concerns, or gaps. At this stage, the buy may attempt to negotiate final, advantageous terms with each of the short-listed vendors. Negotiation points may cover product quantity, specifications, pricing, timing, delivery, and other terms of sale. Ultimately the decision makers finalize their selection and communicate it internally and to the vendors who submitted proposals.

Consultative selling and related marketing support are important during this stage. While there may be procurement rules limiting contact with buyers during the selection process, it can be helpful to check in periodically with key contacts and offer any additional information that may be helpful during the selection process. This phase is an opportunity for companies to demonstrate their responsiveness to buyers and their needs. Being attentive during this stage can set a positive tone for how you will conduct future business.

Order-Routine Specification

The buyer now writes the final order with the chosen supplier, listing the technical specifications, the quantity needed, the warranty, and so on. At this stage, the supplier typically works closely with the buyer to manage inventories and deliver on agreement terms.

Performance Review

In this final stage, the buyer reviews the supplier’s performance and provides feedback. This may be a very simple or a very complex process, and it may be initiated by either party, or both. The performance review may lead to changes in how the organizations work together to improve efficiency, quality, customer satisfaction, or other aspects of the relationship.

From a marketing perspective this stage provides essential information about how well the product is meeting customer needs and how to improve delivery in order to strengthen customer satisfaction and brand loyalty. Happy, successful customers may be great candidates for published case studies, testimonials, and references for future customers. Dissatisfied customers provide an excellent opportunity to learn what isn’t working, demonstrate your responsiveness, and improve.

Procurement Processes for Routine Purchases

As noted above, the complete eight-stage buying process describe here applies to new tasks, which typically require more complex, involved purchasing decisions. For rebuys and routine purchases, organizations use abridged versions of the process. Some stages may be bypassed completely when a supplier has already been selected.

Organizations may also use e-procurement processes, in which an approved supplier has been selected to provide a variety of standard goods at pre-negotiated prices. For example, an organization may negotiate an e-procurement agreement with Staples that allows employees to order office supplies directly from the company using an approval workflow in the ordering system. These systems help simplify the buying process for routine purchases, while still allowing appropriate levels of approvals and cost controls for the buyer.

Check Your Understanding

Answer the question(s) below to see how well you understand the topics covered in this outcome. This short quiz does  not  count toward your grade in the class, and you can retake it an unlimited number of times.

Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.

• Revision and Adaptation . Authored by : Lumen Learning. License : CC BY: Attribution
• Chapter 4: Understanding Buyer Behavior, from Introducing Marketing. Authored by : John Burnett. Provided by : Global Text. Located at : http://solr.bccampus.ca:8001/bcc/file/ddbe3343-9796-4801-a0cb-7af7b02e3191/1/Core%20Concepts%20of%20Marketing.pdf . License : CC BY: Attribution
• Primary Mirror Segment Cryogenic Testing. Authored by : NASA's James Webb Space Telescope. Located at : https://www.flickr.com/photos/nasawebbtelescope/5637974497/ . License : CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives

• Personal Finance
• Today's Paper
• Partner Content
• Web Stories
• Entertainment
• Social Viral

Karnataka launches online building plan approval process in BBMP limits

The nambike nakshe' scheme allows owners to get provisional building plan with an approval by an authorised architect or engineer and then upload the same online for a final approval by the bbmp.

The scheme was launched on a pilot basis in two zones of BBMP and now it has been rolled out in the entire BBMP limits. | File photo: PTI

Listen to This Article

More from this section.

LIVE news: BJP begins Sadasyata Abhiyan, PM Modi emphasises democratic values

Doctor murder: WB govt proposes capital punishment for rape convict in Bill

NHAI to track 100 toll plazas with GIS-based software for seamless traffic

UP urges Centre to consider setting up panel to tackle air pollution

Mizoram govt asks people to take precautions in view of heavy rains

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

K'taka HC extends stay on trial court proceedings against CM in MUDA case

Cong holds protest against K'taka Guv's nod to prosecute CM Siddaramaiah

Canada's Vitera invests Rs 250 cr in Karnataka's Vijayapura for agriculture

All you need to know about Karnataka's 'anywhere registration' of property

Public sector industries must prioritise MSMEs in buying raw materials: MoS

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Sep 02 2024 | 8:55 PM IST

Explore News

• Suzlon Energy Share Price Adani Enterprises Share Price Adani Power Share Price IRFC Share Price Tata Motors Share Price Tata Steel Share Price Yes Bank Share Price Infosys Share Price SBI Share Price Reliance shares
• Latest News Company News Market News India News Politics News Cricket News Personal Finance Technology News World News Industry News Education News Opinion Shows Economy News Lifestyle News Health News
• Today's Paper About Us T&C Privacy Policy Cookie Policy Disclaimer Investor Communication GST registration number List Compliance Contact Us Advertise with Us Sitemap Subscribe Careers BS Apps
• ICC T20 World Cup 2024 Business Standard at 50 Paralympics 2024 Jammu Kashmir Elections 2024