Buying an existing business is a big yet exciting and life-changing decision. By preparing a task list and going through those tasks before you sign the deal can reduce the risk and ensure that it makes you a successful entrepreneur.
Purchasing an established business is a much convenient way than starting a new company and doing everything right from scratch as most of the legwork has already been done. Taking over a well-known running business lets you implement all the new ideas that you have with lesser risk. It cuts out a lot of work and worries involved in starting a brand new company. You don’t have to anticipate and worry about so many things such as customers, client base, finances, proper cash flow, location, brand image etc. That is why the number of people buying well-established businesses has been on a high increase.
Following are some points to consider before taking over a business:
- Consider If It’s a Good Fit for You
Many people buy a business to earn profits alone, without considering if they are even interested in running that business. If you are passionate about product and the services and are excited about running this company, you will easily be able to attract more customers towards your new business.
After you consider all the factors, make sure that the business you have settled upon is fit for you. There can be many factors that were beneficial for the previous owner but won’t work the same for you, hence make sure it fits your situation.
- History of the business
Looking deeply into the history of the business is essential when you are going to buy an established company. You must check the history of the company so that there are no surprises left to unfold in future. Check the finances of the company and see how long it has been in business. Review the copies of its certified financial records, such as balance sheets, cash flow statements, accounts payable and receivable, employees’ files, all the contracts and leases etc.
Also, don’t forget to see if the company has been in any past lawsuits. Looking over all this information will help you understand the company well and how it has been working till now and moreover, will serve as an alert to any potential problems that may arrive in future. Don’t be afraid to ask all the relevant information and in case the seller refuses to give you any information and or is hesitating then you may want to reconsider.
Assets are the vital part of a business. Look at the assets of the company which you are going to own. See what the current owner is selling you. Does it include equipment, products, inventory, lease, debts etc.? Make sure you take only what is going to be beneficial for you. Don’t forget that when you decide to buy a business, you may also have to take its debts and hence the responsibilities of those debts.
- Physical location
The physical location of a company matters a lot. Before buying a business see how long it has been in that place. If it’s running in the same location for a long time, it’s a good sign. You should avoid those businesses that are set in areas that have a poor reputation.
Also make sure that the locality is suitable for customers, has sufficient traffic flow, and doesn’t need a lot of renovation. The most important factor here you need to see is that how close your competitors are in that location. If some famous competitions in relation to the business are close enough, it’s a red flag.
Remember that when you are buying a business, you are not only buying the business but also its people. The employees of a company are the most precious asset of a company. Hence review their personnel files and meet them in person. Find out about the employment contracts if any.
Customers are the most valuable asset for any business, hence understanding the customer base of the company you are going to buy is necessary. You need to know who these people are and why they buy from this company. Speak to the customers or see what their reviews are. What they think about the owner and how will they feel if someone else takes over.
- Profits and Losses
Understand the profit and losses that the company has undergone. Take company’s audited balance sheets, income statement and cash flow statements for the past five years. Ask your accountant to review them. You also need to take a list of assets and liabilities, tax returns, a copy of the lease or any other contracts that you will be responsible for in future. In short, you will need all the records and should spend enough time to analyse them before you make the final decision.
- Why is he Selling?
Before buying a particular business, you also need to know the genuine reason why the owner is selling his business. Make sure that there is some valid reason for selling it. It can be anything like health issues; retirement, or because he wants to concentrate on any other opportunity that he is not able to manage due to this current business. There is a possibility that something can be hidden and you should know that. Hence, proper research is imperative before you sign the agreement.
Finally make sure that the owner is a genuine person and is ready to disclose all the legal, financial, personnel, customer and all the information related to the business.