If you buy a small business that already exists, there are many advantages for entrepreneurs who want to avoid the time, effort and expense of starting a new business (either a franchise or an independent unit).
One of the most important factors to consider before you buy a small business is your familiarity with the business you plan to purchase.
The more familiar you are with the type of business you’re interested in buying, the better your chances for success.
Factors to Consider Before You Buy a Small Business
Once you have found the type of business you feel comfortable running, a number of other considerations should be taken into account. These include:
- ~Has the business you intend to buy been profitable, or are you buying a business in trouble (distress sale)? Find out as many details about the business as you can – as well as the current owner. Why are they looking to exit the business?
- ~Review the business’ financial records (past 3 years preferably), contracts and leases (if a brick/mortar unit). Tax returns for the last five years should also be reviewed to determine what kind of tax liabilities could be incurred. What is their cash-flow like? Is it a seasonal business? How much of the business is labor cost? What type of Labor are you dealing with? Is there any re-curring business?
- ~In addition, a thorough review of the business’ bank accounts, sales records, customer lists, payroll benefits and employee pension plans, as well as an employee roster should be taken into account before committing to purchasing the business.
Before You Buy a Small Business, get Professional Assistance
Purchasing an existing business may save a lot of time versus starting a business on your own. Nevertheless, unless you are a business lawyer or an accountant, reviewing all of the documents of an existing business before making an offer could be overwhelming.
Enlisting the services of a competent attorney and CPA/Business Appraisal company could save you considerable time and expense. Depending on the size and nature of the business you plan to buy, other professionals may also be needed to consult.
After doing all the preliminary work, you can then make an offer through a letter of intent, followed by a formal offer of cash or other assets. You should have all your bases covered before you make a formal offer.
To buy a small business takes considerable effort before the sale and after you launch as the new owner. In many ways, treat it like a new business with planning, marketing and customer service taking priority.Schedule a free coaching consultation with Wayne