Now might be the perfect time to purchase a business. If you have always wanted to own your own company and be your own boss, you might be ready to take the first steps. Buying an existing business is one of the best ways to get started. While there are many things that are already done and systems that are in place, you need to make sure you review every aspect of the company before you make an offer. You need to do your due diligence to ensure a successful result. Here is a checklist for buying an existing business to help you through the process.
- Choose the Type of Business You Want: It is essential to purchase a business in an industry that you have experience in or in which you have an interest and passion. Do not consider buying a business just because it is available or seems to be priced reasonably or is located nearby. Instead, make a list of the types of businesses that you would consider and do not settle until you find one that meets your needs.
- Learn about Business Ownership Structure: If you prefer to work alone and want to be the only person making decisions, you may be best suited to a sole proprietorship. Larger businesses may benefit from a partnership or a corporation. The ownership structure you choose will have a profound impact on all of your business dealings and tax considerations in the future.
- Seek a Business Loan: It is best to discuss your financial needs with your banker or financial specialist before you begin searching for a business to purchase. You need to know what your loan choices are and how much you can reasonably spend on a business before you get started. Keep in mind that you need to set aside money for unforeseen expenses that occur at the onset of business ownership.
- Review the Business: Just because a business seems to be doing well, that may not be the case. You need to take a deep dive into the company’s finances. You may need some assistance from an attorney or accountant. Make sure you evaluate the entirety of the business to determine the exact financial situation and the profit and loss statement. Ensure that the company records and taxes are in order. The goal is to get a very good idea of how well the business is doing and its projected success or chance of failure in the near future.
- Talk to the Owner: It is important to have an in-depth interview with the current business owner. The owner is always going to try to paint a sunny picture, so pay particular attention to some of the business strategies the owner utilizes. For example, does the owner put in excessive amounts of overtime? Does the business have few employees or a high turnover rate? Is the business inventory satisfactory? Does the owner have a good relationship with vendors, employees, and clients?
- Find Out Why the Business is for Sale: Sometimes an owner wants to retire or passes away, but other times, the reason for the sale is not obvious. Find out why the business is for sale. For instance, does the owner have too much money invested or has lost too much money in the past? Is the business location making sales difficult? Does the owner spend too much time working? Look for any red flags that could signal problems. You do not want to purchase someone else’s problem.
- Evaluate the Future of the Business: Nobody can predict the future, but you can find out as much as possible to learn how the business should function over time. Do not ignore obvious signs that the business cannot sustain over the long term. Review the financial records of the business for the past 5 to 10 years to see trends. Learn about the industry trends and how they could impact the business in the next decade. You do not want to take on a business, for example, that will need to upgrade all of its machinery or technology to stay competitive in the marketplace.
- Determine the Ability to Sell the Business: We all want to think that things will work out. Sometimes, however, we find that we are not happy with the choices we made. If you end up wanting to sell the business, how hard will it be? What is the average length of time similar businesses are on the market? Will you be able to make a profit, break even, or end up losing money? Talk to a realtor or business analyst to learn more about the market and to find out trends both locally and nationally.
- Get Legal Guidance: There are many legal matters that you should understand and iron out before you sign paperwork to purchase a business. Your lawyer understands business contracts and will work on your behalf to ensure a fair contract is executed. There are many terms in the contract that may require some negotiation. Remember that you do not have to accept a contract as it is, and you can request changes if necessary.
Buying an existing business can seem complicated. There are many steps to successful business ownership, but with the right evaluation and professional assistance, you can expect to buy a business that will be profitable. To learn more about business contracts, contact our experienced lawyers at Moen Sheehan Meyer, Ltd. online or call (608) 784-8310.