Thinking About Buying a Business. Consider These Tips
You can feel the excitement and wonder if this is the right time to move forward in a decision to become an owner. You’ve always wanted to own a business, you have a little extra money saved up that could help with the initial financing, and the business looks like a good fit with your experience and passion. But have you have you covered all your bases? Do you know what you should be looking for to ensure protection for yourself through this major transaction?
1. Take Your Time. There should not be any reason to rush into such a major, life-changing decision. Partner with the right business broker whose job is to show you various businesses that fit with your standards and financial range. It is also wise to partner with your business lawyer, who will protect you from legally entering into any agreement that is not in your best interests. Especially in this market in 2013, there are many more sellers than buyers.
2. Buy What You Are Familiar With. Is this a business that you have a vested interest in? For example, if you worked in a bike shop for many years and were very familiar with the ins and outs of running such a business, then looking into purchasing a bike shop would make complete sense. It is usually best to buy into something that you already know. If this business encompasses an interest that has always intrigued you, but you never quite had the time to explore, then you will want to do your homework. Research your product market, interview business owners of similar businesses, and find out what business group memberships you might benefit from being part of.
3. Think Outside the Box. Yes, this is a cliché statement in today’s marketing-driven society, but it is absolutely true. Don’t merely approach the market you want to appeal to based on your own assumptions of what you think they should like or want. Do your research - find out what customers are saying they want, need, and will buy more of.
4. Ask For The Numbers. It is important for you to ask for the financial statements of the business from at least the last 3 years. You need to understand the financial situation this company has faced, and what the current status is. Be prepared to discount the “extras” that the current owner claims are not on the balance sheet.
5. Hire A Professional Or Two. You will want to take these financial reports and have them interpreted and explained to you. You may have a personal accountant who may be able to assist in this matter. You may also want to enlist your business lawyer to check out the business’ legal history. Were there any lawsuits against this business? Were there any illegal transactions taking place in the past? If this is the case, you will want to be sure that these legal issues will have no impact on you as the new owner.
6. Negotiate. Many buyers simply skip the step of negotiating the price of a business to be purchased. Why is that? There is nothing to lose by making an offer that is lower than asking price, unless it is a hotly contested sale. There is no way to know what the response from the owner will be. If your offer is rejected, then you can go a little higher. There is no risk involved in starting low from the beginning.
7. Make A Business Plan. Once you have decided to move forward in purchasing a particular business, the very first step you need to do is to create a business plan. But don’t just create this plan and put it away. If you’re in partnership with someone else, make sure that the other people involved share your vision and goals. A partnership should be something that you create together with a like mind. This will be especially important in making future business project decisions and the company grows. If you are the sole proprietor of this new business, then create a business plan with your accountant or a trusted business professional who will hold you accountable to what your goals and plans are.
This is by no means an exhaustive list of all the issues facing you when planning to purchase an existing business. We will be happy to discuss the full range of issues that you should consider. .
We know that buying a business can be both exciting and frightening, as there are so many options to consider. Let us advise you in this venture, so that you are protected in this process.
It would be devastating to invest in a business opportunity, only to find out later that certain problems could have been avoided, had you hired a business lawyer to ensure your assets and interests were adequately protected.
Thinking of Buying a Business?
Be Sure To Read These Tips.