Thursday 12th of October 2017
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Although purchasing an existing business may be considered easier to set up than a new one, there are a number of challenges along the way. Now in order to make this transition to owning any business on offer as smooth as possible, there are a number of things you should consider before buying a business.
Okay below are some of the things that any serious prospective business buyer should think through before deciding to make a purchase of a business enterprise. They are ten in number and include:
1 Making the Right Choice
Even though buying an existing business has the advantage of an established infrastructure as well as ongoing cash-flow, there is still the need to ensure that the business in question fits in with you the buyer. To begin with, you should consider taking a good look at the industry that you understand and are familiar with.
Next you should think very well about the kinds of businesses you like and that best align with your skills as well as experience. Taking these two steps should point you in the direction of the business that best suits you.
2 Conducting Due Diligence is a Must
One important step that you must take after determining your interest in a particular business is conducting due diligence. But what does this mean? Well, it is basically finding out more about the business you are about to buy.
Now it is when you are armed with such information that an informed decision on whether to go ahead with this purchase or not can be made. To carry this out will involve speaking with customers to know their perspective on the business’ products or services, speaking with suppliers to know whether the business pays on time among others.
3 Buy the Assets, Rather than the Business
Sometimes buying the assets of a business is the sure thing to do rather than buying the business itself. This is in situations where it will be unwise to do otherwise because you will be taking on the high risk liabilities of this business you are about to purchase.
Consequently, what you should do in situations where there are high risk liabilities is to establish a separate business entity and purchase only the assets of such business that is about to be sold. Doing this, will prevent you from assuming liabilities that should not be yours to bear.
4 Determine How Pre-paid Expenses will be dealt with?
There are prepaid expenses that the seller of the business would have made because of service(s) to be rendered in the future. Advertisement on Yellow Pages, which is usually paid upfront for an entire year falls under this category and since such expenses are often not included in the sale price, you should ask about them.
This way you will be saved the possibility of being asked to make payment for this type of expenses when not prepared to do so.
5 Get Familiar with the Employees
One of the important things you should do after deciding to purchase a business is to know the company’s key employees and whether these people are ready to work with you.
This is necessary because such people are often the ones that can tell you how to operate tricky machinery and the persons that the customers are usually familiar with. Consequently, this makes them a critical element in the smooth transition of the business from one business owner to the other; you.
6 Evaluate Business Location
Studying the business location including its surrounding market area is important. You should do this especially when the business under consideration is a retail one since most of such businesses often rely on getting patronage from their location and immediate surroundings.
Regarding this, a thorough research of the demographics, economic outlook of this location as well as its immediate surroundings or nearest trading area should be carried out.
7 Take Stock
Take stock of every product or material that has been inventoried to be resold or used in servicing clients. In doing this, find out what is the number for present stock, what was the number at the close of the previous fiscal year plus the one before that.
Also, there should be an appraisal of the inventory. This is important as what is at stake is a physical asset and this needs to be assigned a dollar value. Besides this, equally confirm if the inventory in question is in good condition or sellable. In line with this, find out how old these physical assets are, of what quality, condition they are in including their age.
8 Obtain a Full List of its Liabilities
Getting professional help to assist you in determining the full list of the business’ liabilities shouldn’t be taken for granted. Get an account including an independent attorney to confirm the true scope of the company’s liabilities. Find out whether the owner of the business has used assets like accounts receivable or capital equipment to secure any type of loan.
9 Get Indemnity from Seller
Even after a good job has been done in looking at the books plus records of the business being sold, there is still a possibility of human error. This might actually lead to the buyer being sued for something the seller is actually responsible for.
So in order to prevent this, it is better for the buyer to ask for an indemnity. This will be provided by the seller. Likewise, the buyer should be ready to provide the seller with an indemnity where this person is sued for something the buyer has failed to do or not done.
10 Let the Seller Hang Around for Sometime
Lastly, in several retail as well as service businesses, clients do have a close relationship with the business owner. Therefore, it is necessary especially in these types of businesses that the buyer request the presence of the seller for some time (probably a few weeks) after the business has been handed over, to make necessary introductions to customers.
This will help to ensure that the business continues to receive patronage from its regular customers after ownership has changed hands. In some cases, buyers may have to pay sellers for hanging around.
This is not necessarily an exhaustive list of things to consider, but will definitely guide prospective buyers of businesses in the right direction.