Thinking about buying an existing business? True, buying a business may mean a lot of the ground work for startups is done already, but investing in a small business certainly does not guarantee instant success. Buying a business comes with many factors to weigh—factors that may hold your success in the balance. SBA.gov offers tips worth your time and consideration.
I’ve narrowed down the basic steps to help you determine whether or not buying a small business is the right step for you:
1. Analyze yourself first
What are your interests? Your talents/skills? How much time do you have to commit? Ask yourself these questions, and see if you can come up with the kinds of businesses that best fit your expertise (or at least eliminate those you cannot work with or don’t like). It may be unwise to embark on business ventures that ill-suit you. As you ponder these questions, write down a list of conditions or requirements you would like/need in your new business.
2. Is it really worth it? Do your homework
There are many pros and cons to buying an existing business in general. The business will likely already have a client base and employees, which drastically reduces your startup costs. It may also have a brand, mission, business concept and strategies all figured out already—but these factors could be a positive or a negative for you, as an established business with all the “ground-work” done will cost you more at purchase. There could also be less visible problems to be aware of (like debts the business is owed that you may not be able to collect.) You’ll also need to determine the value of the business carefully (more on this in the next step).
3. Research—and recruit expert eyes to help analyze and spot trouble
So you feel the pros outweigh the cons and you found a business you’re interested in buying. Do not enter into any agreement until you have done your due diligence! You’re not finished researching. Be sure to leave no stone unturned as you research the business licenses and permits needed, find out zoning requirements, and look for other environmental concerns.
To gain access to the business’s information you must review, you’ll need to first submit a letter of intent, which spells out the proposed price, the terms of the purchase and the conditions for the sale of the business. A confidentiality agreement is also necessary to assure that you will not use the information about the seller’s business for any purpose other than making the decision to buy it. Contracts/leases, tax returns, financial statements, and other important documents all need to be reviewed and thoughtfully considered. Don’t do it alone either; hire an accountant you can trust to go over the business’s financial condition/value, and hire an attorney to go over the legal documents with you.
Need help with this process? Let us know how we can help you with a referral to someone we trust. (310)534-5577 or [email protected]
