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5 Tips on Buying a Business: What to know or consider before buying a business

Business buying entails the consideration of quite a few logical aspects that come with the territory. Here, we make the job simpler for you.

Buying an existing business is undoubtedly a huge decision. You can only anticipate the future benefits of the decision. But, in reality, there is no guarantee that your expectations will be fulfilled to the T. Hence, the least you can do is ensure that you have considered and evaluated every possible element related to the business you intend to purchase. Here is a list of factors – legal and otherwise to make your job easier.

Put together an Expert Team of Advisors

A business buyer may not essentially be an expert in verifying the legalities of the business elements and its buying process. Hence, it is vital for the buyer to put together an expert team of advisors that includes – an attorney, a finance expert, and a reliable banker. This will enable you to circumvent loopholes that may not be evident otherwise.

Why is the current owner selling the business?

The most logical question involved in business buying is asking the seller, the reason for selling the business. Any reason that does not resonate with the buyer’s business sense may ring a bell to alert about any underlying reasons. It is important to understand the motives that justify the decision to sell.

Are there any outstanding liabilities?

Outstanding liabilities are a clear indicator of how the business is doing. Upon finding out, it is up to the buyer to decide whether or not to continue the business buying process. If the buyer feels he/she can balance out the liabilities or if the seller is ready to lower their asking price, the purchase can be processed.

What are the existing business assets and framework?

Every business investment must be a vetted decision based on the evaluation of the existing business assets. A clear knowledge of the assets will help the buyer identify the possible areas of investment to enhance the existing business situation. Also, comprehensive knowledge about the functional business framework is crucial to understand the working dynamics and their effects on the growth or decline of the business. This can help buyers figure out a better infrastructure to boost productivity.

What do the stakeholders have to say?

The best and most transparent feedbacks mostly come from the stakeholders of the business in transition. Suppliers, customers, business partners, shareholders, and employees may have a lot to contribute to your business assessment reports. Ensure you do not miss this opportunity.

Evaluation of the sales records of the past 5 years and the competitor details

Efficient analysis and comparison of the business’ sales records over the last 5 years is a must to get the bigger picture. It helps in understanding the sales trends and profit margins that the buyer can look forward to if the deal comes through. Also, it gives a better outlook in terms of market ranking in comparison to competitors, thus, bringing to light the competitor details.

Availability and Transparency of the legal records and documents for the past 5 years

The seller must be prepared to hand over all the legal records thoroughly documented over the past 5 years plus additional documents to enable a secure business transaction. These documents are the key to a complete understanding of the existing compliances and legal standing of the business alliances and miscellaneous legalities. We will spell them out for your convenience as follows:

• Tax returns for the last 5 years

• Financial statements for the last 5 years

• Past Agreements with stakeholders, etc.

• Operational Agreements with stakeholders, etc.

• The sales/buyout agreement

Article of incorporation

Final proposal

Always, always remember to set apart a fraction of the finalized price in business buying deals. There are major possibilities of you coming across expenses shrewdly hidden by the seller or other costs incurred due to the decisions of the previous owner. Under such circumstances, you can rest assured that you don’t have to regret your decision. You can always propose to pay on a fixed later date which allows you to rightly deduct the expenses you incurred on account of the seller.

Does it fit the bill for you?

The business buying process is primarily dictated by the buyer’s sense of inclination towards a particular business on sale. That includes – products/services provided by the business, sellers’ approach towards the transaction, existing business infrastructure, and dynamics, future prospects of profitability, etc. In fact, business buying is a business investment in starting a business but without the usual investments required to erect a company right from scratch and hence, in a way can be called a business without investment.

These are the basic elements to be factored in when buying an existing business. Now that you have a fair idea about the business buying pre-requisites, both formal and informal, you can get on with your decisions. And if you need further assistance or have any query in this regard, please connect with us at www.simplifiedmarketplace.com

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