What You Need to Know Before Purchasing a Business
Are you aspiring to become an entrepreneur? If you want to become a business owner, there are different options you can use to get there.
You can either start your own enterprise or acquire a business for sale. Starting your own business is risky and with the huge uncertainties in the market, the chances of failure are quite high. In fact, almost many startup enterprises don’t make it to their fifth or even second anniversary. Save yourself from this hassle and buy an established business.
So, how do you buy a business? Here are some factors to consider before buying an enterprise.
Your Own Personal Investment
Before you purchase a business, you’ll need to analyze whether you have the skills and expertise in the area. Will you operate the enterprise on your own or you will employ workers? What is the maximum amount of time and energy you’ll be investing in the business?
You need to be realistic on all these. Once you determine the responsibilities and the risks you bear, you can determine whether the profits from the business will be a sound compensation or not.
Many people make the mistake of purchasing the wrong business. Don’t make this mistake. Buy an enterprise that fits your personality, skill, and expertise.
But how do you know whether a business is good for you or not? You’ll know if you realize you have interests in the area and are confident that you have what it takes to make it successful.
The Reason behind the Sale
Knowing why the owner wants to dispose of their business will help you decide whether you’ll buy it or not. The buyer maybe wants to retire, is tired or is experiencing financial problems. One of the biggest opportunities you can get is buying a performing business from an entrepreneur who wants to retire.
However, you should exercise caution before sealing the purchase agreement. Don’t buy a business that’s retiring. This is especially true if you are buying a business in a local market. For example, if you are looking for a business for sale in Houston, make sure that you know the challenges of the local market for the industry you are going into. Otherwise you’ll just be inheriting problems and it will eventually collapse.
The rates you pay for the businesses on sale should be fair. Never forget the rates that the seller quotes are merely a starting point for the negotiation process.
A number of brokers agree that most businesses sell for far less than the initial asking price. If you pay the initial asking price, chances are you are overpaying for the business.
How then do you get the correct price for the business in question? Well, the best wait to get the right price is by undertaking a valuation exercise. You may engage your accountant or hire an independent expert to do the valuation on behalf of the two parties.
The key here is to determine the amount of money you want to pay for this transaction. Keep your emotions out of this transaction to be safe.
Research the Business History
Before you agree to purchase the enterprise, take a comprehensive look at its history. Use the certified financial statements and records in your data mining exercise.
Researching the history of a given business will give a snapshot of all the contracts and leases. It will also unearth whether there is any pending case in court or debts such as unpaid income taxes or unpaid invoices from contractors.
This research will provide an idea of how the business operates. It will also unearth the problems that the company faces and whether they are likely to recur or not.
Always have a full understanding of the company before making your decision.
Exercise Due Diligence
In any sales transaction, there are some details that the seller may not share with you. It’s your responsibility as the buyer to uncover them. You may need to scrutinize the financial records, market conditions and other factors that may affect the success of this enterprise.
Exercising due diligence makes sure you’re familiar with all the aspects of the business and its obligation before purchasing. If you’re not certain about some aspects of the transaction, you didn’t do your due diligence properly.
Buying a business is like any other important transaction you will make. Be sure to do it for the right reasons. Conduct proper due diligence, be patient and negotiate the best price.
Once you make the purchase, be ready to operate the enterprise you buy.