If you're wanting to become a business owner, then an investment that is worth considering is purchasing an established business. There are several factors to consider when deciding to buy an existing business.
Not making assessments of the business prior to the purchase of an existing business is starting off on the wrong foot. A hasty decision won’t lead to success. It is wise to plan when purchasing an existing business. The following considerations can help a person to reach a conclusion about whether buying an existing business is the best option or not.
The Seller’s Motive
The buyer should ask the seller of the existing business about actual reasons that compelled him to sell the business. Make sure that the reasons are genuine and they have nothing to do with the integrity and productiveness of the business. For example, are they selling because it's not as profitable as they had anticipated, or are they just looking to retire from business ownership?
The Sales Blueprint
Make an assessment on the periodic sales of the business so far and contemplate the rise and fall over time. The patterns pertaining to the rise and fall of sales can signify the efficiency of the business. It also helps to predict the output of business in the future.
One of the attributes of a successful business lies in its profitability. A constantly increasing profit suggests that a business is showcasing a product or service that is out of the ordinary. Therefore, an exploration of the past profit records of a business can be helpful.
The legal contracts signed between the customers and suppliers, along with all other legal documents must be analyzed carefully. The legal documents such as employment agreements and insurance policies must be thoroughly screened to avoid inconvenience in the future.
Make sure to find out if the business has any debts to pay. Any outstanding debts or nonpayment might be indicative of an unstable business structure. Also, check for any refunds and warranties that are still available.
An evaluation of the business structure can give an idea on how well the things have been working within that business setup lately. This is an important factor to know because an unstable business setup can cause difficulties in handling the business later.
Find out if the business has been solely owned by one person or if it’s running as a result of a partnership. In the case of a partnership, make it clear whether the partners are exiting the deal or continuing. All these details should be discussed thoroughly and signed transparently in a case of business purchase.
The buyer should find out what interests them the most when it comes to a business and then make their decision according to that. The purchase of even a well-established business can prove to be a bad decision if the buyer doesn’t have the required skills to handle it effectively.
Know who the employees are, find out about their working relationships, and go through the contracts they have signed with the business to be acquired. This may help you decide either to keep the existing employees or hire new personnel.
There will obviously be a few tax implications on the business you want to buy. The buyer must make themselves well-versed with the taxes that are applied to that business.
Discuss with the seller about the inventory and related details. Make it clear in advance who will be keeping inventory and the practices being followed by the business currently to manage and organize inventory.
Ask for the complete list of assets possessed by the business. This should be researched carefully since you might have to invest significantly into the reinvigoration of the business that is to be purchased.
The Customer’s Stance
Assess the customer’s feedback on the products or services provided by the business. The number of unhappy customers can tell you that the business is not working efficiently and where it can improve.
Let First Alliance Credit Union Help You Achieve Your Small Business Goals
Knowledge of all the aspects of an established business can help a person decide whether the decision to buy that business is going to be worthwhile or not. A little bit of research can save someone the trouble of getting involved in a non-advantageous business and help them make the best decisions to bring them success.
Want more information? Listen to episode 43 of our Good Money Moves podcast that covers what credit unions can do for small businesses.