Tips on Buying a Business
From Adviceopedia
When you're thinking about buying a business, it's important to seek out all the tips on buying a business you can find. Buying a business is a big decision, so it's important to conduct thorough research and ask the right questions at every stage of the process.
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What are Some Questions that Should be Answered?
- What am I getting for the purchase price? Before you even consider a yes or no, talk with the seller and find out what exactly you are getting. How much of the property belongs to the business? Will the product inventory stay with the business? Besides asking about tangible items, it's also important to find about any debts the business has incurred. You need to know if the debts will be satisfied with the purchase price? The only way you can be sure if the purchase price is fair is to find out exactly what is included with it.
- Why is the business being sold? Getting down to the real reason a business is on the market may help you make up your mind about purchasing it. A newer business might be having financial difficulties while the owner of an older, more established business could just be retiring. You definitely need to find out why the business is for sale before you decide to invest in it.
- What is the financial history of the business? Sit down with the seller’s or the accountant and have him or her walk you through the company's financial history year by year. Investigate what kind of sales have occurred and how much customer growth has happened. It's in your best interest to insist on seeing audited financial statements and to seek advice from your own accountant before making a final decision. A financial professional can be the best possible resource for tips on buying a business.
- How much is the business actually worth? This question goes along with the first question. Don’t be afraid to hire a business appraiser or have someone experience in business management or purchasing businesses help you determine the worth. Many CPAs have a special business valuation certification that uniquely qualifies them to assess the worth of a business. The money you spend on a professional appraisal is certainly a wise investment.
Is it Rude to Test-Drive the Business?
Ask the seller to let you to sit in on the business for a few days. This tip on buying a business is one that is often overlooked. If the seller doesn’t have anything to hide or is serious about selling the business, he or she will have no qualms about letting you shadow him or any of the employees.
Be sure to talk to the employees or even the customers to find out their thoughts about the company. They will be likely to give you straight-forward answers, and may bring up positive and negative points that the seller won't tell you.
Should I Purchase a Turnkey Operation or a Franchise?
Turnkey Operation
If you're in the market to purchase an existing small or large business, purchasing a turnkey operation can be perfect for you. A turnkey business is a business that is already fully functional, so you won't have to go through the startup phase of getting a new business up and running.
When you purchase a turnkey business, the company has existing customers who are likely to continue doing business with you, assuming your services is as good or better than the previous owner's.
A computer consulting firm with a solid customer base, for example, could be a great investment because existing customers are going to continue to need assistance with their computers. Assuming that the purchase involves a legal non-compete agreement and non-solicitation clause for the former owner, as the new proprietor you will enjoy a built in client base.
Franchise
There are many franchises available for all different types of business operations. Franchises range in purchase price from very inexpensive operations to choices that require hundreds of thousands of dollars in startup capital. TWhen you purchase a franchise, you will benefit from the fact that the brand name is likely already well known.
Another benefit of purchasing a franchise is that you will have access to corporate resources for setting up and running the business. Of course, you will have to follow corporate policy, so you may not always be free to run the business as you choose. You will also be required to pay ongoing franchise fees. If you're thinking about buying a franchise, reach out to franchise owners in other markets for tips on buying a business. If they won't be competing with you, they'll be more than happy to talk with you about their experiences.
What Should You Do During the Transition?
- Ask the seller to help during the transition. Depending on the type and size of business, you may only need a few weeks. A larger business might require a little more time, but any reputable seller should help you out. He or she can help make the transition easy on you, any employees, and any customers.
- Meet established customers with the previous owner. This tip is for sales businesses or businesses that rely on a faithful base of customers. As long as you keep the same quality of service the previous owner has done, you will have no problem keeping those same customers.
How Should I Approach Making Changes in My New Business?
Buying a business is hard. No matter how hard it is not to do so, you will probably want to change a lot of things when you take over. Take it slow and establish yourself as the owner first before implementing any major changes. One of the main benefits of buying a new business is the fact that the infrastructure is already in place. Keep in mind that you chose to purchase an existing company rather than starting from scratch, and focus on keeping the customers you have and on attracting new ones.
