Skip to main content

Do Your Homework



Do Your Homework Before You Buy a Business

Acquiring an existing business may be less of a risk, but there are pitfalls

Not everyone wants to start a business from scratch.
There is a certain attraction to coming into a business that has a history and has grown over the years. It has a location, a name, the necessary permits, customers and cash flow.
Compared to a start-up there is a lower level of risk and a greater chance of getting financing.
Get professional advice
However, one must do due diligence. You must make sure that there is a history of profitability.
  •       Hire an accountant who specializes in business valuation to analyze the financials to make sure that they are what they say they are.
  •       Hire an attorney who can make sure that there are no legal actions against the business, make sure the sales tax is current. Other risks may include obsolete inventory, uncooperative employees or outdated technology.
  •       Hire a professional to help you determine if the business is priced properly. Are you purchasing the assets? Are you purchasing good will?
10 questions to ask before you buy
Here are ten questions you should consider asking when purchasing a business or a franchise.
  1. Do you have professionals lined up to advise you? Make sure that they specialize in business acquisitions. You will need to find a banker, accountant and attorney. If you do not know people in these professions, get a referral from someone who is currently in business or contact the Bar Association or the Association of CPA's for a referral
  2. Why is the business for sale?
  3. Are you purchasing the assets? Are there receivables?
  4. How much inventory are you purchasing and what is it valued at? Also consider obsolete inventory or inventory that has been purchased more than one year ago that has not been sold.
  5. Is the owner willing to stay on to help with the transition? You may consider working in the business before you buy it to see if in fact you like this business.
  6. Is the business in a leased space? How long is the lease? Can the lease document be transferred with the same terms? Is there any leased equipment? Can the lease contracts be transferred? Are there any warranties that can be transferred?
  7. How much cash does the owner need upfront and will the owner be willing to take back any financing?
  8. What is the best way to finance this purchase? (A banker can advise on all the different bank loans available and an accountant can structure the purchase with the best tax ramifications).
  9. Have you analyzed the paperwork? Before you purchase any business always get the tax returns, balance sheets, income statements and cash flow statements. At this point, you need to have made an offer contingent on the financials with a refundable deposit to show good faith. Now, have your accountant analyze these documents and advise you.
  10. Has the company or its principals been involved in any lawsuits or bankruptcies?

Comments

Post a Comment

Popular posts from this blog

Does Money Make you mean.

  Does Money Make Us Happier? Wellbeing is influenced by many things aside from income. Key points Some studies claim that money is associated with greater happiness. This blog re-analyzes one study with a "plain stats" approach. This analysis suggests money has only a small relationship with happiness. Money is important and necessary to some extent, but other things matter too.  It is often easy to equate money with   happiness   and success. But does  money buy us happiness? One study suggests it might. The author, Matt Killingsworth, claimed the study  Some might take this study as evidence that money does make us happier. But while this study has value, it might be difficult for the average person to interpret: the article is replete with concepts like logarithms, slopes and  z -scores—concepts which many are unfamiliar with. To help us get a better sense of what Killingsworth’s data really says, I want to To understand the data, we first hav...
Post a Comment
Read more

How Can You Transit Your New Career with Online Courses

  How Can You Transit Your New Career with  Online Courses In today’s fast-paced world, many professionals find themselves considering a career change. Whether it’s due to a desire for better job satisfaction, higher income, or the pursuit of a long-held passion, transitioning careers can be daunting. Fortunately, top online courses provide an accessible and effective way to acquire new skills and knowledge necessary for this shift. This article will explore how online courses can support your transition to a new career. What are the important skills you need for this transition? When changing careers, one of the most significant barriers is often the lack of relevant skills or credentials required in your new field. Online courses offer an excellent opportunity to bridge this gap. They allow you to learn at your own pace and focus on specific skills in demand in your desired industry. By investing time in these educational resources, you enhance your employability and increas...
Post a Comment
Read more

How to Build a Strong Online Presence for your online business.

  How to Build a Strong Online Presence That Attracts more customers for Your business. In today’s digital age, having a robust online presence is essential for attracting clients and growing your business. Whether you’re a freelancer, a small business owner, or a professional looking to enhance your career prospects, establishing yourself online can set you apart from the competition. This article will guide you through the steps necessary to build a strong online presence that showcases your skills and draws potential clients to you. Step 1. Define Your Brand Before you dive into creating an online presence, take some time to define your brand. What are your core values? What makes you unique? Consider how you want others to perceive you. A clear brand identity will help guide your decisions regarding content creation and social media engagement. Step 2. Create a Professional Website A professional website is often the cornerstone of an effective online presence. It should includ...
Post a Comment
Read more