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 Other risks may include obsolete inventory, uncooperative employees or outdated technology.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

52 Work From Home Jobs for you

  52 Work From Home Jobs Paying as Much or a Lot More Than the Average UK Salary. The money can be pretty good but you're on your own. For some people that's the best part. 1. Affiliate Marketer  When the visitor clicks the affiliate link and buys the book, Amazon will pay you a percentage of the sale. People love affiliate marketing because they can start earning money passively with few startup costs. 2. Animator Are you an artistic and creative individual who is able to create animation and visual effects for television, movies, video games and other types of media? 3. Baker/Caterer/Chef If you have a knack for baking or cooking, then turn your passion into a side business. From your own kitchen, you could start a catering business or become a personal chef. If you're a baker, you could sell you goods to friends, neighbors, online or at local farmer's markets. 4. Blogger Blogging is inexpensive and easy to start doing. It could be as simple as you just writing about ...
Post a Comment
Read more

Did you know What are the 10 skills you need to do online marketing.

  To promote your business effectively, you need the right marketing skills you can’t afford to ignore if you want your online business to succeed. Search engine optimization (SEO Conversion rate optimization (CRO) Video Marketing Social media marketing Paid marketing Copywriting Data analysis Content marketing Email marketing Research From a 30,000-foot view, marketing is the process of promoting your products and services. The internet is where a lot of that happens, but the internet has become so noisy that you need outstanding digital marketing skills to succeed.  That’s the kind of noise you need to cut through if you want to be found online. Even with the best product in your industry, your customers will never discover it without the right marketing strategies in place. In this guide, we’re going to share several marketing skills and knowledge you need to grow your online business. 1. Search Engine Optimization SEO is the process of ranking website pages organically on ...
Post a Comment
Read more

Top Tips for Working Remotely

  Working remotely can be a major pain for your productivity, especially if you have to work from home suddenly. Here, we discuss some tips for how to make a remote work setup work in your favor. 5 best tips for working from home effectively: Adopt the right mindset Take care of your health Know your most productive hours Be comfortable using online tools The coronavirus pandemic has forced millions of people to work from home and many small businesses to create remote work policies to clarify who does what, where, and when. Working away from the office is a welcome change for many employees, all things considered. But for others, particularly those who haven’t done it before, not so much. Although the remote work setup offers numerous benefits, such as no commute, more time with the family, a flexible schedule, and the ability to work from anywhere, there are downsides, too -- as you’ll see in a graph later. So if you’re new to working remotely, here are several tips you...
Post a Comment
Read more